Crypto Bank Silvergate Announces 'Voluntary Liquidation'

The bank revealed last Wednesday it would have to delay filing its annual 10-K report due to questions from its auditors.

AccessTimeIconMar 9, 2023 at 4:21 a.m. UTC
Updated Mar 9, 2023 at 3:53 p.m. UTC
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Crypto-friendly Silvergate Bank will "voluntarily liquidate" its assets and wind down operations, its holding company, Silvergate Capital Corp. (SI), said Wednesday.

The bank was under fire after announcing a week ago it would have to delay filing its annual 10-K report due to questions from its independent auditors and accounting firm over its figures. In Wednesday's announcement, Silvergate Corp. announced it had tapped Centerview Partners as a financial adviser, the law firm Cravath, Swaine and Moore LLP and Strategic Risk Associates for "transition management assistance." Under the winding down all deposits will be repaid in full, the company 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," Silvergate Corp. said in a press release.

The California Department of Financial Protection and Innovation, the state regulator for the La Jolla, California-based firm, said it was monitoring the situation.

"The Department is evaluating compliance with all financial laws, as well as safety and soundness obligations, and is working closely with relevant Federal counterparts," DFPI Commissioner Clothilde Hewlett said.

A White House spokesperson referred CoinDesk to Press Secretary Karine Jean-Pierre's remarks that the presidential administration was monitoring the situation from earlier this week. At the time, Jean-Pierre said President Joe Biden would continue to urge Congress to take action on crypto issues.

In a statement, Senate Banking Committee Chairman Sherrod Brown (D-Ohio) 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.”

Spokespeople for the Federal Reserve Board, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency declined to comment.

'Going concern'

In last week's announcement, Silvergate Bank revealed it was facing inquiries from bank regulators and the Department of Justice, and warned its ability to be a "going concern" over the next 12 months may be in doubt.

As a result, major crypto clients announced they would suspend their relationship with the bank, and its holding company's stock price fell 58% in intraday trading to an all-time low of $5.72 – down over $115 over the past year. Its stock tumbled even further after Wednesday's announcement in after-hours trading. Signature Bank, another crypto-friendly bank, saw its own stock tumble around 5% in after-hours trading dipping nearly 10% before rebounding slightly.

Silvergate took out approximately $4.3 billion in loans from the Federal Home Loan Bank of San Francisco, a federal banking entity that provides this type of loan for banks. Still, the fact Silvergate's situation warranted these loans should have sparked concern from the FDIC months ago, a banking industry veteran told CoinDesk.

Silvergate has provided banking services to crypto companies since 2013, and launched its own internal settlement tool, the Silvergate Exchange Network (SEN). Silvergate announced late Friday it had suspended SEN.

The company revealed it had nearly 500 crypto clients when it filed to go public in November 2018. Its initial public offering (IPO) was completed in 2019, trading on the New York Stock Exchange. The bank boasted more than 750 crypto clients at the time.

While Silvergate was not on the FDIC's "failed bank" list (as it is voluntarily liquidating, rather than going into an FDIC receivership), it appears to be the first major bank collapse since October 2020, and possibly the largest bank to fail since 2009.

Jesse Hamilton contributed reporting.

UPDATE (March 8, 2023, 21:50 UTC): Adds additional detail.

UPDATE (March 8, 22:05 UTC): Adds statements from White House, Sen. Sherrod Brown and FDIC.

UPDATE (March 9, 04:20 UTC): Adds to say Office of the Comptroller of the Currency (OCC) declined to comment in eighth paragraph.


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Nikhilesh De

Nikhilesh De is CoinDesk's managing editor for global policy and regulation. He owns marginal amounts of bitcoin and ether.

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