According to the regulators, Silvergate "had serious deficiencies" in its anti-money laundering programs, including in its intra-customer crypto transfer product. In particular, the SEC highlighted $9 billion in suspicious transfers among FTX entities that should have been detected by compliance programs. The SEC also alleged that Silvergate misrepresented its financial state during the post-FTX collapse bank run.
Silvergate Bank pays $63 million to settle charges from multiple agencies
More than a year after the crypto-friendly Silvergate Bank collapsed, its parent company has agreed to pay $63 million in fines to the Federal Reserve and California Department of Financial Protection and the Innovation. The SEC also imposed a $50 million fine, though the terms of the settlement noted this "may be offset" by the other penalties.
- "SEC Charges Silvergate Capital, Former CEO for Misleading Investors about Compliance Program", U.S. Securities and Exchange Commission [archive]
- "Crypto-Friendly Silvergate Bank Pays $63M to Settle Charges With SEC, Fed, California Regulator", CoinDesk [archive]
Kraken to suspend ACH transfers after Silvergate collapse
The Kraken cryptocurrency exchange announced to its users that it will be suspending ACH transfers on March 27, as a result of the collapse of its banking partner, Silvergate. Based on their communications, it sounds like they have been unsuccessful in finding a new banking provider since Silvergate's March 8 collapse, which will impact customers' abilities to perform bank transfers to and from the exchange.
Regulators shut down crypto-friendly Signature Bank
Two days after the collapse of Silicon Valley Bank and four days after the collapse of Silvergate Bank, the New York Department of Financial Services announced they had taken possession of Signature Bank, a New York-based bank that was a major bank partner for cryptocurrency companies. The bank was placed into receivership with the Federal Deposit Insurance Corporation (FDIC). According to a Signature board member, a bank run of billions of dollars began on Friday after the seizure of Silicon Valley Bank.
A joint statement from federal regulators announced that "All depositors of this institution will be made whole... no losses will be borne by the taxpayer. Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed."
The shutdown of Signature and the collapse of Silvergate leave many companies in the crypto industry without much access to the US banking system.
Coinbase pauses redemptions of USDC for dollars
The collapse of the Silicon Valley Bank on March 10 led to concerns over the stability of the stablecoin USDC, after it was revealed that a portion (later specified at $3.3 billion) of its cash reserves were kept with SVB. This led to somewhat of a run on USDC, which began wobbling from its dollar peg down to as low as $0.95 on some exchanges.
On the evening of the tenth, Coinbase announced that they would be "temporarily pausing USDC:USD conversions over the weekend while banks are closed," stating that "during periods of heightened activity, conversions rely on USD transfers from the banks that clear during normal banking hours".
"Your assets remain safe & available for on-chain sends," they said: cold comfort for those who are afraid their USDC may not be worth $1 come Monday.
Coinbase is one of the firms behind USDC, and its decision to stop processing redemptions is likely to add to the concern over the stablecoin's... stability.
Bankrupt BlockFi has at least $227 million at collapsed Silicon Valley Bank
BlockFi, which has been in bankruptcy since shortly after the November FTX collapse, appears to have exposure to the collapsed Silicon Valley Bank. According to a court filing, approximately $227 million in BlockFi funds has been kept in one of several accounts the company maintained at Silicon Valley Bank. The account is a money market mutual fund, meaning it is not FDIC insured.
The US Trustee reportedly warned BlockFi counsel on March 6 that the company needed to "immediately take steps to safeguard these funds in compliance with" the depository agreement, because a MMMF was not in compliance. BlockFi responded that the account was FDIC insured (up to the FDIC's $250,000 limit), but the Trustee maintains that that is not accurate.
- "BlockFi has $227 million in uninsured funds in Silicon Valley Bank", The Block
- Motion, In re: BlockFi
Silicon Valley Bank collapse causes crypto contagion concerns
Although it doesn't seem that it was exposure to the crypto industry that did in Silicon Valley Bank (unlike with fellow failed bank Silvergate), the crypto industry has been showing signs of concern that SVB's collapse may impact crypto businesses. In particular, there are fears around the fact that Circle, the company that backs the major USDC stablecoin, kept some of its cash reserves with SVB. Circle disclosed that around $3.3 billion, or around one-third of USDC's $9.88 billion in cash reserves backing USDC, was kept with Silicon Valley Bank.
SVB was also the preferred bank for various giants in the crypto VC world, including Andreessen Horowitz and Sequoia Capital. Pantera Capital also used SVB as a custodian.
Gemini reportedly loses banking with JPMorgan
Both CoinDesk and Reuters have reported that JPMorgan Chase & Co. will be ending its banking relationship with Winklevoss-led Gemini cryptocurrency exchange. Gemini responded to the reports by tweeting "Despite reporting to the contrary, Gemini's banking relationship remains intact with JPMorgan," though they notably made no statements about whether they expect that to remain true going forward.
It's hard to say why JPMorgan might have severed ties with Gemini — it could be related to recent statements from regulatory agencies frowning on banks taking crypto companies as clients, although Coinbase noted that it continues to have an active banking relationship with JPMorgan.
JPMorgan is not Gemini's only banking partner, so despite the blow to Gemini, this will not cut them off from banking.
Silvergate bank collapses
California-based Silvergate bank had pivoted almost entirely to serving crypto clients, a move that proved fatal to them in the wake of the FTX collapse and ensuing contagion. On March 8, they announced that they would be shutting down. Although their shutdown is considered to be a "voluntary liquidation", they had little other choice after a bank run, increasing regulatory pressure on banks serving the crypto industry, and a general dearth of new clients in the crypto downturn.
Silvergate's collapse may worsen crypto's already tenuous relationship with US banks. Silvergate was one of the few "crypto-friendly" banks, and the clients it previously served — among them, Crypto.com, Bitstamp, and Paxos — may face challenges finding a reliable replacement.
- "Silvergate has collapsed", The Verge
- "Crypto Bank Silvergate Capital Says It Will Shut Down; Stock Plummets", The Wall Street Journal
Silvergate crypto-focused bank faces crisis
Silvergate is a US bank that shifted its business toward primarily serving crypto clients. Following the collapse of FTX, there have been concerns over Silvergate's exposure to the losses experienced within the crypto industry. Short sellers piled in, making Silvergate the most shorted stock in late February.
On March 1, Silvergate revealed that they would miss the deadline to file their annual report with the SEC, which they blamed on regulatory inquiries. They also revealed even more losses, which added to the massive $887 million in losses they experienced in Q4 2022. They also disclosed that they were having to evaluate whether the bank was going to be able to survive.
Silvergate's stock plunged on the news, worsening its already marked decline in price over 2022–23. Some crypto firms began distancing themselves from the bank, as well: Coinbase announced on March 2 that they would no longer be transacting with Silvergate "in light of recent developments and out of an abundance of caution". Galaxy Digital, Paxos, CBOE, Gemini, Crypto.com, and Bitstamp also announced they would cease transfers to and from Silvergate, and Circle announced they would be "unwinding certain services with them".