Silvergate Bank Shuts Down And Enters Voluntary Liquidation

Silvergate was a crypto-friendly bank popular among many investors. Moreover, it was a vital cog in the sector’s ecosystem, serving mainly as a fiat on-ramp for most businesses in the industry.

On March 8, Silver Capital confirmed that it will shut down its operations and liquidate Silvergate Bank. The company’s stock plunged steeply after the announcement and has so far lost more than 25% in after-hours trading.

Silvegate is one of the two major crypto-banking giants. The other institution is the New York-based Signature Bank which has over $114 billion in total assets. Silvergate has around $11 billion. The company published a statement:

“In light of recent industry and regulatory developments, Silvergate believes that an orderly wind-down of Bank operations and a voluntary liquidation of the Bank is the best path forward.”

All the deposits will get fully repaid, based on a liquidation plan shared on Wednesday. It is not yet known how the crypto-friendly bank plans to resolve all claims against its business. Centerview Partners was appointed to act as Silvergate’s financial advisor and Cravath, Swaine & Moore will offer legal services.

After the market close on March 3, Silvergate suspended its payments platform called the Silvergate Exchange Network (SEN), which was considered one of its primary offerings. As part of this liquidation announcement, Silvergate stated that it would permanently shut down the payments network. However, it announced that all other deposit-related services remain operational as the firm works on the wind-down process.

Clients will be notified should there be any more changes to the current arrangement. The company’s announcement comes one week after Silvergate stated that it would delay the filing of its annual 10-K for 2022 to enable it to sort out the ‘viability’ of its business.

The company revealed that the delayed 10-K filing was partially because of an imminent regulatory crackdown, including a probe that is already being executed by the Department of Justice.

Crypto firms like Galaxy Digital and Coinbase raced to cut ties with Silvergate in the past week after the bank warned that it was not sure whether it could manage to stay in business.

Silvergate has been struggling for several months. The now infamous and bankrupt crypto exchange FTX was a customer and a big backer of Silvergate.

Apart from laying off 40% of its workforce, this crypto banking behemoth also reported an almost $1 billion net loss in Q4 2022 following a bank run at the end of last year that saw customer deposits drop by 68% to $3.8 billion.

Silvergate was compelled to sell $5.2 billion of debt securities to cover these withdrawals.

Moreover, it went to the Federal Home Loan Bank for an extra $4.3 billion. This loan attracted attention from legislators like Sen. Elizabeth Warren, D-Mass, who insisted that this “further introduced crypto market risk into the traditional banking system.”

Investment companies BlackRock and Citadel Securities recently took major stakes in Silvergate – 7% and 5.5% respectively.