On the 3rd of March Payments Cards & Mobile reported on the dangers of banks betting big on the cryto boom and the possible fall out from that bet.
Silvergate Bank winds up and heads for insolvency
Today, Silvergate Bank, famous for purchasing the ill fated Diem assets was forced to wind up and head into administration.
Citing “recent industry and regulatory developments”, Silvergate announced that a “voluntary liquidation of the bank is the best path forward”.
In the past few years Silvergate had developed into the largest cryptocurrency bank in the US, attracting as much as $14 billion in customer deposits and reaching a stock price of more than $200 in late 2021.
But its fortunes have tumbled since the collapse of FTX.
Last week the bank warned investors in a filing that it might be forced to close, blaming growing problems in part on pending investigations into its operations.
The filing also confirmed previous reports that it was being investigated by the US Department of Justice.
Silvergate long used its ties to FTX as a way to market the bank to crypto clients. FTX and its affiliated trading group Alameda Research had accounts at Silvergate, and the exchange’s clients were often given instructions to wire money to the bank when making deposits.
In January it reported that customers had withdrawn more than $8 billion, forcing it to sell held-to-maturity assets to fund the run, accruing losses on the sale of the securities of $718 million.
In December, a group of senators wrote a letter to Silvergate asking for the company to explain its ties to FTX.
“As the impact of FTX’s collapse continues to ripple outward, today we are seeing what can happen when a bank is over-reliant on a risky, volatile sector like cryptocurrencies,” Sherrod Brown, chair of the Senate banking committee, said.
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