Silvergate Bank, one of the leading banking partners for cryptocurrency firms, announced on Wednesday, March 8, that it plans to wind down its operations and voluntarily liquidate in accordance with applicable regulatory processes.
The bank's holding company, Silvergate Capital Corporation, said in a news release that its liquidation plan includes the full repayment of all deposits and that most deposit-related services will remain available during its wind-down.
“In light of recent industry and regulatory developments, Silvergate believes that an orderly wind down of Bank operations and a voluntary liquidation of the Bank is the best path forward,” the company said in a statement.
Silvergate has been struggling for months. It suffered a run on deposits after the collapse of FTX, a major crypto exchange, last fall. Consequently, it lost $1 billion in the fourth quarter alone when it was forced to sell debt securities earlier than planned to cover deposit withdrawals.
In January the bank reported that its customers had withdrawn more than $8 billion, forcing it to sell held-to-maturity bonds, consequently accruing losses on the sale of the securities of $718 million.
And on March 3, the bank announced that it will discontinue the Silvergate Exchange Network (SEN), which was a platform that allowed institutions to transfer funds between crypto exchanges and other participants.
The bank was also under investigation by the U.S. Department of Justice and other regulators for possible violations of anti-money laundering laws and other compliance issues related to its involvement with FTX and its affiliates. The probe was in its initial stages and hadn’t led to any criminal charges.
A Blow to the Crypto Industry
The bank's closure is a major setback for the crypto industry, which relied on Silvergate as one of the few regulated banks that offered services such as deposit accounts, wire transfers, lending, and custody for digital assets.
Founded in 1988, the bank became a pioneer in serving the crypto sector in 2013. It launched the Silvergate Exchange Network (SEN), a platform that enabled real-time transfers of U.S. dollars between crypto exchanges and institutional investors.
The bank had more than 1,100 crypto clients as of December 31, 2022, and reported $11.9 billion in total assets as of the end of 2022.
The bank's CEO Alan Lane said in a statement that he was proud of what Silvergate had accomplished over the years and thanked its employees, customers, and shareholders for their support. And a relief to the clients, “the bank’s wind-down and liquidation plan includes full repayment of all deposits.”
Senator Elizabeth Warren, a fierce critic of the crypto industry, noted, “…I warned of Silvergate's risky, if not illegal, activity – and identified severe due diligence failures…”
But as Caitlin Long, the founder and CEO of Custodia Bank pointed out, the collapse of Silvergate Bank is “…an indictment against fractional-reserve banking” rather than the failings of the crypto industry.
Written by
Samwel
Samwel is a seasoned financial analyst with over 5 years of experience covering the global stock market, Forex, and crypto market.
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