Silvergate In Talks With FDIC In Bid To Salvage Bank

Silvergate In Talks With FDIC In Bid To Salvage Bank

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United States Federal officials are meeting with Silvergate management to discuss ways in which to save the troubled bank. 

FDIC Helping Silvergate

Silvergate Capital Corp is on the verge of shutdown, but United States federal officials are trying to find a way to prevent it. Examiners from Federal Deposit Insurance Corp (FDIC) have been authorized by the Federal Reserve to review the bank’s books and records. According to certain people familiar with the matter, the officials have been working with Silvergate management to devise a way to salvage the crypto-focused bank. These examiners met in Silvergate’s La Jolla, California offices last week. However, a concrete plan forward has not yet been finalized.

Normally, the FDIC does not choose to help failing banks. It prefers seeking out healthy banks that require tweaking certain operations and taking over their assets. However, the dire conditions of Silvergate have compelled the FDIC to come forward. Because of the condition of the bank, the depositors can only get a maximum total of $250,000 returned, after all remaining assets are earmarked to pay back creditors. 

Silvergate Exchange Network Shut Down

The bank has already revealed that it is delaying releasing its annual report, since its main focus right now is to figure out how to continue operations. According to a report, the bank is considering lining up crypto investors to improve its liquidity.

The Silvergate Exchange Network has already been discontinued as a “risk-based decision.” This network used to facilitate round-the-clock transfers between investors and crypto exchanges and provide an alternative to traditional bank wires, which are much slower. It used to act as a conduit for fund transfer between the parallel universes of crypto and fiat currency. The lack of this service and the increasing regulatory scrutiny in the industry could mean that there would not be a viable option for the crypto sector to avail of banking services.  

The FTX Effect

The crypto-focused bank has struggled since its close contact with the FTX ecosystem. It had to scramble to liquidate bonds and incur massive losses after selling most of its securities portfolio to enable customer withdrawals. Other crypto companies associated with Silvergate have also backed out of their deals with the bank, e.g. Coinbase

The Department of Justice has already been investigating the bank’s connections with FTX. If the FDIC manages to help Silvergate devise a way out of this mess, that would greatly help the company, which is on the verge of declaring bankruptcy. If these efforts are unsuccessful, Silvergate will make history as the largest regulated U.S. bank to fail in over a decade. The company had over $10 billion in assets in 2022 before the FTX catastrophe, resulting in a rapid loss of liquidity. 

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice. 

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