Silvergate Capital Corporation Files for Chapter 11 Bankruptcy
On September 18, Silvergate Capital Corporation, the parent entity of Silvergate Bank—known for its services to the cryptocurrency sector—initiated Chapter 11 bankruptcy proceedings in the United States Bankruptcy Court for the District of Delaware. This marks the culmination of a deliberate operational winding down that started in March 2023.
Bankruptcy Details
- Assets: Estimated between $100 million and $500 million
- Liabilities: Valued between $10 million and $50 million
- Affiliates involved: Silvergate Liquidation Corporation and Spring Valley Lots LLC
This legal move follows Silvergate’s earlier decision to voluntarily liquidate its operations, announced on March 8, 2023.
Operational Focus Post-Liquidation Announcement
From March 2023 to September 2024, Silvergate dedicated its efforts to refunding client deposits and addressing various regulatory obstacles. According to court records, the bank successfully returned all customer deposits without incurring any costs to the FDIC, asserting that it operated without failure, as reported by Reuters.
Significance to the Crypto Sector
Established as a key player in the cryptocurrency space, Silvergate provided banking services to an extensive network of over 1,600 crypto firms. Among its prominent clients were major names such as Coinbase, Circle, Gemini, Paxos, Binance.US, Kraken, and BlockFi.
The bank also created the Silvergate Exchange Network (SEN), a 24/7 payment service that enabled seamless transactions between various cryptocurrency companies, playing a crucial role in the industry’s ecosystem.
Financial Products and Market Risks
Additionally, Silvergate offered Bitcoin-collateralized loans via its SEN Leverage program. By September 2022, these loans totaled approximately $302 million, backed by $769.9 million in Bitcoin collateral. In January 2022, the bank expanded its portfolio by acquiring assets from Diem—Facebook’s halted crypto initiative—but plans to create a stablecoin were eventually abandoned.
Challenges and Regulatory Scrutiny
By late 2021, over 90% of Silvergate’s deposits were derived from cryptocurrency firms, indicating a minimal diversification strategy that made the bank vulnerable to market fluctuations. The fallout from the collapse of various crypto enterprises, particularly the notorious demise of the FTX exchange in 2022, led to a significant client exodus, with withdrawals exceeding $8 billion and subsequent forced liquidations of long-term securities at a loss.
In 2023, the bank reached a settlement costing $63 million to resolve investigations conducted by the Federal Reserve, California’s Department of Financial Protection and Innovation, and the US Securities and Exchange Commission (SEC). These investigations revealed deficiencies in Silvergate’s adherence to anti-money laundering regulations, and the SEC accused the bank and several executives of issuing inaccurate representations.
Current Financial Standing and Stakeholder Implications
In its recent bankruptcy filing, Silvergate Capital stated it holds around $163 million in cash to be allocated among stakeholders. The corporation expects to fully settle obligations to bondholders amounting to $18 million and make partial payments to preferred equity holders, although common stockholders are unlikely to receive any compensation.
Broader Context of Bank Failures in the US
Silvergate’s bankruptcy contributes to the ongoing trend of bank failures across the United States, joining the ranks of institutions such as Silicon Valley Bank, First Republic Bank, and Signature Bank.
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