Silvergate began its journey in the crypto industry in 2013. But late last year, the bank announced that it decided to exit warehouse lending and cut 20% of its workforce. It gave the reason for “the current macro environment and rising interest rate environment.” Then in the previous week, the bank also discontinued its Silvergate Exchange Network, crypto payments network, and also one of its most popular offerings.
Silvergate is Gone!
Silvergate Capital Corp (NYSE:SI), a crypto-centered bank, shared its plan on Wednesday, March 8th. The bank said it planned to wind down operations and voluntarily liquidate after it was hit with losses following the unexpected collapse of a crypto exchange, FTX. Meanwhile, the shares also declined by 35% in after-hours trade, according to Reuters.
Last week Silvergate warned that it was evaluating its ability to operate. The bank also disclosed that it had sold additional debt securities this year at a loss, while further losses mean the bank could be “less than well capitalized.”
This extreme situation for Silvergate indicates that it really got affected by the sudden collapse of FTX last year when the crypto exchange failed to cover customer withdrawals.
Silvergate said in an official statement that their decision to wind down its bank was “the best path forward” in light of “recent industry and regulatory developments.” However, their wind down and liquidation plan includes full repayment of deposits, as silvergate said.
Last week, Coinbase Global Inc (NASDAQ:COIN), a crypto exchange and Galaxy Digital, an investment management company, cut-off ties with Silvergate. And after Silvergate’s statement Coinbase said that it had no client or corporate cash at Silvergate.
The fourth quarter report of Silvergate stated a $1 billion loss. As the investors seemed to run for withdrawals of more than $8 billion in deposits. The crypto-centered bank said in a statement that it has retained Centerview Partners LLC as a financial adviser. While Cravath, Swaine & Moore LLP as a legal adviser.
Yesterday, when asked about the failure of Silvergate, the Federal Deposit Insurance Corp (FDIC) refused to comment. The FDIC said that it does not regulate the bank or the holding company. However, a Bloomberg report states that the FDIC had been discussing with Silvergate ways to avoid shutdown.
On the other hand, Federal prosecutors in Washington are investigating the company and its dealings with FTX and its sister-firm, Alameda Research. Also, in January, three U.S. senators asked the bank for details about its risk management and FTX.
The California Department of Financial Protection and Innovation, which supervised Silvergate under a state charter, also said in a statement that “it was evaluating the bank’s compliance with financial laws, as well as safety and soundness obligations.” Additionally it was working with its relevant federal counterparts.