- Silvergate Capital filed for bankruptcy on September 18, 2024, in Delaware
- The bank, shuttered in March 2023, will not compensate common stockholders
- Regulatory probes and the crypto market collapse are blamed for Silvergate’s financial downfall
Silvergate Capital, the parent company of Silvergate Bank, has filed for bankruptcy in Wilmington, Delaware.
The move marks a significant chapter in the bank’s troubled history, following its abrupt shutdown in March 2023. The bankruptcy filing aims to finalize the bank’s liquidation and settle its remaining debts.
With approximately $163 million in cash, Silvergate Capital plans to repay bondholders and preferred equity holders but doesn’t anticipate compensating common stockholders.
Silvergate’s rapid expansion and sudden collapse
Silvergate Bank experienced extraordinary growth as the cryptocurrency market surged. Deposits at the bank skyrocketed from $1.8 billion at the end of 2019 to $14.3 billion by the end of 2021, driven largely by digital asset exchanges that made up about 58% of its total deposits.
This rapid expansion underscored Silvergate’s critical role in the burgeoning crypto industry.
However, the bank’s fortunes began to wane as the cryptocurrency market faced a severe downturn in 2022.
High-profile failures, including the collapse of the FTX crypto exchange, led to a massive withdrawal of more than $8 billion from Silvergate. This exodus forced the bank to sell long-term debt securities at a significant loss, exacerbating its financial woes.
By March 2023, these pressures became unsustainable, leading Silvergate to cease operations and return deposits to its customers.
Regulatory scrutiny and financial settlements
The regulatory landscape further complicated Silvergate’s situation. In 2023, the bank faced intense scrutiny from US regulators, including the Federal Reserve, California’s bank regulator, and the Securities and Exchange Commission (SEC).
These investigations revealed deficiencies in the bank’s anti-money laundering practices and misleading statements by top executives. To resolve these issues, Silvergate agreed to a $63 million settlement.
In its bankruptcy filing, Silvergate Capital emphasized that the bank didn’t fail in terms of its obligation to customer deposits, which were fully repaid without imposing costs on the Federal Deposit Insurance Corporation (FDIC).
The company now seeks to complete its liquidation process, using its remaining cash to address creditor claims. Despite these efforts, the fate of common stockholders remains uncertain, as they are unlikely to see any repayment.
