Silvergate Accepts the Fed’s Deadline to Wind-down

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Last Updated on June 3, 2023 by Bitfinsider

Silvergate Bank has concurred with a Federal Reserve order to file a self-liquidation plan with California financial regulators within 10 days.

The Board of Governors of the Federal Reserve issued the order on Wednesday as part of the process to wound down the operations of the crypto-friendly California bank. In order to make depositors whole, the bank must conserve cash and other resources.

The California Department of Financial Protection and Innovation must approve the plan to liquidate the bank’s assets; however, the plan’s deadline may be extended. Silvergate announced in March that it would cease operations following the failure of the bank’s business.

The Fed order states that the most recent examination of Silvergate Bank by state regulators and Federal Reserve Bank of San Francisco officials “identified numerous deficiencies, including with respect to both safety and soundness and compliance with banking laws and regulations.” It linked the bank’s demise to its transactions with the now-defunct cryptocurrency exchange FTX.

The bank temporarily survived FTX’s collapse and a write-down on hundreds of millions of dollars’ worth of Facebook-linked digital asset Diem by obtaining an unusual and controversial multi-billion dollar emergency loan from the Federal Home Loan Bank of San Francisco, a government-created entity intended to support mortgage borrowing in the United States.

“The Bank experienced significant declines in deposits from its crypto-asset-related customers, in part due to the collapse of the crypto-asset exchange FTX Trading Ltd. and its affiliated proprietary trading firm Alameda Research LLC,” the Fed stated. The failure of FTX and Alameda, combined with Silvergate’s business strategy tied to the digital asset industry, and a bank run that was a precursor to similar runs with greater impact at Silicon Valley and Signature Banks, “resulted in funding and liquidity stress on the Bank and a decline in revenue-generating activities.”

The Fed’s announcement notes that Silvergate’s management voluntarily accepted all aspects of the enforcement action. As part of the order, regulators must approve any incentives, promotions, or severance pay for senior executives.

The Fed has the authority to intervene with state-chartered banks, such as Silvergate in La Jolla, California, if they are part of the central bank’s system in which it serves as the lender of last resort.

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