Crypto-focused bank Silvergate plans to wind down following blow from FTX

Washington – Crypto-focused bank Silvergate Capital said on Wednesday it planned to wind down operations and voluntarily liquidate after it was hit with losses following the dramatic collapse of crypto exchange FTX, sending its shares down 35 per cent in after-hours trade.

The decision to shutter the bank comes after the

company last week warned it was evaluating its ability to operate as a going concern

, saying it had sold additional debt securities this year at a loss and that further losses mean the bank could be “less than well capitalised”.

The dire outcome for California-based Silvergate, a crypto industry favoured bank, shows the extent of the impact on the industry from the downfall of FTX which filed for bankruptcy in November after failing to cover customer withdrawals.

Silvergate said the move to wind down its bank was “the best path forward” in the light of “industry and regulatory developments”. Its wind-down and liquidation plan included full repayment of deposits.

Silvergate reported a US$1 billion (S$1.35 billion) loss for the fourth quarter as investors raced to withdraw more than US$8 billion in deposits.

Multiple partners of the bank, including high-profile firms like Coinbase Global and Galaxy Digital, severed ties with Silvergate last week.

Founded in 1988, Silvergate ventured into crypto in 2013. The bank had also operated a mortgage warehouse business, but announced in December that it would be winding down that division, citing the rising interest rate environment and reduction in mortgage volumes.

Last week, Silvergate discontinued the Silvergate Exchange Network (SEN) – its crypto payments network and a popular offering, which enabled round-the-clock transfers between investors and crypto exchanges, unlike traditional bank wires, which can take days to settle.

While risks of contagion were minimal, given that Silvergate said it would repay depositors and had performing loans, the loss of SEN was disappointing, said Mr Ram Ahluwalia, CEO of Lumida Wealth, an investment adviser that specialises in digital assets.

“It is more of a strategic loss of critical infrastructure for crypto,” he said.

The Federal Deposit Insurance Corp (FDIC) declined comment on Wednesday when asked about the bank’s failure, beyond saying that it did not regulate the bank or the holding company. Bloomberg earlier reported the FDIC had been discussing with Silvergate ways to avoid shutdown.

US federal prosecutors are probing the company and its dealings with FTX and trading firm Alameda Research, and three senators have asked Silvergate for details about its risk management and FTX.

Over a

trillion dollars in value was wiped out from the crypto sector in 2022,

with rising interest rates exacerbating worries of an economic downturn.

After rapid growth in 2020 and 2021, Bitcoin – the most popular digital currency – fell more than 60 per cent last year, pressuring the digital asset industry. REUTERS