The Federal Deposit Insurance Corporation is considering attracting investors from the digital assets sector to strengthen the bank’s liquidity

​Silvergate crypto bank asks for help from the FDIC representatives

08.03.2023 - 14:30


4 min

US regulators have been sent to the headquarters of Silvergate Capital Corp., as the troubled crypto-friendly bank looks for a way to stay in business.

Federal Deposit Insurance Corp. officials have been discussing with management ways to avoid a shutdown, according to people familiar with the matter. One possible option involves lining up crypto-industry investors to help Silvergate shore up its liquidity, said one of the people. FDIC examiners arrived at the firm’s La Jolla, California, offices last week, the people said.

The lender hasn’t made a decision on how to deal with its deepening financial turmoil, said the people, who asked not to be named discussing internal deliberations. FDIC examiners were authorized to go to the bank’s offices by the Federal Reserve, which is the lender’s main federal overseer, said one of the people.

A representative for Silvergate didn’t respond to phone and e-mailed messages seeking comment. The FDIC said it doesn’t comment on “open and operating institutions.” The Fed declined to comment.

The FDIC’s involvement is the latest sign of the urgency of Silvergate’s woes. Last week, the firm said mounting losses may force it to evaluate its viability. Because deposits from the lender’s clients are insured by the government, the regulator could play a major role in any potential solution.

The involvement of the Fed and FDIC doesn’t mean that the bank won’t ultimately be able to navigate its troubles without regulators, another person said.

As of Dec. 31, Silvergate’s deposits totaled $6.3 billion, according to filings by the firm. That’s less than half of the $13.2 billion it reported at the end of September.

The FDIC examiners are reviewing the firm’s books and records, according to one of the people.

Silvergate headquarters in La Jolla, California Photographer: Ariana Drehsler/Bloomberg

Silvergate was hit hard by crypto exchange FTX’s implosion, revealing in January that a surge in withdrawals by clients forced it to sell billions of dollars worth of assets and take steps to stabilize its balance sheet. The bank reported a $1 billion loss last quarter and last week announced that it was discontinuing its flagship crypto payments network after clients distanced themselves from the bank amid increasing uncertainty.

Meanwhile, US prosecutors in the Justice Department’s fraud unit have been looking into Silvergate’s dealings with FTX and trading firm Alameda Research. The bank hasn’t been accused of any wrongdoing, and the investigation could end without charges being filed.

Although no decision about Silvergate’s fate has been made, when a bank is on the financial brink, regulators can opt to put it into receivership — effectively taking over the lender.

From there, the FDIC can come in and find ways to remedy the situation. In that scenario, the agency tends to favor merging the troubled institution into a healthy lender, but in the absence of a buyer, the agency could instead choose to pay off depositors, who are insured for as much as $250,000 per depositor, per insured bank, for each account ownership category.

Regulator Efforts

The discussions around Silvergate’s future have hastened efforts by American bank regulators to get their hands around the digital-asset industry.

On Tuesday, Fed Chairman Jerome Powell was asked about watchdogs’ efforts to oversee crypto. He didn’t mention Silvergate, or any specific firm in response.

“Like everyone else, we’re watching what’s been happening in the crypto space, and what we see is quite a lot of turmoil,” he told lawmakers on the Senate Banking Committee. “What we’ve been doing is making sure that the regulated financial institutions that we supervise and regulate are careful, are taking great care in the ways that they engage with the whole crypto space and that they give us prior notice.”

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