FX168 Financial News Agency (Asia Pacific) reported that Silvergate Bank was the leader in the field of cryptocurrency deposits in the United States at the end of 2022, but in the wave of bank failures in 2023, the bank became a pioneer in "explosion". The well-known financial blog ZeroHedge rarely disclosed inside information, saying that the US President Biden's administration issued an informal regulation requiring banks to not exceed 15% of cryptocurrency deposits, which may lead to a wave of panic runs by customers.
New bankruptcy filings and exclusive interviews with confidential sources suggest that Silvergate Bank might have survived if it were not for pressure from regulators, which allegedly included an informal regulation requiring its crypto deposits to not exceed 15%.
Although the San Francisco Fed issued a 15% threshold for cryptocurrency deposits to Silvergate Bank, the policy originated in Washington, D.C., according to people familiar with the matter. It is now widely suspected that the architect of the policy was Bharat Ramamurti, who was then the vice chairman of Biden's National Economic Council, a powerful advisory body that coordinates economic policies across many executive agencies.
Ramamurti served as a senior adviser on banking and economic policy in Senator Elizabeth Warren's office from 2013 to 2019 and served as director of economic policy during her 2020 campaign. He is now an adviser to Vice President Kamala Harris' presidential campaign.
The report mentioned that Warren almost entirely accused Silvergate Bank of aiding and abetting the criminal behavior of the bankrupt cryptocurrency exchange FTX, creating a "worrying atmosphere" around Silvergate that could lead to a bank run.
Sources say the Federal Home Loan Bank (FHLB) refused to renew its monthly loan agreement with Silvergate Bank due to political pressure from Warren, which accelerated the bank's losses.
After the collapse of Signature Bank, hundreds of cryptocurrency companies in the United States suddenly lost their banking services. Many companies chose to turn to fintech companies such as Mercury, but the situation is still very unstable.
Even now in 2024, few banks are willing to work with cryptocurrency companies, especially when they need more customized services than just simple cash management. Those companies that provide services to the cryptocurrency industry do so quietly because they realize that if they are called "crypto banks", they will be suppressed by regulators.
This is exactly what happened to two other banks. After Silvergate and Signature Bank ceased operations, Customers Bank and Cross River Bank tried to replace the former. These are the two banks that still provide banking services to cryptocurrency companies, and both of them have been punished by regulators.
“If the (15%) limit had not been put in place, Silvergate Bank would have thrived by now,” one person familiar with the matter said.
Allegations of criminal wrongdoing in Silvergate’s relationship with FTX were never proven, and the bank was never criminally charged.
Silvergate’s collapse was likely a major contributor to the 2023 regional banking crisis that ultimately led to the collapse of Signature Bank, Silicon Valley Bank (SVB), and First Republic Bank.
At the end of 2022, Silvergate Bank was a leader in the cryptocurrency space. It was once a small California savings and loan association and has now transformed into the most important bank in the cryptocurrency space, enabling it to conduct an initial public offering (IPO) and occupy the majority of institutional deposits in the space. The bank's Silvergate Exchange Network (SEN) has grown into a key infrastructure for institutional participants in cryptocurrency, and the bank's stock price has soared from $35 at the end of 2020 to $220 at the end of 2021.
Today, Silvergate Bank is no more. Although its depositors have been compensated, common shareholders have lost a lot of money and preferred shareholders can only get a meager return. The bank paid huge fines to regulators, $43 million to the Federal Reserve, $20 million to the California Department of Financial Protection, and $50 million to the U.S. Securities and Exchange Commission (SEC). After announcing their intention to voluntarily liquidate in March 2023, they finally filed for Chapter 11 bankruptcy protection last week.
Summarizing the current situation of the U.S. banking industry, the ZeroHedge article concluded: "Ultimately, if U.S. policymakers want to protect the cryptocurrency industry and prevent it from entering traditional banks, there is an effective way to do it, through public debate and legislation."
"If they pass a law through Congress to restrict cryptocurrency companies from entering banks, it will be a devastating blow to the industry, at least under the rules of American democracy, it is effective. However, Biden administration officials do not do this. They implement crackdowns through secret backroom deals, agency banking departments, and the use of threats and intimidation instead of open rule-making. Part of the crackdown was spread through various agency statements, but most of it was only verbally communicated without paper records, such as the assumed 15% cap on crypto-related deposits. Other measures were taken only in the normal course of business, such as refusing to sell any crypto business of Signature Bank."
"The Silvergate Bank (explosion) incident was a farce, and the public has the right to know the truth. Sympathetic members of Congress should hold hearings to give executives of affected banks a chance to testify and exempt them from criminal liability for sharing confidential regulatory information."
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