The Federal Reserve Board of the United States has taken action against Silvergate Bank and its parent company, Silvergate Capital Corporation, by issuing a consent order as part of the bank’s plans to wind down operations and liquidate. This move comes after the collapse of the crypto exchange FTX in November 2022, which revealed significant deficiencies at Silvergate Bank.
Identifying deficiencies and voluntary liquidation announcement
According to the Federal Reserve’s notice on June 1, both Silvergate Capital Corporation and Silvergate Bank have been given a 10-day deadline to submit a self-liquidation plan that complies with California and federal requirements. The plan must ensure the orderly winding down of operations while safeguarding depositors’ funds. To oversee and approve the proposed plan, federal regulators will closely monitor the process in collaboration with California’s Department of Financial Protection and Innovation.
Silvergate Bank, the first major crypto-friendly bank to announce its liquidation plans, made this decision in response to recent industry and regulatory developments. Despite voluntarily disclosing its intention to wind down operations and ensure full repayment of all deposits, the Federal Reserve’s examination uncovered numerous deficiencies contributing to the funding and liquidity stress.
Implications and industry impact
The consent order issued by the Federal Reserve restricts Silvergate’s leadership from receiving “golden parachute payments” and making changes to their responsibilities during the liquidation process. This measure aims to maintain stability and protect the interests of depositors and the broader financial system.
Silvergate’s closure has had a ripple effect in the cryptocurrency industry, with other major digital asset firms severing their ties to the bank. Companies such as Coinbase, Paxos, Gemini, BitStamp, and Galaxy Digital have all announced their departure following allegations of Silvergate’s involvement in the collapse of FTX. This series of events has raised concerns and further underscored the need for stronger regulatory oversight and due diligence within the crypto sector.
Delisting and efforts to salvage Silvergate
In a joint effort with the State of California, the Federal Reserve’s consent order ensures that Silvergate Capital Corporation effectively implements its previously announced plan for winding down operations. The order also prohibits Silvergate from making capital distributions, dissipating cash assets, and engaging in certain activities without regulatory approval.
The delisting of Silvergate Capital Corporation from the New York Stock Exchange (NYSE) on May 11, 2023, marked another significant milestone in the bank’s disintegration. Once valued at nearly $240 per share in November 2021, Silvergate’s shares now trade for less than $1 on OTC Markets. With over 200 employees being laid off, the bank’s assets are set to be liquidated by November.
Efforts were made to salvage Silvergate before its closure, including significant investments from Brendan Blumer, co-founder of EOS and Block.One, Citadel, and Cathie Wood’s ARK Invest. Additionally, the bank sought financial assistance from the Federal Home Loan Banks (FHLB). However, these efforts ultimately proved unsuccessful, leading to the voluntary wind-up decision by Silvergate CEO Alan Lane.
The repercussions of Silvergate’s demise extended beyond its own operations. Other regional banks on the West Coast, such as Silicon Valley Bank and Signature Bank, experienced financial difficulties, and First Republic was closed and taken over by the Federal Deposit Insurance Corporation in early May.
The events surrounding Silvergate Bank’s self-liquidation highlight the challenges and uncertainties faced by crypto-friendly financial institutions in an evolving regulatory landscape. They also serve as a reminder of the importance of robust oversight and transparency within the cryptocurrency industry as regulators work to strike a balance between innovation and consumer protection.