Silicon Valley Bank (SVB) marks the second biggest banking collapse in US history, but this major event was bookended by two smaller bank closures, Silvergate Bank and Signature Bank.
In this article, we’ll cover the rise and fall of Silvergate Bank and how the company entered into ‘voluntary liquidation.’
The Beginning – 1988 – 2019
Silvergate opened for business in 1988 to make loans to industrial clients, and filings show that it dealt in conventional services such as commercial and residential real estate lending. But in 2013, the company started to pursue crypto clients.
The bank operated a real-time payments system called the “Silvergate Exchange Network” (SEN), which enabled cryptocurrency exchanges, institutions, and customers to exchange fiat currencies such as US dollars and Euros.
The Rise – 2019 – Q3 2022
With its crypto business growing, Silvergate went public in 2019, telling investors in its prospectus to expect an even bigger shift toward crypto. Eventually, the company’s Silvergate Exchange Network helped attract $11.9 billion in digital assets held as deposits as of Sept. 30th, 2022.
By the third quarter of 2022, it had $12 billion in deposits from 1,677 SEN customers, including all major cryptocurrency exchanges and over 1,000 institutional investors.
The FTX Crash – November 2022 – March 2023
In late 2022, following the collapse of FTX and generally poor market conditions, crypto deposits fled from institutions. Silvergate was left with only $3.8 billion in deposits, according to a January 5th statement.
FTX had been one of Silvergates biggest customers, and the sudden drop in funds forced Silvergate to sell securities before they matured at steep losses that eroded its capital and liquidity.
The crypto bank also faces class-action lawsuits over its relationship with FTX and Alameda Research. The suit alleges that Silvergate aided and abetted FTX’s fraudulent activities and the exchanges’ breaches of fiduciary duty through improper transfers, lending user funds, and co-mingling funds.
According to the lawsuit, Silvergate is liable for its role in “furthering FTX’s investment fraud” and has an obligation to return what they owe to the plaintiff and other investors.
The Fall – March 1st to March 7th
Further concerns for the bank arose when it announced on March 1st that it would delay filing its annual 10-K report with the Securities and Exchange Commission (SEC).
A 10-K report is a document required by the SEC that provides a comprehensive overview of a company’s business and financial condition. The crypto bank stated that it would need an additional two weeks to complete the report for the 2022 fiscal year.
Silvergate explained in its late filing notice that it sold additional debt securities in January and February and expected to record further losses in the coming months.
Within 24 hours of the late 10-K filing, several crypto firms began publicly distancing themselves from the bank. Firms like Bitstamp, Coinbase, Galaxy, Paxos, Circle, and MicroStrategy all released statements cutting ties with Silvergate.
On March 3rd, Silvergate announced that it would discontinue its digital asset payment network (SEN), calling it a ‘risk-based decision” fueling even more concern surrounding the bank’s solvency.
Bloomberg reported on March 7 that Federal Deposit Insurance Corporation officials had been discussing with Silvergate management ways to salvage the company and avoid a possible shutdown.
The Voluntary Liquidation – March 8th to Present
On March 8th, Silvergate Capital Corporation, the holding company for Silvergate Bank, announced that it intends to ‘wind down’ operations and ‘voluntarily liquidate’ the bank in an orderly manner.
Silvergate Capital Corporation said the decision to shutter operations was “in light of recent industry and regulatory developments.” According to the company, the Silvergate Bank liquidation plan included “full repayment of all deposits.”
Closing Thoughts
The closure of Silvergate Bank was arguably the first domino to fall in the recent spree of crypto-friendly US bank closures. For more information on this ongoing news event, check out our articles on the collapse of Silicon Valley Bank and the closure of Signature Bank.
