Early in March, California-based Silvergate, which announced its plan to voluntarily liquidate and wind down operations, became the first domino to fall in a mini-banking crisis.
90% of the bank’s deposits come from the digital asset sector, thus when high-profile initiatives like TerraUSD and FTX collapsed, the sector as a whole suffered.
The California Department of Financial Protection and Innovation, the state agency that oversees Silvergate, and the Federal Reserve Board today finalized a consent order, or settlement agreement, that will direct Silvergate’s wind-down procedure.
The two organizations describe how Silvergate pursued a business plan centered on the crypto-asset industry, both domestically and globally, in the 11-page document. This includes the development of a real-time payments network known as the Silvergate Exchange Network.
The agencies, which did not provide examples, claimed that recent audits of Silvergate had found a number of flaws, including those relating to safety and soundness and compliance with banking laws and regulations.
Due to their reliance on the digital asset sector, Silvergate saw significant withdrawals during the bear market, notably $8.1 billion in the fourth quarter of 2022. Early in 2023, when its future appeared hazy, it lost significant customers like Coinbase, Circle, and Paxos. Silvergate shut down its payments network a week before announcing its collapse, which had been a crucial platform for cryptocurrency businesses like stablecoin issuers to carry out real-time transactions.
Silvergate chose to voluntarily liquidate as opposed to later collapses at Silicon Valley Bank and Signature, ensuring that it would be able to refund all depositors in full. This led to an unusual process for both regulators and the company itself.
Silvergate agreed to apply restrictions on so-called “golden parachutes,” or additional remuneration to staff involved in the wind-down, as part of the consent order, and to present a self-liquidation plan within 10 days.
Silvergate also committed, in another provision, to maintain all records and refrain from erasing or destroying a long list of documents, including everything from voicemails and emails to texts and ephemeral messaging applications.
Given Silvergate’s well-known cryptocurrency clients, like Binance and FTX, the documents could be very helpful to law enforcement officers who are assembling criminal and civil cases.
