• Silvergate Bank suffered a bank run due to the collapse of cryptocurrency exchange FTX, resulting in $8.1 billion in customer withdrawals.
• Silvergate Capital sold $5.2 billion of debt securities to cover the withdrawals and incurred a $718 million loss.
• The bank also cut 40% of its staff and abandoned plans to launch its own digital currency, taking a $196 million hit.
Silvergate Bank, a crypto-focused financial institution, recently experienced a bank run due to the collapse of cryptocurrency exchange FTX. This forced the bank to sell $5.2 billion worth of debt securities from its balance sheet to cover around $8.1 billion in customer withdrawals, resulting in a $718 million loss that exceeded the bank’s total profits since 2013.
The bank’s preliminary fourth-quarter results revealed a steep decrease in crypto-related withdrawals, which dropped by 68% in the fourth quarter of 2022. Silvergate had $11.9 billion worth of deposits from digital asset customers in 2021, but this figure dropped to $3.8 billion by the end of 2022. Silvergate claimed that it had $4.6 billion compared to its $3.8 billion in remaining deposits at the end of Q4 2022. The company also holds around $5.6 billion in debt securities like U.S. Treasurys that it could sell quickly.
In response to the rapid changes in the digital asset industry, Silvergate took immediate steps to maintain cash liquidity in order to satisfy potential deposit outflows. Alan Lane, CEO of Silvergate, said, “We currently maintain a cash position in excess of our digital asset related deposits.”
Furthermore, the bank had to take drastic measures to ensure its survival, such as cutting 40% of its staff, which equals around 200 employees, and abandoning plans to launch its own digital currency, taking a $196 million hit.
The future of Silvergate Bank is uncertain, but it remains to be seen if the bank is able to survive the withdrawal of customer funds and the losses it has incurred.