Silvergate Capital Corporation, the parent company of Silvergate Bank, has filed for Chapter 11 bankruptcy as of September 18, 2024. This move concludes an 18-month period of gradual closure that began in March 2023.
Bankruptcy Filing and Financial Overview
The bankruptcy filing reveals Silvergate’s financial state with assets estimated between $100 million and $500 million, and liabilities ranging from $10 million to $50 million. The filing also includes affiliates Silvergate Liquidation Corporation and Spring Valley Lots LLC. This decision follows the company’s earlier move to liquidate and cease operations announced on March 8, 2023.
Operational Struggles and Regulatory Challenges
Throughout the past year and a half, Silvergate has focused on returning client deposits and managing regulatory hurdles. Court documents indicate that the bank repaid all customer deposits without incurring costs to the FDIC, asserting that the bank “did not fail,” according to Reuters.
The crypto bank was a major player in the cryptocurrency industry, serving over 1,600 crypto firms, including prominent names like Coinbase, Circle, Gemini, Paxos, Binance.US, Kraken, and BlockFi. The bank operated the Silvergate Exchange Network (SEN), a crucial 24/7 payment platform that facilitated real-time transactions between cryptocurrency companies. This network was vital for the industry.
Crypto Sector Exposure and Financial Troubles
Silvergate also offered Bitcoin-collateralized loans through its SEN Leverage program. As of September 2022, the bank held $302 million in such loans, secured by $769.9 million in Bitcoin collateral. In January 2022, Silvergate acquired assets from Diem, Facebook’s discontinued crypto project, with plans to develop its own stablecoin—a project that was eventually scrapped.
By late 2021, crypto firms held over 90% of Silvergate’s deposits, revealing its deep ties to the volatile crypto market. The 2022 collapse of major crypto entities, like FTX, prompted clients to withdraw over $8 billion from Silvergate. This mass exodus forced the bank to sell long-term debt securities at a significant loss.
Also Read: Swiss Banks the New Haven for Crypto Companies After Signature and Silvergate Collapse
Regulatory Settlements and Future Outlook
In 2023, Silvergate settled for $63 million with the Federal Reserve, California’s Department of Financial Protection and Innovation, and the SEC. Investigations revealed issues with compliance with anti-money laundering laws and alleged misleading statements by Silvergate and three senior executives.
In its bankruptcy filing, Silvergate reported holding about $163 million in cash for distribution to stakeholders. The bank plans to repay bondholders owed $18 million and make payments to holders of preferred equity. However, it does not expect to provide any recovery to common stockholders.
The Broader Context
Silvergate’s bankruptcy adds to the list of recent U.S. bank failures, including Silicon Valley Bank, First Republic Bank, and Signature Bank. This trend highlights the challenges facing financial institutions, especially those heavily involved with the volatile cryptocurrency market.