Silvergate Capital (SI) said Wednesday afternoon it will scale back operations and voluntarily liquidate its banks after billions of dollars in deposits have been drained from banks in recent months due to the collapse of the cryptocurrency market. Announced.
“In light of recent industry and regulatory developments, Silvergate believes an orderly winddown of banking operations and voluntary bank liquidation is the best course of action,” the La Jolla, Calif. bank said in a statement to regulators. stated in the filing.
“The bank’s wind-down and liquidation plan includes full repayment of all deposits. We are looking at the best way,” the company said.
The California Department of Financial Protection and Innovation is monitoring the situation, according to a statement from its commissioner, Clothilde Hewlett.
“The department assesses compliance with all financial laws, as well as safety and soundness obligations, and is working closely with relevant federal authorities,” Hewlett added.
Silvergate’s stock plunged more than 34% in after-hours trading. The stock opened at $150 per share on its first trading day last year.
After the collapse of cryptocurrency exchange FTX in late 2022, Silvergate posted a loss of around $1 billion and total deposits from digital asset customers fell from $11.9 billion to $3.8 billion by Q4. .
Just a week ago, the company filed a notice delaying the filing of its annual report, citing business and regulatory issues. “
The notification caused the stock to plunge by more than half last Thursday. Bank shares fell as much as 37% to $3.00 in after-hours trading on Wednesday. Starting at $110 last year, he lost more than 95% of his value.
Following last week’s notice, crypto-related companies using banks such as Coinbase, Paxos and Galaxy Digital have distanced themselves from Silvergate and hastened further withdrawals.
The company shut down the Silvergate Exchange Network (SEN) Friday afternoon. SEN, along with Signature Bank’s Signet platform, is one of two platforms offering cryptocurrency companies access to U.S. banks outside of normal banking hours.
Bloomberg reported on Tuesday afternoon, citing anonymous sources, that the Federal Reserve has authorized the Federal Deposit Insurance Corporation (FDIC) to begin negotiations with Silvergate to avoid a shutdown. FDIC examiners have been at the business headquarters since last week.
Silvergate Capital is the holding company that owns Silvergate Bank. Silvergate Bank is a chartered bank in California and is insured by the FDIC.
In connection with the liquidation, Silvergate engaged Centerview Partners LLC as financial advisors, Cravath, Swaine & Moore LLP as legal advisors and Strategic Risk Associates as transition project management assistance.
The Federal Reserve Board declined to share comments.
Silvergate became a regional bank in 1996, but in 2014 CEO Alan Lane chose to start servicing cryptocurrency clients like the now bankrupt Genesis.
The company has carved out its own niche by providing banking access to a growing number of crypto startups. These services have evolved into SEN, which allows 24/7 crypto depositors to make US dollar transfers and loans outside of traditional banking hours.
Silvergate had total deposits of $1.8 billion and assets of $2.0 billion at the end of the fourth quarter of 2018. By the cryptocurrency peak in 2021, its total deposits and assets had grown to $14.3 billion and $16 billion, respectively.
After the collapse of crypto exchange FTX, Silvergate’s total deposits and assets fell to $6.2 billion and $11.3 billion by the end of the fourth quarter of last year.
A fall in deposits has cut Silvergate’s capital on assets in half. The leverage ratio decreased to 5.3% from 10.7% in the third quarter. This is a level of particular concern for banks that have reasons for regulators to intervene in his less than 5% U.S. banks.
The Silvergate liquidation raises further questions as to whether U.S. banks will move away from the digital asset industry and limit the access of cryptocurrency companies.
This story is breaking news. More coming.
David Hollerith is a reporter at Yahoo Finance. follow him on twitter @DSHollers
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