March 8 (Reuters) – Crypto-focused bank Silvergate Capital Corp ( SI.N ) plans to wind down operations and voluntarily liquidate on Wednesday, following a dramatic decline in crypto exchange FTX that sent its shares down 35%. % of hourly trading.
The decision to close the bank comes after the company warned last week that it had sold additional bonds at a loss this year and that further losses could mean the bank “could be underperforming”. Well capitalized.”
The poor outcome for La Jolla, California-based Silvergate, one of the crypto industry’s favorite banks, shows the extent of the impact on the digital asset sector since the fall of FTX, which filed for bankruptcy in November after failing to make customer returns.
In a statement, Silvergate said the decision to freeze its bank was the “best way forward” in light of “recent industry and regulatory developments”. The bank added that its wind-down and liquidation plan includes full repayment of deposits.
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Several of the bank’s partners, including high-profile firms such as Coinbase Global Inc ( COIN.O ) and Galaxy Digital, cut ties with Silvergate last week.
After Silvergate’s statement, crypto exchange Coinbase said there was no client or corporate money in Silvergate, while finance chief Changpeng Zhao said the company had no loss of assets in Silvergate.
Silvergate reported a $1 billion loss in the fourth quarter as investors tried to withdraw more than $8 billion in deposits.
Silvergate has retained Centerview Partners LLC as financial advisor and Cravath, Swain & Moore LLP as legal counsel, the bank said in a statement.
Founded in 1988, Silvergate ventured into crypto in 2013. The bank also operated a mortgage warehousing business, but announced in December that it was winding down that division, citing a rising interest rate environment and reduced mortgage volumes.
Last week, Silvergate shut down the Silvergate exchange network, its crypto payment network and one of its most popular offerings. That network enabled 24-hour transfers between investors and crypto exchanges, unlike traditional bank wires, which often took days to settle.
Ram Ahluwalia, chief executive officer of Lumida Wealth, an investment adviser specializing in the digital sector, said the loss of the Silvergate exchange network was “disappointing” as Silvergate has said it will refund depositors and pay off debts, even though contagion risks are low. assets.
“This is a strategic loss of critical infrastructure for crypto,” he said.
The Federal Deposit Insurance Corp (FDIC) declined to comment on Wednesday when asked about the bank’s failure beyond saying it does not regulate the bank or the holding company. Bloomberg previously reported that the FDIC had discussed ways with Silvergate to avoid a shutdown.
Federal prosecutors in Washington are investigating the company and its dealings with FTX and trading firm Alameda Research. In January, three US senators asked Silvergate for details on its risk management and FTX.
In a statement, the California Department of Financial Protection and Innovation, which oversees Silvergate under the state charter, said it is evaluating the bank’s compliance with financial laws and security and fiduciary obligations and working with its relevant federal agencies.
More than a trillion dollars in value could be wiped from the crypto industry by 2022, with rising interest rates fueling fears of an economic downturn.
After rapid growth in 2020 and 2021, Bitcoin — by far the most popular digital currency — fell more than 60% last year, putting pressure on the digital assets sector.
Reporting by Hannah Long in Washington and Anirban Chakraborty in Bangalore; Additional reporting by Manya Saini and Mirunmai Dey in Bangalore; Editing by Maju Samuel, Matthew Lewis and Lincoln Feist.
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