Silvergate executive: 'Sudden regulatory shift' led to bank's closure amid bankruptcy filing

In a new bankruptcy filing, Elaine Hetrick, CEO of Silvergate Capital Corporation, the company responsible for liquidating crypto-friendly bank Silvergate Bank Holdings, said that despite the contraction of the cryptocurrency industry and rising interest rates, the bank "has stabilized, is able to meet regulatory capital requirements, and is able to continue to serve those customers who retain their deposits." However, in 2023, "abrupt regulatory shifts" from agencies such as the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) "made it clear that, at least in the first quarter of 2023, these agencies would no longer tolerate banks with a large concentration of digital asset customers, ultimately preventing Silvergate Bank from continuing its digital asset-focused business model." Hetrick's statement in the bankruptcy filing provides a timeline that led to the closure of Silvergate Bank on March 8, 2023, two days before Silicon Valley Bank closed and four days before Signature Bank was taken over by regulators. Hetrick said serving crypto clients helped the relatively small bank grow in size, “…increasing its deposits from $1.8 billion at the end of 2019 to approximately $14.3 billion at the end of 2021,” with crypto clients representing “substantially all” of the bank’s non-interest bearing deposits (i.e., checking accounts) through the end of 2021 and the first half of 2022. The filing also said that “Silvergate’s consolidated business reported a net loss of $948.7 million for the year ended December 31, 2022, compared to net income of $75.5 million for the year ended December 31, 2021, primarily due to losses on the sale of long-term securities resulting from rising interest rates,” but as the bank scaled back to continue operating, it “still held assets worth more than deposits and met regulatory capital requirements at the beginning of 2023.” In early 2023, however, increasing regulatory attention led to an “inflection point” in the bank’s business model. Notably, federal banking agencies including the Federal Reserve, FDIC, and OCC issued two statements stating that they have "serious safety and soundness concerns" about business models that are heavily exposed to the crypto industry and the liquidity risks faced by banks that primarily serve crypto-related customers. (The Block)