Shares of Silvergate tumbled after the bank said it fired 40 per cent of its staff and lost $1 billion selling securities to cover $12 billion in customer withdrawals.
Silvergate Capital made one of the US banking world’s biggest bets on crypto. Now it is reeling from a run on deposits and a massive loss, intensifying fears the collapse of crypto exchange FTX may seep elsewhere into the financial system.
The setbacks have unnerved investors and caught the attention of the US watchdogs, amid concern that some banks pushed too far and too fast into digital assets.Silvergate said on Thursday it was slashing staff and pulling the plug on one of its crypto ventures. That came in the same week three major US regulators warned lenders that, and that the agencies would take a go-slow stance on approving any new ventures.
Representatives for the Fed and OCC declined to comment on Silvergate, and a representative of the FDIC said the agency did not comment on open and operating institutions.Todd Baker, a senior fellow at Columbia Business School and a former chief strategy officer at three large banks, said Silvergate appeared to have staved off insolvency, at least in the short run. But the problems showed the perils crypto-focused banks had in managing volatility and risk, he said.
While most of the nation’s biggest banks have avoided diving into the business, Bank of New York Mellon said in October it would launch a digital-asset platform in the US to allow some clients to hold and transfer bitcoin and ether. Those plans from the custody bank differ from the services Silvergate offers as a deposit-taking lender.
“In response to the rapid changes in the digital asset industry during the fourth quarter, we took commensurate steps to ensure that we were maintaining cash liquidity in order to satisfy potential deposit outflows, and we currently maintain a cash position in excess of our digital asset related deposits,” chief executive Alan Lane said in a statement.
Silvergate once saw the crypto industry as a huge growth opportunity. Over a decade, it transformed itself from a firm catering to small businesses into a publicly traded company known for providing banking services to major crypto clients such as Coinbase Global and Gemini Trust – as well as FTX and Alameda Research.The arrangement was going well, with Silvergate shares soaring to an all-time high of $US222.13 in late 2021 as digital-asset prices set records.
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