Silvergate Bank Prepares To Self-Liquidate Following Fed Approval

In a noteworthy development within the cryptocurrency industry, Silvergate Bank, renowned for its cryptocurrency-friendly stance, has committed to submitting a self-liquidation plan to financial regulators in California within a period of 10 days. This decision follows a consent order issued by the Federal Reserve Board against Silvergate Capital Corporation and Silvergate Bank, signifying the bank's voluntary intention to liquidate its assets, as previously disclosed on March 8, 2023.

Silvergate To Self-liquidate Within 10 Days

Source: FederalReserve.gov

Approval from the California Department of Financial Protection and Innovation is required for the self-liquidation plan submitted by Silvergate Bank, with the possibility of a deadline extension. As part of the process, the bank is obligated to prudently manage its cash reserves and utilize any other accessible resources to ensure full compensation for depositors. Prior to this, the financial institution had publicly declared its intention to wind down operations following a business setback.

The consent order issued by the Federal Reserve brings attention to a range of “deficiencies” uncovered during the recent examination of Silvergate Bank conducted by state regulators and officials from the Federal Reserve Bank of San Francisco. These deficiencies encompass both concerns related to safety and soundness, as well as instances of non-compliance with banking laws and regulations. Notably, the order establishes a connection between the bank's shortcomings and its association with the defunct cryptocurrency exchange, FTX.

Silvergates Ties With Defunct FTX

Silvergate Bank successfully navigated the challenges stemming from the collapse of FTX and absorbed the losses incurred from the write-down on Diem, a digital asset associated with Facebook. To accomplish this, the bank procured an unprecedented and contentious emergency loan of billions of dollars from the Federal Home Loan Bank of San Francisco. This esteemed institution, established by the government to facilitate mortgage borrowing in the United States, provided crucial temporary relief to address the bank's needs.

As stated in the Federal Reserve's announcement, the leadership of Silvergate Bank has willingly embraced all aspects of the enforcement action. Furthermore, the consent order stipulates that any bonuses, promotions, or severance payments for senior executives require regulatory approval. With regulatory bodies maintaining a close watch on crypto-related activities, financial institutions are currently exercising caution and distancing themselves from dealings with crypto companies to ensure compliance with existing banking laws and regulations.