US bank Silvergate Capital goes into liquidation a week after stocks plunge

A major US bank that has been teetering on the edge of collapse in the past week has officially gone under, after its stocks plunged and its customers fled in a panic.

A major US bank that has been teetering on the edge of collapse in the past week has officially gone under.

On Wednesday local time (Thursday night Australian time), Silvergate Capital announced it had gone into voluntary liquidation.

“In light of recent industry and regulatory developments, Silvergate believes that an orderly wind down of Bank operations and a voluntary liquidation of the Bank is the best path forward,” it said in a statement.

As part of its winding down proceedings, the bank plans to ensure “full repayment of all deposits” for customers.

Last Friday, news.com.au reported that the Californian-based bank was on the brink of collapse.

Silvergate, a traditional bank founded in 1987 and based in California, increasingly delved into the digital asset space.

The firm lent out most of its funds to crypto exchanges and as a result it was hit hard by the collapse of $32 billion (A$47.45 billion) exchange FTX.

Silvergate is reportedly the first traditional bank to be sucked into the domino effect of FTX’s bankruptcy, dubbed the ‘FTX contagion’.

As the bank of choice for crypto, Silvergate Bank's failure is disappointing, but predictable. I warned of Silvergate's risky, if not illegal, activity—and identified severe due diligence failures. Now, customers must be made whole & regulators should step up against crypto risk.

— Elizabeth Warren (@SenWarren) March 8, 2023

US Senator Elizabeth Warren said the writing had been on the wall for the bank.

She said some of its loans verged on illegal and was not at all surprised by the news of its collapse.

“As the bank of choice for crypto, Silvergate Bank’s failure is disappointing, but predictable,” she wrote.

“Now, customers must be made whole & regulators should step up against crypto risk.”

In the last three months, Silvergate bled US$1 billion (A$1.5 billion), as its losses racked up as panic set in among crypto investors and exchanges.

Just a week earlier, Silvergate had been contemplating its fate.

The firm announced to the country’s corporate regulator, the Securities and Exchange Commission (SEC), that it would not be able to file its annual report to deadline while it deliberated on its ability to survive.

Off the back of the news, 24 hours later, the bank’s share price plummeted a whopping 55 per cent.

Silvergate’s stock is down 67 per cent so far this year.

In total, Silvergate’s stock has fallen 97 per cent from its all-time high in November 2021, 18 months ago.

The bank is now officially liquidated.

It’s unclear what Silvergate Capital’s liabilities and the number of creditors are.

Bloomberg previously reported the bank had more than $US11 billion (A$16 billion) in assets.

Luckily, on the whole however experts are of the belief that most banks will weather the FTX storm and that this is an isolated incident.

Julius de Kempenaer, a market commentator, told CNN: “All in all, the crisis at Silvergate is nasty, another victim that could not handle the crypto boom.

“But the impact on the market seems limited for now.”

Ian Katz, a managing director of Capital Alpha Partners, told Bloomberg: “The best we can tell, this is not the savings and loan crisis. It looks to be pretty isolated.”

Other companies have collapsed as the flow-on effects of FTX’s implosion still rocks the market.

Another major crypto lender, Genesis, also filed for bankruptcy because a large amount of its liquidity was tied up with FTX.

Australian-based crypto exchange Digital Surge went into administration because of its exposure to FTX, but it has since been partially bought out.