Silvergate Bank lost more than $8 billion in deposits from its crypto customers in the final months of 2022 as its core business collapsed under the industry’s implosion — just as the bank’s regulators had predicted would happen for such institutions.
The sudden evaporation of most of its deposit base was just one of several concerns for the La Jolla, Calif.-based lender. The company has faced pressure from U.S. banking supervisors who have insisted that banks not focus on crypto, and its disclosures this week revealed investigations by regulators and the U.S. Department of Justice, plus a hint that ongoing audits may require a reformulation of it. finance.
On top of all that, its crypto strengths were once beginning to drag it down, according to a CoinDesk analysis of the bank’s financial reports over the past several years.
Many of the raw numbers reported by Silvergate over the years reveal an institution that may have peaked in 2021, well before the dramas of 2022 shook the crypto sector. Volume on its Silvergate Exchange Network, for example, peaked in the first half of 2021, with $406 billion in transfers, which fell to $230 billion by the second half of 2022.
And the overall size of the bank’s assets also reached a high point in the fourth quarter of 2021, at $16 billion. Its most recent report put it at $11.4 billion.
Even the highest point of its assets depicts a very small bank – on the scale of a mid-range community bank – despite its outstanding reputation as a core part of the US digital asset industry’s banking presence. A near-equivalent for its size in California would be the slightly larger Farmers & Merchants Bank of Long Beach, according to state bank records.
But a key difference between Silvergate and the more traditional Long Beach community bank is in the bulk of their capital. The crypto bank slipped rapidly in the last quarter of 2022 in a so-called leverage ratio that revealed it held just 5.4% of equity against its total assets. In the same quarter at this bank, it reported a ratio of 10.9%.
Under US bank capital rules, 5% is the tip of the cliff beyond which a bank descends under a “well-capitalized” designation and into the territory of emergency intervention by regulators.
A spokesman representing the bank said: “Silvergate cannot comment beyond what has already been made available to the public.”
One of the most dramatic deductions to be traced in Silvergate’s publicly released records was the problem of its deposits.
Silvergate identified the number of digital asset clients it worked with each quarter, and that crowd grew steadily to 1,620 last quarter – most of those identified as institutional investors, though more than 100 were “digital asset exchanges “. However, the deposits of these crypto customers fell from almost $12 billion in the third quarter of last year to less than $4 billion by the end of the year.
The amount has dropped considerably more than that now, as some big names in its customer base are cutting ties. Coinbase, Paxos, Circle Internet Financial and Galaxy Digital have been among those who have made very public comments distancing themselves from the struggling bank.
A traditional, regulated depository institution cannot survive without a deposit base, and Silvergate’s coffers quickly retreated as major crypto clients faced their own collapses, bankruptcies and legal disputes that required an immediate cleanup of their money. liquid last year.
For crypto businesses, however, the options for US banks are narrowing as the Federal Reserve and other banking agencies warn they don’t want the lenders they oversee to be overly exposed to the digital asset sector. Few banks have been as openly and unapologetically crypto-focused as Silvergate, so its struggles aren’t providing a great path for other institutions to follow.
