Fed agrees to liquidate Silvergate Bank

Silvergate Bank to move to self-liquidation

The U.S. Federal Reserve (Fed) today issued an order agreeing to liquidate its banking operations against Silvergate Capital and its banking business, Silvergate Bank. It also points out the connection between Silvergate Bank and the crypto asset (virtual currency) industry.

@federalreserve announces consent order against Silvergate Capital Corporation and Silvergate Bank to facilitate the voluntary self-liquidation that Silvergate announced on March 8, 2023: https://t.co/iWp4mfUeYI

— Federal Reserve (@federalreserve) June 1, 2023

Silvergate must submit a closure plan to the regulator within one to ten days of issuing the order. In addition, the plan must be implemented within 10 days after obtaining approval from the supervisor.

The order also stipulates that depositors and the deposit insurance fund must be protected in closing Silvergate Bank.

This will require Silvergate Bank to retain staff, manage financial products and keep related records to serve the interests of depositors.

The order also prevents Silvergate from making certain transactions or expanding its business without regulatory approval. It is also prohibited to enter into contracts that allow excessive compensation for newly hired or reassigned executives.

What is FRB

A central institution equivalent to the central bank of the United States. Abbreviation for Federal Reserve Board. The appointment of the FRB chairman, who has a major impact on the global economy, is being watched closely by the financial markets.

Cryptocurrency Glossary

Pointing out connections with the cryptocurrency industry

The order explains that Silvergate Bank had strong ties to the cryptocurrency industry.

Silvergate Bank has been providing financial services such as deposit and cash management services to the domestic and foreign cryptocurrency industry since around 2013.

In particular, it provides and operates a near-real-time payment network within the bank called Silvergate Exchange Network (SEN), which is used by customers in the cryptocurrency industry. The order continued:

Silvergate Bank has experienced a significant drop in cryptocurrency-related customer deposits since the fourth quarter (October-December) of 2022, partly due to the bankruptcy of cryptocurrency exchange FTX and its affiliate Alameda Research. bottom.

This has put our funding and liquidity under stress and curtailed our primary source of income.

The latest inspections of Silvergate, conducted by the Federal Reserve Bank of San Francisco and others, found numerous deficiencies in terms of security, soundness and banking compliance, he added.

The order also cites how Silvergate told the U.S. Securities and Exchange Commission (SEC) on March 1 that it “may not be well capitalized and is reviewing its business.” .

The Silver Gate Exchange Network (SEN) service ended in March.