In a significant development for the cryptocurrency industry, Silvergate Bank, recognized for its crypto-friendly approach, has recently announced its decision to file a self-liquidation plan within the next 10 days. This move comes as a response to a consent order issued by the Federal Reserve Board against Silvergate Capital Corporation and Silvergate Bank, signaling the bank’s intention to voluntarily liquidate its assets, a decision first disclosed on March 8, 2023.
Self-Liquidation Plan to be Filed with California Regulators
Silvergate Bank’s self-liquidation plan is set to undergo review and approval by the California Department of Financial Protection and Innovation, although the possibility of an extension to the deadline exists. The bank has been directed to responsibly manage its cash reserves and other available resources to ensure full compensation to depositors. Previously, the institution had publicly announced its decision to cease operations following a business failure.
Federal Reserve’s Consent Order Highlights Identified Deficiencies
The consent order issued by the Federal Reserve emphasizes various deficiencies identified during a recent examination of Silvergate Bank by state regulators and officials from the Federal Reserve Bank of San Francisco. These deficiencies encompass concerns related to safety, soundness, and non-compliance with banking laws and regulations. Notably, the order attributes the bank’s failure to its association with the now-defunct cryptocurrency exchange, FTX.
Silvergate Bank’s Connection to Defunct FTX
Despite the collapse of FTX and losses incurred from the write-down on Diem, a digital asset linked to Facebook, Silvergate Bank managed to weather the storm. The bank achieved this by securing an extraordinary and controversial emergency loan amounting to billions of dollars from the Federal Home Loan Bank of San Francisco. This governmental institution, established to support mortgage borrowing in the United States, provided temporary relief to the bank in dire times.
Voluntary Acceptance of Enforcement Action
Silvergate Bank’s leadership has voluntarily accepted all facets of the enforcement action as stated in the Federal Reserve’s announcement. Furthermore, the consent order mandates that any senior executive bonuses, promotions, or severance payments must receive regulatory approval. In light of increased scrutiny surrounding crypto-related activities, financial institutions are opting to distance themselves from crypto companies to ensure compliance with existing banking laws and regulations.