In a recent press release from the U.S. Federal Reserve Board of Governors, it was disclosed that Silvergate Bank has been given a ten-day deadline to submit a plan outlining its self-liquidation procedure and the systematic cessation of operations. This order from the central bank comes in the wake of Silvergate’s declaration of voluntary liquidation 86 days prior on March 8, and the subsequent collapse of three major banks.
Silvergate Bank’s Voluntary Liquidation
Approximately three months ago, Silvergate Bank revealed its decision to willfully dissolve the organization’s assets and cease its operations. Preceding this announcement, the bank grappled with financial troubles causing its shares to nosedive in value. Citing “recent industry and regulatory developments” as the reason for closing, Silvergate assured that their liquidation strategy would “include full repayment of all deposits.”
Banking Sector Downturn
Following Silvergate’s proclamation, the U.S. banking sector suffered a significant downturn, and soon after, Silicon Valley Bank (SVB) failed, marking the second-largest bank failure in U.S. history. This downward trend persisted with Signature Bank and First Republic Bank‘s respective failures rendering them the third and fourth largest American banking collapses ever recorded. Amidst these calamities, news regarding Silvergate’s deliberate liquidation went overlooked.
Fed Orders Liquidation Strategy
On May 23, both the Federal Reserve Board of Governors and the California Department of Financial Protection and Innovation instructed Silvergate to devise a liquidation strategy within ten days following the order. The central bank’s directive stipulates that “Within 10 days of approval by the supervisors, the company and the bank, as applicable, shall adopt the self-liquidation plan.”
The statement further adds that upon adoption, they should “promptly implement the self-liquidation plan, and thereafter fully comply with the plan.” Furthermore, the Fed’s order expounds on Silvergate’s downfall while highlighting “numerous deficiencies” discovered by regulators. The report also unveils Silvergate’s association with the now-defunct crypto exchange FTX and its insolvent trading arm, Alameda Research.
As stated, “Beginning in the fourth quarter of 2022, [Silvergate Bank] experienced significant declines in deposits by its crypto-asset-related customers, triggered in part by the collapse of the crypto-asset exchange FTX Trading Ltd. and its affiliated proprietary trading firm Alameda Research LLC, which has resulted in funding and liquidity stress on the bank and a decline in activities that were key sources of revenue.”