CoinWorld.com report:
Authors: Katherine Ross, Michael Mcsweeney, Blockworks; Translation: Tao Zhu
Silvergate Bank’s parent company, Silvergate Capital, has filed for bankruptcy to end its operations.
We first learned about the reasons that led to the bank’s closure in 2023, and the situation is quite dire.
An insider told us, in short: despite facing pressure, Silvergate did not fail.
A document by former CEO of the parent company, Elaine Hetrick, supports this conclusion. She wrote,
“The sudden shift in regulatory stance after FTX indicates that federal banking regulators will not tolerate banks with a large number of digital asset customers from the first quarter of 2023, ultimately preventing Silvergate Bank from continuing its digital asset-centric business model.”
Interestingly, Hetrick claims that Silvergate dealt with a bank run in 2023. She wrote:
“Despite having enough assets to repay the debts to depositors and no loans or other business relationships with FTX, apart from holding deposits and providing banking services, the awareness of risks and fear of contagion, possibly due to a series of cryptocurrency-related bankruptcy proceedings, led to a significant withdrawal of deposits from Silvergate Bank.”
She added,
“Silvergate took decisive action, first by containing the wave of bank runs during the industry crisis, and then by liquidating Silvergate Bank in a way that protected depositors from losses after the regulatory shift.”
After the bankruptcy, a major claim is that Silvergate and its executives misled investors, which is an accusation made by the U.S. Securities and Exchange Commission (SEC) in its legal action against the executives and the now bankrupt bank in July.
“The SCC, [former CEO] Alan Lane, and [former Chief Risk Officer Kathleen] Fraher made false statements in filings with the SEC and other public statements, misrepresenting that the bank had an effective BSA/AML compliance program specifically tailored for the high risks posed by its cryptocurrency customers, thereby distorting the operational and legal risks faced by the bank,” the SEC said.
It is worth remembering that the Federal Reserve attributed Silvergate’s crypto activities as a reason for its failure in a report in October of last year.
However, it appears that Silvergate complied with regulators’ requirements in all intents and purposes until these regulators began taking a less friendly stance towards banks with a high concentration of cryptocurrency.
Hetrick highlighted a joint statement made by the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency in January 2023, all expressing potential concerns regarding banks involved in cryptocurrency activities.
The statement warned against allowing any “volatility” to spill over into the traditional banking system.
According to Hetrick, after the statement was released, Silvergate attempted to restructure its operations by ending its cryptocurrency custody business and laying off 200 staff members.
But it wasn’t enough.
The same group of regulators continued to apply pressure in February, releasing another joint statement that echoed the one from January.
“After a rapid contraction in Silvergate Bank’s business, Silvergate Bank stabilized, was able to meet regulatory capital requirements, and had the ability to continue serving customers with deposits at Silvergate Bank,” Hetrick said, and continued to explain:
“However, the regulatory pressure on Silvergate Bank and other banks focusing on serving the cryptocurrency industry has continued to increase, forcing Silvergate Bank to reshape its business model, no longer focusing on cryptocurrency activities, seeking to sell itself as an ongoing concern under the shadow of regulatory pressure, or starting to gradually wind down its operations to preserve value for stakeholders as much as possible.”
While Silvergate cannot be saved at the moment, this 132-page document paints a concerning picture – regulatory bodies seem to bear more responsibility in Silvergate’s collapse than FTX or any other now-bankrupt cryptocurrency lending institutions.
