Crypto-friendly bank Silvergate announces ‘voluntary liquidation’

Crypto-friendly bank Silvergate is set to officially throw in the towel, announcing its intention to “voluntarily liquidate” its assets and wind down its operations on Wednesday.

The bank was under intense pressure a week ago, after announcing it would need to delay its annual 10-k report filing due to questions from its independent auditors and accounting firms regarding the bank’s financials.

In the announcement on Wednesday, Silvergate Corp. said it had asked Centerview Partners as financial advisers, Cravath law firm and Swaine and Moore LLP and Strategic Risk Associates for a so-called “transition management assistance”. During the winddown of operations, all deposits will be repaid in full, the bank said.

In the press release, Silvergate corp. said: “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 Bank’s wind down and liquidation plan includes full repayment of all deposits. The Company is also considering how best to resolve claims and preserve the residual value of its assets, including its proprietary technology and tax assets.”

Various outfits weigh in

The state regulator for the La Jolla, California-based company, the California Department of Financial Protection and Innovation, said that it was keeping an eye on the situation. The announcement also got the attention of the White House. A spokeswoman also said that the presidential administration was ‘monitoring’ the situation since earlier this week. The spokeswoman, Karine Jean-Pierre said President Joe Biden would continue to urge Congress to take action on crypto issues, insisting on guidelines about how “banks should protect themselves from risks associated with crypto”.

Some have posited that the US government is orchestrating a so-called ‘operation choke point’ in an attempt to cripple the sector, in a bid to take over swathes of the industry when the time is right.

The Senate Banking Committee Chairman Sherrod Brown weighed in on the announcement too, underscoring his concerns with the crypto-banking sector.

In a statement, he said: “As the impact of FTX’s collapse continues to ripple outward, today we are seeing what can happen when a bank is overreliant on a risky, volatile sector like cryptocurrencies. I’ve been concerned that when banks get involved with crypto, it spreads risk across the financial system and it will be taxpayers and consumers who pay the price. That’s why I am continuing to work with my colleagues in Congress and financial regulators to establish strong safeguards for our financial system from the risks of crypto.”

‘Going concern’

Silvergate Bank revealed in another announcement that it was facing inquiries from bank regulators as well as the US Department of Justice. The bank warned about its ability to be a “going concern” over a 12-month period to be in doubt.

Consequently, a slew of major cryptocurrency clients cut financial ties and announced they would suspend the banking relationship until further notice. The bank’s stock price fell 58% on the news during intraday trading activity, hitting an all time low of $5.72. Silergate’s stock price is down $115 year-on-year.

Another crypto outfit, which goes by the name of Signature Bank, was also under fire – seeing its stock tumble 5% during after-hours trading, and dipping another 10% before slightly recovering.

Silvergate borrowed about $4.3 billion from the Federal Home Loan Bank of San Francisco, a federal banking entity which offers mega banking loans. Some industry veterans have said that the fact that Silvergate’s situation warranted these loans should have sparked an investigation from the FDIC months ago. Of course, the crypto market situation was markedly different before the FTX collapse in that it wasn’t clear which players were swimming naked.

End of an era?

Since 2013, Silvergate has offered banking services to cryptocurrency businesses, and it has also introduced its own internal settlement technology, the Silvergate Exchange Network (SEN). SEN has been suspended, Silvergate reported late on Friday.

The bank revealed it had about 500 clients in the crypto sector when it filed to go public in November 2018. Silvergate’s initial public offering (IPO) was completed in 2019, trading on the New York Stock Exchange. The bank boasted a whopping 750 clients at the time.

While Silvergate didn’t make the list on the FDIC’s list of “failed banks”, given the so-called voluntary nature of its liquidation procedures instead of heading into an FDIC proceeding, it’s assumed that this is merely a technicality of the bank’s inevitable downfall. Silvergate appears to be the first major bank to collapse since October 2020, and the largest bank failure since 2009 – a victim of the world’s great financial crisis.