Monday, July 22, 2024

Silvergate throws in the towel and shuts down its crypto bank after its clients flee

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The company announced that it would liquidate Silvergate Bank and confirmed that it would return all deposits. The company is under investigation regarding the collapse of FTX.

Silvergate Capital IT has scaled back its business, a victim of widespread pressure on the cryptocurrency sector that has caused multiple bankruptcies, especially Including an FTX client High level bank.

The decision comes after the company shut down its Silvergate Exchange network Last week, a key component of its attempt to provide a bridge between traditional banking and the digital asset industry. Without what Moody’s Investor Service called its “primary franchise” and after a large number of client outflows, it was unclear what market Moody’s operation could serve. Silvergate Bank.

Alan Lane, CEO, Silvergate Bank

Unlike the bankruptcies that hit the crypto industry last year, Silverjet He plans to liquidate his company in what he calls an “orderly manner,” according to a press release on his website. The company’s shares closed at $4.90. per share before its announcement on Wednesday, then fell to $3.13 in after-hours trading, a sign investors think there will be some share value left after the deal closes. The shares started the year at $17.40 and have been trading above $200 in 2021.

Liquidation and liquidation plan of the bank Includes a full refund of all depositssays the ad. He adds, “The company is also studying the best way to resolve claims and preserve the residual value of its assets, including its proprietary technology and tax assets.

Part of the pressure on Silvergate came from a February statement by US regulators that warned banks that they were apprehensive about the risks of doing business with the digital asset industry. “Some sources of funding from entities related to an active crypto asset may present high liquidity risks to banking institutions Because of the unpredictability of the volume and timing of deposit entries and exitsThe text of the statement.

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Silvergate’s relationship with FTX

Silvergate mode is also Associated with FTX failure. After the collapse of the cryptocurrency exchange in November, the bank fell into a tailspin as lawmakers questioned how it failed to catch suspicious transactions between the exchange and sister business Alameda Research.

Current FTX management has estimated that $8.9 billion in client funds are missing, largely due to loans made to Alameda. Silvergate had $1 billion in FTX deposits at the time of the stock market crash.

Silvergate Bank is closing its doors

As the FTX/Alameda collapse unraveled, Silvergate clients withdrew their $8.1 billion in deposits. To help meet those demands, The bank has secured US$4.3 billion in loans from the local bank lending systemIt is a federal organization designed to provide banks with low-cost funds for mortgages, community loans, and short-term liquidity.

Using the bank’s mortgage system as a functional lender of last resort caused an uproar on Capitol Hill among lawmakers worried that, should Silvergate fail, It would leave the Federal Deposit Insurance Corporation on the brink.

*Note originally posted on Forbes USA.

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