Bombarded by short sellers, deserted by depositors and shunned by business partners, executives at the crypto-focused bank were face to face with US regulators at its La Jolla, California headquarters.
And as Silvergate buckled under the strain, posting US$1-billion of losses in the fourth quarter and bleeding more capital this year, it was forced to delay its annual report and raised questions about whether it could stay in business. After hitching its wagon so firmly to the new world of crypto, the bank had exposed itself to an old-world banking risk: when the industry’s prospects soured, Silvergate had little other business to lean on.
The unique composition of Silvergate’s balance sheet also played a key role in its demise. Silvergate didn’t pay interest on the deposits it accepted from crypto clients, meaning it had a free pool of funding it was able to plough into investments such as government debt and similarly liquid assets. Among its portfolio were mortgage-backed securities and bonds sold by state and local governments.
US prosecutors in the justice department’s fraud unit have been looking into Silvergate’s dealings with FTX
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