the staff of the Ridgewood blog
Ridgewood NJ, Silvergate Bank, a crypto-friendly bank, announced it will “voluntarily liquidate” its assets and wind down operations after announcing it would have to delay filing its annual 10-K report due to issues with its independent auditors. Under the wind down, all deposits will be repaid in full, and the bank is exploring ways to resolve claims and preserve the residual value of its assets, including its proprietary technology and tax assets. The California Department of Financial Protection and Innovation and the White House are monitoring the situation, with the Senate Banking Committee Chairman urging Congress to take action on crypto issues. Silvergate had taken out approximately $4.3 billion in federal loans and will suspend its Silvergate Exchange Network (SEN). It appears to be the first major bank collapse since October 2020, and possibly the largest bank to fail since 2009.
On February 23rd Federal bank regulatory agencies issued a joint statement highlighting liquidity risks to banking organizations associated with certain sources of funding from crypto-asset-related entities and some effective practices to manage those risks.
Recent events in the crypto-asset sector have underscored the potential heightened liquidity risks presented by certain sources of funding from crypto-asset-related entities. The joint statement highlights key liquidity risks and some effective practices to monitor and appropriately manage those risks. The statement reminds banking organizations to apply existing risk management principles; it does not create new risk management principles.
Banking organizations are neither prohibited nor discouraged from providing banking services to customers of any specific class or type, as permitted by law or regulation.
Discouraging banks from providing deposit accounts only exacerbates this problem by creating fewer options for any one sector to obtain banking services. The problem is not about crypto, but concentration risks.
In this case, this is a voluntary wind down under California law, which implies that they will be able to make depositors whole. Neither taxpayer money, nor the FDIC, are involved.
Hopefully, this situation serves as a needed reminder to regulators of the risk of concentration, which is certainly not unique to the crypto industry, and will cause them to encourage responsible distribution across the banking sector.”