TL;DR Breakdown
- The Federal Reserve issues consent order to Silvergate Bank and parent company for winding down operations and liquidation.
- Silvergate voluntarily closes due to industry and regulatory developments, with significant declines in crypto-related deposits.
- Self-liquidation plan overseen by Federal Reserve and California regulators to protect depositors’ funds; closure impacts other crypto-friendly banks.
In a move to facilitate the voluntary self-liquidation announced by Silvergate Bank earlier this year, the Federal Reserve Board has issued a consent order to the bank and its parent company, Silvergate Capital Corporation. The order aims to ensure an orderly wind-down of the bank’s operations while safeguarding the interests of depositors and the Deposit Insurance Fund.
Silvergate Bank, one of the major crypto-friendly banks, made headlines in March when it unveiled plans to shutter operations due to recent industry and regulatory developments. Following the collapse of the crypto exchange FTX in November 2022, examinations conducted by the Federal Reserve revealed significant deficiencies at Silvergate Bank. The bank experienced a decline in deposits from its crypto-asset-related customers, leading to funding and liquidity stress.
Consent order and self-liquidation plan
The consent order issued by the Federal Reserve Board grants Silvergate Bank and Silvergate Capital Corporation a 10-day period to submit a self-liquidation plan that complies with California and federal requirements. The plan must prioritize the protection of depositors’ funds and ensure an orderly wind-down process.
Federal Reserve officials and California’s Department of Financial Protection and Innovation will closely oversee and approve the proposed self-liquidation plan. To maintain transparency and protect stakeholders’ interests, Silvergate’s leadership will face restrictions on receiving “golden parachute payments” and changing responsibilities during the winding-down process.
Impact and ripple effect
Silvergate Bank’s decision to wind down operations has significantly affected the crypto industry. It was the first major crypto-friendly bank to announce its closure, with Silicon Valley Bank and Signature Bank following suit. The allegations connecting Silvergate Bank to the collapse of FTX prompted digital asset firms like Coinbase, Paxos, Gemini, etc to sever their financial ties with the bank.
Beyond the immediate implications, Silvergate Capital Corporation, the bank’s parent company, faced its challenges. The recent delisting of its shares from the New York Stock Exchange (NYSE) marked a substantial setback. Once valued at nearly $240 per share in November 2021, Silvergate’s shares now trade at around $1 on OTC Markets. The delisting, confirmed on May 11, 2023, signaled the initiation of the liquidation process, which is expected to conclude by November.
The closure of Silvergate Bank also had a ripple effect on other regional banks on the West Coast. Silicon Valley Bank and Signature Bank encountered significant difficulties, and in early May, First Republic faced closure and was taken over by the Federal Deposit Insurance Corporation.
The consent order from the Federal Reserve Board signifies a crucial step in the winding down and liquidation process of Silvergate Bank. While prioritizing the protection of depositors’ funds, the regulators will closely monitor the implementation of the self-liquidation plan proposed by Silvergate. The closure of the bank highlights the evolving landscape and regulatory challenges faced by financial institutions in the crypto industry. As the industry continues to develop, regulatory clarity and comprehensive legislation will ensure stability and transparency in the sector.
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