Report: Silvergate Works With FDIC Help to Stay Afloat

Struggling crypto-friendly bank Silvergate Capital is reportedly working with U.S. regulators to stay in business.

Officials from the Federal Deposit Insurance Corporation (FDIC) have been in discussions with the California-based bank’s management, Bloomberg News reported Tuesday (March 7), citing unnamed sources.

PYMNTS reached out to Silvergate for comment but has not yet received a reply. The FDIC referred questions to the Federal Reserve, which declined to comment.

The news comes days after Silvergate revealed in a regulatory filing that it is delaying its annual report. It said several investigations, including one from the U.S. Department of Justice, could threaten its ability to remain as a “going concern.”

Silvergate has yet to decide how to deal with its troubles, per the Bloomberg report. FDIC examiners had permission to begin the talks from the Federal Reserve, which is the bank’s chief federal overseer. The presence of the FDIC and the Fed in this matter doesn’t mean Silvergate won’t be able to save itself on its own.

Silvergate fashioned itself as one of the top go-to banks for cryptocurrency companies, emerging early as a key provider of services for that industry. The bank designed industry-specific systems that allowed for real-time fiat currency transactions between crypto depositors, including FTX founder Sam Bankman-Fried’s crypto operations.

However, that meant Silvergate was one the hardest-hit traditional lenders when FTX came apart last fall, with the bank reporting a $1 billion loss in the final quarter of 2022 and laying off 40% of its workforce.

The bad news continued for Silvergate following last week’s revelation, with four crypto-related firms — Coinbase, Circle, Gemini and Paxos — announcing they were cutting ties with the bank.

“In light of recent developments & out of an abundance of caution, Coinbase is no longer accepting or initiating payments to or from Silvergate,” Coinbase said on Twitter.

Silvergate’s troubles could give regulators the ammunition they need to separate crypto banking and mainstream financial institutions.

Last year, Silvergate’s use of the Federal Home Loan Bank (FHLB) program to boost its balance sheet drew concern from a group of U.S. senators, who said the bank was introducing crypto market risk into the traditional banking sector.

“If Silvergate were to fail — as have banks facing a fraction of the withdrawal rates Silvergate has faced — it could leave the FDIC — and therefore the American taxpayer — holding the bag,” the senators wrote.

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