The failure of Silvergate Bank was based on poor management, liquidity problems, and exposure to the volatile crypto industry. Silicon Valley Bank also recently collapsed due to the withdrawal of large amounts from customers. This is similar to the collapse of Silvergate Bank collapse.
Silvergate Bank Failure as Execs Are Confused
FDIC chairman, Martin Gruenberg, believed that there are various factors that are responsible for the demise or failure of Silvergate Bank. The factors included poor management, liquidity problems, and exposure to the volatile crypto industry. He justified this before the House Financial Services Committee on prudential regulators.
Silicon Valley Bank also recently collapsed due to the withdrawal of large amounts from customers. This is similar to the collapse of Silvergate Bank collapse. These withdrawals were made in terror of the involvement of the bank in the crypto sector and questioned the solvency of the bank.
Some people like the chief risk officer of FDIC believed that the Bank collapsed because it failed to manage its risk efficiently and was heavily dependent on the crypto industry for assets that are not even insured.
Many executives also blamed the highly growing interest rates for their failure. Gruenberg in his defense argued that no bank could ever survive such speed and magnitude. Whereas, high-class officers like the New York State Department of Financial Services and the U.S. Government Accountability Office agree that crypto interference is the primary cause of the bank’s shutdown.
Bank was in good condition just before its shutdown, this was proved and stated by the former signature bank executives at a congressional hearing on Tuesday.
When SilverGate Start to fail
It was evident at first glance at Silvergate Bank’s filings that the fourth quarter was a disaster. Crypto clients went on looking for the deposits in the collapse of Sam Backman-Fried’s FTX exchange.
The filings clearly describe that the bank had $13.3 billion in total deposits of which $1.9 billion were in cash and $11.4 billion as an investment security. But the downfall began and in the next few months only deposits reduced to $6.3 billion. This put the bank under a lot of pressure and led it to sell its book of securities.
And rapidly, in some time the bank’s equity was cut in half during the Quarter itself. On 17 Jan, a conference call took place in which Alan Lane, the Silvergate Capital CEO clarified some things. He justified that the company initially had abundant funds but fate changed and it was sold to debt securities in order to sustain lower deposit levels and maintain a perfect balance sheet.
Lane is still hoping and believes that SilverGate Bank can still return to profitability in the second half of 2023. There are pretty chances that this happens.
Nancy J. Allen is a crypto enthusiast and believes that cryptocurrencies inspire people to be their own banks and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning.
Source: https://www.thecoinrepublic.com/2023/05/17/silvergate-bank-fails-and-fdic-blames-crypto-exposures/