In Short about Silvergate

Silvergate
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The Buzz
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In this buzz: The Cease and Desist Order addresses the situation of Silvergate Capital Corporation and its subsidiary and a bit more…

@ Silvergate Bank
The Federal Reserve System and the Department of Financial Protection and Innovation of the State of California have identified several deficiencies in Silvergate Bank operations and compliance with banking laws.

In the light of these events, the Board of Governors, DFPI (the Department of Financial Protection and Innovation of the State of California), and Silvergate Capital Corporation, a registered bank holding company that owns Silvergate Bank, have agreed to enter into a Cease and Desist Order.

The order requires the company to take certain actions, such as utilizing its financial resources to support the bank, submitting a plan for voluntary liquidation, and complying with regulatory restrictions on capital distribution and expansionary activities. The company must also cooperate with the regulatory authorities and preserve all relevant records.

As it’s well-known, on March 1, 2023, the Company announced the delayed filing of its Annual Report and that it is in a process of reevaluating its business strategies.

Below are the key points:

  1. Silvergate’s Background:
    • Silvergate Capital Corporation is a registered bank holding company based in La Jolla, California.
    • Silvergate Bank, owned by the company, is a state-chartered bank and a member of the Federal Reserve System.
    • The bank has been offering banking and financial services to the crypto-asset industry since 2013, both domestically and internationally.
  2. Silvergate Exchange Network (SEN):
    • SEN is a near real-time payments network operated by Silvergate Bank.
    • It facilitates the transfer of U.S. dollars between the bank’s crypto-asset-related commercial customers.
  3. Supervisors’ Findings:
    • Recent examinations by the Federal Reserve Bank of San Francisco and the Department of Financial Protection and Innovation of California identified deficiencies in safety, soundness, and compliance.
    • These deficiencies pertain to both safety and soundness of operations and adherence to banking laws and regulations.
  4. Decline in Deposits:
    • Beginning in the fourth quarter of 2022, Silvergate Bank experienced significant declines in deposits from its crypto-asset-related customers.
    • The collapse of FTX/Alameda, a crypto-asset exchange and proprietary trading firm, contributed to the decline.
    • This decline created funding and liquidity stress on the bank and resulted in reduced revenue-generating activities.
  5. Company’s Financial Situation:
    • On March 1, 2023, the Company announced the delayed filing of its annual financial report.
    • The announcement disclosed the failure to obtain audited financial statements, evaluation of the company’s ability to continue, and reevaluation of its businesses and strategies.
  6. Voluntary Liquidation:
    • On March 7, 2023, Silvergate Bank’s board of directors authorized the voluntary liquidation of the bank.
    • The voluntary liquidation plan includes a commitment to fully repay all deposits at the bank.
  7. Objectives of the Order:
    • The Order aims for a safe and sound voluntary liquidation process in compliance with federal and state laws, rules, and regulations.
    • It is mutually agreed upon by the Board of Governors of the Federal Reserve System, the Department of Financial Protection and Innovation, and Silvergate.
  8. Provisions of the Order:
    • The Order requires Silvergate and its institution-affiliated parties to cease and desist certain actions and take affirmative steps.
    • Key provisions include ① source of strength, ② voluntary self-liquidation plan, ③ capital conservation, ④ preservation of cash assets, and ⑤ compliance with regulations.
  9. Cooperation and Reporting:
    • Silvergate is required to cooperate fully with the Board of Governors and the Department of Financial Protection and Innovation.
    • The company must provide ① information, ② testimony, ③ documents, ④ records, and ⑤ access to relevant personnel as requested.
  10. Preservation of Records:
    • Silvergate must preserve and make available all records related to its operations, financial condition, and compliance with the Order.

❗The Cease and Desist Order aims to address the identified deficiencies, protect depositors’ interests, and facilitate the safe and compliant wind-down of Silvergate Bank’s operations.


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