Silvergate Announces ‘Voluntary Liquidation’
According to a notice posted on March 9, the parent company of Silvergate Bank, Silvergate Capital Corp. (SI) said today that it would wind down operations and voluntarily liquidate in an orderly manner and in accordance with applicable regulatory processes.
As reported, Silvergate Bank has been a key partner of many major US crypto exchanges since 2013. As its close relationship with the crypto space, it has also been affected by multiple wire crashes recently, especially the bankruptcy of FTX. By early March 2023, Silvergate notified the SEC that it could not file financial statements on time because it needed more time to re-assess assets, as well as being investigated by US authorities.
The above information has caused many crypto companies that are still Silvergate customers to unilaterally cut ties with the bank, forcing them to stop the inter-crypto exchange network called SEN.
As of March 9, Silvergate Capital said it had found law and financial firms to act as advisors, serve the process of “leadership transition” and return deposits to customers.
This is considered Silvergate’s most drastic attempt to avoid falling into insolvency and being forced to declare bankruptcy.
Silvergate’s SI share price continued to decline by 5.76% in the trading session on March 8 (US time). Since the beginning of 2023, SI shares have lost nearly 78% of their value, with the dump on March 2 alone, the day the bank announced its late submission of reports to the SEC, wiping away 58% of the value of SI shares.
US authorities closely monitor the situation of Silvergate
U.S. authorities, both state and federal, are keeping a close eye on the Silvergate crisis. The California Department of Finance and Progress, where Silvergate is headquartered, said it was monitoring the situation. Meanwhile, White House spokeswoman Karine Jean-Pierre earlier this week confirmed that the Biden administration is also extremely concerned about Silvergate.
“Today we are seeing what can happen when a bank is overreliant on a risky, volatile sector like cryptocurrencies,” said Senator Sherrod Brown (D-OH), who is the chair of the Senate Banking, Housing, and Urban Affairs Committee. “I’ve been concerned that when banks get involved with crypto, it spreads risk across the financial system and it will be taxpayers and consumers who pay the price.”
The reason Silvergate receiving so much attention from the US government is that it is a traditional bank, received a banking license, and is insured by the FDIC. Silvergate even conducted an IPO in 2018 and listed SI shares on the New York Stock Exchange. This crisis is the first time in history that a traditional financial institution has collapsed because of cryptocurrencies.
Silvergate’s liquidation raises serious questions about how the sector will be regulated in the near term and how crypto firms will access the banking system, said Alex More, partner at the law firm of Carrington, Coleman, Sloman, and Blumenthal. “On one hand, legitimate questions were raised by lawmakers and litigants about Silvergate’s oversight of its banking relationships with crypto clients. To the extent Silvergate had problems with its internal controls that it could not resolve, maybe it’s for the best that it’s choosing to wind.” down,” More said. “On the other hand, the crypto community is already hindered by limited access to the U.S. banking system and Silvergate’s demise only makes this problem worse.”