March 8 (Reuters) – Crypto-focused bank Silvergate Capital Corp ( SI.N ) plans to wind down operations and voluntarily liquidate on Wednesday, following a dramatic fall in crypto exchange FTX that sent its shares down 35%. % of hourly trading.
The decision to close the bank comes after the company warned last week that it was assessing its ability to operate, and revealed that it had sold additional debt securities at a loss this year and that further losses the bank “could be modest”. Well capitalized.”
The poor outcome for La Jolla, California-based Silvergate, one of the crypto industry’s favorite banks, shows the extent of the impact on the digital asset sector since the fall of FTX, which filed for bankruptcy in November after failing to make customer returns.
In a statement, Silvergate said the decision to freeze its bank was the “best way forward” in light of “recent industry and regulatory developments”. The bank added that its wind-down and liquidation plan includes full repayment of deposits.
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Silvergate reported a $1 billion loss in the fourth quarter as investors tried to withdraw more than $8 billion in deposits.
Several of the bank’s partners, including high-profile firms such as Coinbase Global Inc ( COIN.O ) and Galaxy Digital, cut ties with Silvergate last week.
Silvergate has retained Centerview Partners LLC as financial advisor and Cravath, Swain & Moore LLP as legal counsel, the bank said in a statement.
Founded in 1988, Silvergate ventured into crypto in 2013. The bank also operated a mortgage warehousing business, but announced in December that it was winding down that division, citing a rising interest rate environment and a reduction in mortgage volumes.
[1/2] Representations of cryptocurrencies plunge into the water in this chart taken on May 23, 2022. REUTERS/Dado Ruvic/File Photo
Last week, Silvergate shut down the Silvergate exchange network, its crypto payment network and one of its most popular offerings. That network enabled 24-hour transfers between investors and crypto exchanges, unlike traditional bank wires, which often took days to settle.
Ram Ahluwalia, CEO of Lumida Wealth, an investment adviser specializing in the digital sector, said the loss of the Silvergate exchange network was disappointing, as Silvergate has said it will repay depositors and pay off debts, even though pandemic risks are low. assets.
“This is a strategic loss of critical infrastructure for crypto,” he said.
The Federal Deposit Insurance Corp (FDIC) declined to comment on Wednesday when asked about the bank’s failure, beyond saying it does not regulate the bank or the holding company. Bloomberg previously reported that the FDIC had discussed ways with Silvergate to avoid a shutdown.
Federal prosecutors in Washington are investigating the company and its dealings with FTX and trading firm Alameda Research. In January, three US senators asked Silvergate for details on its risk management and FTX.
In a statement, the California Department of Financial Protection and Innovation, which oversees Silvergate under its state charter, said it is evaluating the bank’s compliance with financial laws and its security and fiduciary obligations and working with its relevant federal agencies.
With over a trillion dollars worth wiped from the crypto industry by 2022, rising interest rates are fueling fears of an economic downturn.
After rapid growth in 2020 and 2021, Bitcoin — by far the most popular digital currency — fell more than 60% last year, putting pressure on the digital assets sector.
Reporting by Hannah Long in Washington and Anirban Chakraborty in Bangalore; Additional reporting by Manya Saini in Bengaluru Editing by Maju Samuel and Matthew Lewis
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