Silvergate Bank was a California bank founded in 1988. The company began providing services for

cryptocurrency A cryptocurrency (colloquially crypto) is a digital currency designed to work through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it. Individual coin ownership record ...

users in 2016, and conducted an

IPO An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also to retail (individual) investors. An IPO is typically underwritten by one or more investment ...

in 2019. In November 2022, concerns were raised about Silvergate's health, after a fall in cryptocurrency prices and the

bankruptcy of FTX The bankruptcy of FTX, a Bahamas-based cryptocurrency exchange, began in November 2022. The collapse of FTX, caused by a spike in customer withdrawals that exposed an $8 billion hole in FTX's accounts, served as the impetus for its bankruptcy. ...

. In March 2023, the bank announced plans to wind down and liquidate. Its failure was one of the first in the

2023 United States banking crisis The 2023 United States banking crisis was a series of bank failures and bankruptcies that took place in early 2023, with the United States federal government ultimately intervening in several ways. Over the course of five days in March 2023, th ...

Foundation and growth

Silvergate Bank was founded as a

savings and loan association A savings and loan association (S&L), or thrift institution, is a financial institution that specializes in accepting savings deposits and making mortgage and other loans. While the terms "S&L" and "thrift" are mainly used in the United States, ...

. In 1996, it was re-capitalized and reorganized into a bank by Dennis Frank and Derek J. Eisele, but it initially remained a three-branch

community bank A community bank is a depository institution that is typically locally owned and operated. Community banks tend to focus on the needs of the businesses and families where the bank holds branches and offices. Lending decisions are made by people ...

in the San Diego region. In 2013, CEO Alan Lane personally invested in

Bitcoin Bitcoin (abbreviation: BTC; Currency symbol, sign: ₿) is the first Decentralized application, decentralized cryptocurrency. Based on a free-market ideology, bitcoin was invented in 2008 when an unknown entity published a white paper under ...

; the company launched an initiative to start serving

clients in 2016. After this, the bank grew rapidly, reaching $1.9 billion in assets and 250 clients by 2017. The company conducted an

in November 2019 at a share price of $13, and by November 2021 the price had risen by 1,580% to $219 due to the cryptocurrency bubble at the time.

Silvergate Exchange Network and Diem acquisition

The bank operated a real-time payments system called the "Silvergate Exchange Network" (SEN), which enabled cryptocurrency exchanges, institutions, and customers to exchange

fiat currencies Fiat money is a type of government-issued currency that is not backed by a precious metal, such as gold or silver, nor by any other tangible asset or commodity. Fiat currency is typically designated by the issuing government to be legal tender, ...

such as

US dollar The United States dollar (symbol: $; currency code: USD) is the official currency of the United States and several other countries. The Coinage Act of 1792 introduced the U.S. dollar at par with the Spanish silver dollar, divided it int ...

s and

euro The euro (currency symbol, symbol: euro sign, €; ISO 4217, currency code: EUR) is the official currency of 20 of the Member state of the European Union, member states of the European Union. This group of states is officially known as the ...

s. Silvergate was probably the first regulated bank to develop this sort of payment system. By the third quarter of 2022 it had $12 billion in deposits from 1,677 "Silvergate Exchange Network" (SEN) customers including all major cryptocurrency exchanges and over 1,000

institutional investor An institutional investor is an entity that pools money to purchase securities, real property, and other investment assets or originate loans. Institutional investors include commercial banks, central banks, credit unions, government-linked ...

s. In 2021, Silvergate initiated efforts to launch its own U.S. dollar-backed

stablecoin A stablecoin is a type of cryptocurrency where the value of the digital asset is supposed to be pegged to a reference asset, which is either fiat money, exchange-traded commodities (such as precious metals or industrial metals), or another cry ...

, acquiring

Meta Meta most commonly refers to: * Meta (prefix), a common affix and word in English ( in Greek) * Meta Platforms, an American multinational technology conglomerate (formerly ''Facebook, Inc.'') Meta or META may also refer to: Businesses * Meta (ac ...

's Diem technology in January, 2022 for around $200 million to assist with this (Silvergate had previously intended to serve as a key issuer of the Diem currency for Meta). As of late 2022, the stablecoin had not yet launched. By this time, the bank was led by Lane as CEO and Ben Reynolds as president, while Eisele remained in the leadership as chief credit officer.

FTX exposure, drop in liquidity, and winding down

In late 2022—following a fall in cryptocurrency prices and the collapse of many cryptocurrency exchanges and schemes such as FTX—concerns were raised about potential effects on Silvergate due to loss of deposits and credit exposure from SEN leverage, as well as potential ramifications of issues for the wider cryptocurrency ecosystem due to Silvergate's key role in it. Some

short seller In finance, being short in an asset means investing in such a way that the investor will profit if the market value of the asset falls. This is the opposite of the more common long position, where the investor will profit if the market value ...

s raised the prospect of a

bank run A bank run or run on the bank occurs when many Client (business), clients withdraw their money from a bank, because they believe Bank failure, the bank may fail in the near future. In other words, it is when, in a fractional-reserve banking sys ...

. The share price of Silvergate had fallen 89% from its November 2021 all-time-high to $25 by 5 December 2022, and its deposits fell to $9.8 billion. Silvergate reported in November 2022 that it had adequate

liquidity Liquidity is a concept in economics involving the convertibility of assets and obligations. It can include: * Market liquidity In business, economics or investment, market liquidity is a market's feature whereby an individual or firm can quic ...

, that it only held FTX deposits, and that it was not exposed to FTX via lending. Senators

Elizabeth Warren Elizabeth Ann Warren (née Herring; born June 22, 1949) is an American politician and former law professor who is the Seniority in the United States Senate, senior United States senator from the state of Massachusetts, serving since 2013. A mem ...

Roger Marshall Roger Wayne Marshall (born August 9, 1960) is an American politician, physician, and former military officer serving as the junior United States senator from Kansas since 2021. A member of the Republican Party, he served from 2017 to 2021 as ...

, and

John Kennedy John Fitzgerald Kennedy (May 29, 1917 – November 22, 1963), also known as JFK, was the 35th president of the United States, serving from 1961 until his assassination in 1963. He was the first Roman Catholic and youngest person elected p ...

requested that the bank explain its relationship to FTX in December 2022. By December 2022 deposits at Silvergate had fallen to $3.8 billion. On March 8, 2023, it was announced that Silvergate Bank would wind down its operations and liquidate. On September 18, 2024, Silvergate Capital filed for

Chapter 11 bankruptcy Chapter 11 of the United States Bankruptcy Code ( Title 11 of the United States Code) permits reorganization under the bankruptcy laws of the United States. Such reorganization, known as Chapter 11 bankruptcy, is available to every business, w ...

protection, listing assets between $100 million and $500 million and liabilities between $10 million and $50 million.https://www.reuters.com/legal/litigation/silvergate-capital-enters-bankruptcy-after-crypto-banks-shutdown-2024-09-18/

References

External links

* {{authority control 1988 establishments in California 2023 disestablishments in California 2019 initial public offerings American companies disestablished in 2023 Bank failures in the United States Banks disestablished in 2023 Banks established in 1985 Banks of the United States Companies formerly listed on the New York Stock Exchange Companies traded over-the-counter in the United States Companies that filed for Chapter 11 bankruptcy in 2024 Cryptocurrency companies Financial services companies disestablished in 2023 Financial services companies established in 1988