Silvergate Bank Announces Voluntary Liquidation amid Troubles

Silvergate Capital Corporation (Nasdaq: SI), the parent of the crypto-friendly Silvergate Bank, has decided to wind down its banking operations and voluntarily liquidate assets in an “orderly manner.”

The Collapse of Silvergate Bank

Announced late Wednesday, the bank has already onboarded Centerview Partners LLC as the financial advisor for the liquidation process, Centerview Partners LLC for legal advice, and Strategic Risk Associates for project management assistance.

“In light of recent industry and regulatory developments, Silvergate believes that an orderly wind-down of Bank operations and a voluntary liquidation of the Bank is the best path forward,” the official announcement stated.

The bank highlighted that it plans to include the repayment of all deposits in its wind-down and liquidation process. “The Company is also considering how best to resolve claims and preserve the residual value of its assets, including its proprietary technology and tax assets,” the bank added.

The collapse of Silvergate is going to be the first banking institution failure since October 2020, when Almena State Bank failed and closed down, according to the Federal Deposit Insurance Corporation (FIDC). However, Silvergate will not appear on FIDC’s failed banks’ list as it opted for a voluntary liquidation rather than FIDC receivership.

The Market Reacted Quickly

Silvergate Bank was established in 1988 and made its name after it started to offer banking services to cryptocurrency companies in 2013. In its initial public offering (IPO) filing in November 2018, the bank revealed to have more than 500 crypto clients, and this number went up to more than 750 when it was listed on the New York Stock Exchange in 2019.

The bank even launched Silvergate Exchange Network (SEN), its internal settlement tool for crypto-related transactions, which has been discontinued.

Meanwhile, the publicly listed share price of the crypto-friendly bank shed about 44 percent of its value in after-market trading after US markets closed on Wednesday, which came as an impact of the bank’s recent decision. Also, the stock has been performing poorly for a while now: it shed more than 96 percent of its value (without considering the recent after-market drop) last year.

Silvergate stocks made a market debut in November 2019 at around $13 apiece and peaked in November 2021 when per share value touched $220, only to gain a downward momentum.

Who Is Responsible?

Silvergate had strong ties with the now-bankrupt crypto exchange FTX, which led to regulatory investigations into the bank. Coinbase, Paxos, Gemini, BitStamp, and Galaxy Digital were among many crypto firms that ended their Silvergate partnership following the reports of the bank’s troubles with the regulators.

Update: We’re sorry to see Silvergate make the tough decision to wind down their operations. They were a partner & contributors to the growth of the cryptoeconomy. Coinbase has no client or corporate cash at Silvergate. Client funds continue to be safe, accessible & available. https://t.co/78oMrLQ6VH

In addition, the bank confirmed last week that it was facing inquiries from banking regulators, as well as from the US Justice Department. Moreover, the bank raised concerns over its ability to run for the next 12 months.

Meanwhile, many lawmakers are now linking the bank’s failure to the risky nature of the cryptocurrency industry. US White House Press Secretary Karine Jean-Pierre confirmed that President Joe Biden is urging Congress to take action on the issues around cryptocurrencies.

As the bank of choice for crypto, Silvergate Bank's failure is disappointing, but predictable. I warned of Silvergate's risky, if not illegal, activity—and identified severe due diligence failures. Now, customers must be made whole & regulators should step up against crypto risk.

However, crypto industry influencers and lobbyists are pointing towards fractional-reserve banking for Silvergate’s failure, as the bank supposedly held far more in-demand deposits than cash on hand.

.@SenSherrodBrown, you’re wrong that #crypto triggered Silvergate’s issue. What did it was $13.3bn in demand deposits that depositors cld withdraw in minutes, but only $1.4bn of cash. Had $SI held $13.3bn of cash, the bank run wouldn’t have impaired its capital. Not a crypto… https://t.co/nGlfHwUcBN