© Thomson Reuters File Photo. The image shows cryptocurrencies submerged in water.By Hannah Lang and Anirban Chakraborty
(Reuters) - Cryptocurrency-focused bank Silvergate Capital Corp said it plans to halt and voluntarily halt operations following losses following a surprise drop on cryptocurrency exchange FTX, which dragged shares down 35% in after-hours trading.
The decision to close the bank came last week after the company warned it viewed its profitability as a concern, saying it had sold more debt at a loss this year and further losses could mean the bank was "better capitalized". ".
The disastrous result for La Jolla, California, one of the crypto industry's favorite banks, shows the magnitude of the impact the collapse of FTX, which filed for bankruptcy in November, had on the digital asset industry. customer withdrawal.
In a statement, Silvergate said the decision to liquidate the bank was the "best course of action" given "recent industry and regulatory developments." The bank added that the downsizing and liquidation plan includes a full refund of deposits.
Several of the bank's partners, including high-profile partners like Coinbase Global Inc and Galaxy Digital, severed ties with Silvergate last week.
Following the Silvergate announcement, cryptocurrency exchange Coinbase said it had no corporate clients or funds in Silvergate, and Binance CEO Changpeng Zhao said the company had no asset losses in Silvergate.
Silvergate posted a $1 billion loss in the fourth quarter as investors rushed to withdraw more than $8 billion in deposits.
Silvergate has retained Center View Partners LLC as financial advisors and Cravath, Swain & Moore LLP as legal advisors, the bank said in a statement.
Silvergate was founded in 1988 and entered the crypto industry in 2013.
Last week, Silvergate shut down the Silvergate Exchange Network, its crypto payments network and one of its most popular offerings. This network enabled hourly transfers between investors and cryptocurrency exchanges, as opposed to traditional bank transfers, which often take days to process.
Ram Ahluwalia, CEO of Lumida Wealth, a digital investment advisor, said the loss of Silvergate's exchange network was disappointing, although the risk of illness was low, as Silvergate said it would pay off depositors and it was heavily in debt. Characteristics:
"It's more than a systematic loss of critical cryptocurrency infrastructure," he said.
The Federal Deposit Insurance Corporation (FDC) on Wednesday declined to comment on the bank's failure other than to say it does not control the bank or its holding company. Bloomberg previously reported that FDC is in talks with Silvergate to avoid a shutdown.
Federal prosecutors in Washington are investigating the company and its affiliations with FTX and its trading company Alameda Research. In January, three US Senators asked Silvergate to provide detailed information on risk management and FTX.
The California Department of Financial Innovation and Protection, which oversees Silvergate under state law, said it is reviewing the bank's financial regulations and safety and soundness obligations and is working with relevant federal partners.
Over $1 trillion in interest has been wiped out of the cryptocurrency industry by 2022, fueling fears of a recession.
After a rapid rise in 2020 and 2021, Bitcoin, the most popular digital currency, has fallen over 60% in the past year, putting pressure on the digital asset industry.
(Reporting by Hannah Lang in Washington and Anirban Chakraborty in Bangalore; Additional reporting by Manya Sani and Mrinmay Dey in Bangalore; Editing by Maju Samuel, Matthew Lewis and Lincoln Fest.)