Silvergate Capital has filed for bankruptcy to close
its operations, marking the final chapter for the parent company of Silvergate
Bank, Reuters reported. The La Jolla-based institution shut down operations
earlier in 2023 following a crippling run on deposits caused by the chaos in
the digital asset market.
Bankruptcy and Liquidation
Silvergate is set to use its remaining $163 million to
settle with creditors. Silvergate Bank’s deposits rose from $1.8 billion in
2019 to $14.3 billion by 2021, with over half of these deposits coming from
digital asset exchange customers.
However, this rapid expansion came with its risks. The
collapse of major crypto players like FTX in 2022 caused massive withdrawals
from Silvergate, over $8 billion, forcing the bank to sell long-term securities
at a loss to meet customer demands.
Silvergate Capital had no choice but to file for
bankruptcy in Wilmington, Delaware, aiming to complete its liquidation. The
remaining cash, approximately $163 million, will reportedly be distributed
among bondholders and preferred equity holders through common stockholders.
According to the bankruptcy filings, bondholders owed
$18 million are expected to be repaid in full. Silvergate maintains that it
didn’t fail in the traditional sense, pointing out that all customer deposits
were returned, leaving no burden on the Federal Deposit Insurance Corporation.
Market Volatility and Regulatory Scrutiny
The downfall of Silvergate wasn’t solely due to market
volatility. The bank also faced intense scrutiny from regulators following the
2022 crypto collapse. In 2023, Silvergate agreed to pay $63 million to settle
investigations by the Federal Reserve, California’s bank regulator, and the
U.S. Securities and Exchange Commission (SEC).
The probes found that the bank had deficiencies in its
monitoring of anti-money laundering compliance and that it, along with its
executives, had made misleading statements. These legal battles compounded
Silvergate’s financial troubles, making it harder for the bank to recover.
This article was written by Jared Kirui at www.financemagnates.com.
