Silvergate Capital Corp., a core crypto sector bank, is experiencing a customer retreat due to its own disclosures. On March 1, the bank admitted that its health could be threatened by investigations from banking regulators and questioned the viability of its digital asset focused business. As a result, major customers such as Coinbase, Paxos, Circle Internet Financial and Galaxy Digital have moved to sever ties with Silvergate. This customer retreat is a classic example of a bank-run, and could have serious implications for the future of Silvergate and the crypto sector as a whole.
Silvergate Bank has seen its stock price fall over 50% in intraday trading and over $115 in the past year. This is due to recent warnings from banking regulators about the risks of leaning too heavily into crypto, as well as investigations into fraudulent activity linked to one of Silvergate’s customers, FTX. Silvergate has been a major player in the crypto industry since its early days, and its website still touts the relationships it has built with the industry. Despite the recent downturn, Silvergate remains committed to its mission of providing banking services to the crypto industry.
U.S. banking regulators, including the Federal Reserve and the Federal Deposit Insurance Corp., have been advocating for a separation between the banking system and the crypto industry. They have labeled the crypto industry as a major risk for the traditional financial sector. In a recent statement, they warned banks that their deposits could be quickly withdrawn due to market events, media reports, and uncertainty related to the crypto-asset sector. Banks are advised to be cautious when dealing with digital assets and the companies that issue and trade them.
The FDIC and other banking agencies have issued warnings to banks that provide services to the digital asset industry, urging extreme caution. Silvergate, a bank that provides such services, has disclosed that it is uncertain about its ability to comply with the heightened regulatory scrutiny. Banking lawyer Alexandra Barrage believes the warnings show an unusual willingness for the banking agencies to provide guardrails about what they don’t want to see. Silvergate has delayed the filing of its annual report due to the increased scrutiny. Banks that provide services to the digital asset industry should be aware of the heightened regulatory scrutiny and take steps to ensure compliance.
Silvergate Bank is regulated by the Federal Reserve and the California Department of Financial Protection and Innovation. The Fed’s supervisors monitor the bank’s capital levels to ensure they don’t fall below the danger line. Last year, Silvergate’s leverage ratio – a measure of its own capital as a share of its overall assets – dropped 6 percentage points from 11% to 5%. The cutoff for a bank to be considered well-capitalized is 5%, and the bank was already dropping toward that mark a couple of months ago. Silvergate Bank is closely monitored by its banking regulators to ensure it remains well-capitalized and safe for customers.
When a bank gets close to the danger level of 4%, the FDIC (Federal Deposit Insurance Corporation) will generally get involved. The FDIC is the U.S. agency responsible for handling bank failures and protecting customers from harm. They will work to find a solution that works for the bank and its customers. Banks should be aware of the FDIC’s involvement and take steps to ensure that their customers are protected. Banks should also be aware of the potential risks associated with a high level of risk and take steps to mitigate them.
Silvergate Bank, a California-based financial institution, is facing regulatory pressures and capital woes. The Federal Deposit Insurance Corporation (FDIC) and the U.S. Federal Reserve have not been seen to intervene, and spokespersons for both declined to comment. Silvergate Bank has also declined to address the issues, stating that they are “working diligently” to file their annual report and have no further comment. It is unclear how much the agencies may have been involved with Silvergate’s struggles, as any interactions would not necessarily have been public.
Regulators are taking too long to deal with a failing bank, according to a banking industry veteran now in the crypto sector. The FDIC should have intervened months ago, as is typical when banks fail. On a Friday night, a crew from the FDIC shows up and takes the keys, so their specialists can work over the weekend to secure the customer base by Monday. They hand the deposits over to a new owner to manage, and they start finding buyers for the remaining assets. This process is usually quick and efficient, but the delay in this case is concerning.
FDIC insurance ensures that U.S. depositors’ money is safe up to $250,000. The federal government guarantees every penny of this amount, and the FDIC can cut a check if there’s no new bank to point customers to. This guarantee has been in place for the past 89 years, and has been a reliable source of protection for depositors during bank crises. With FDIC insurance, depositors can rest assured that their money is safe and secure.
The FDIC, a government agency that insures banks, has not had to take down any institutions in the past two years. However, if Silvergate, a bank that deals with cryptocurrencies, were to fail, it would be the first crypto-specific receivership for the FDIC. This would be a new and unfortunate development for the industry, as digital assets are not protected by any government protections. The FDIC’s role in this situation is to ensure that any funds held by Silvergate are protected and that customers are not left in the lurch.
