US Fed to cease Silvergate Capital and Bank activity

California-based Silvergate Capital and Bank have been ordered to cease their operations by the board of governors of the Federal Reserve System and the Department of financial protection and innovation of California. 

The Federal Reserve Bank of San Francisco and the Department of Financial Protection and Innovation found numerous flaws during recent inspections. This prompted the order issued under the federal deposit insurance act and the California financial code.

Since at least 2013, Silvergate has offered the crypto asset sector its banking and financial services. The Silvergate Exchange Network (SEN), a near real-time payments network inside Silvergate Bank, was crucial to the company’s business plan. 

However, recent events, such as the collapse of FTX Trading Ltd. and its affiliated firm Alameda Research, led to significant declines in deposits from crypto asset-related customers. This, in turn, caused funding and liquidity stress on the Bank and a decline in revenue-generating activities.

Silvergate’s financial troubles

On March 1, Silvergate Capital Corporation declared that it would be delaying its annual report submission while assessing its capacity to continue as a going concern, reevaluating its business plans, and obtaining audited financial statements.

On March 7, the board of directors of Silvergate Bank approved the FDIC’s voluntary liquidation of the bank outside of receivership to guarantee the return of all depositors’ money.

The Board of Governors, DFPI, and Silvergate entered into a cease-and-desist order to ensure the orderly liquidation of Silvergate and compliance with all relevant laws. 

The order stipulates that the company must use its financial and managerial resources to strengthen the bank, that it must submit a self-liquidation plan for the orderly wind-down of operations, that it must protect its cash assets, and that it must get the court’s permission before making certain distributions of capital or engaging in new business activities.

The order also requires continued cooperation with regulatory agencies, such as supplying information, documents, and testimony about current investigations and emphasizing the preservation of records.

Silvergate Capital Corporation and the insolvent Silvergate Bank have agreed to the ruling and foregone any further legal action against its terms. It will continue to be in force until the Board of Governors and DFPI modify or revoke the order.