NEW YORK, 16 March 2023:
Silvergate Capital has become the third US financial institution to collapse in a matter of days as it joins of Silicon Valley Bank and Signature Bank.
“In light of recent industry and regulatory developments, Silvergate believes that an orderly wind down of bank operations and a voluntary liquidation of the bank is the best path forward,” announced the holding company for Silvergate Bank yesterday.
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Silvergate had established a reputation as the US’s largest crypto-focused bank, with customer deposits of up to US$14 billion. But it too was hit by recent US Federal Reserve’s aggressive interest-rate hikes – which led to huge paper losses against far lower bond earnings, which also caused the cryptocurrency market to tank.
Alarm bells had rung for Silvergate since last week as it was a key financial institution for cryptocurrency exchange FTX and its sister trading firm Alameda Research – both hit by financial scandals and since made bankrupt. Around US$8 billion had been withdrawn from Silvergate since the FTX collapse and while its latest accounts show that it had only US$4.6 billion of cash as of 31 Dec 2022, Silvergate Bank has promised to honour all deposits.
“As the impact of FTX’s collapse continues to ripple outward, today we are seeing what can happen when a bank is overreliant on a risky, volatile sector like cryptocurrencies,” Senate Banking Committee chairman Sherrod Brown said in a statement.
“I’ve been concerned that when banks get involved with crypto, it spreads risk across the financial system and it will be taxpayers and consumers who pay the price.”
Meanwhile, Credit Suisse shares tanked yesterday after Ammar Al Khudairy, chairman at its biggest shareholder Saudi National Bank, warned in an interview with Bloomberg TV that the Arab entity wouldn’t be able to invest more cash without raising its stake in the Swiss bank above the regulatory limit of 10%.
In swift response, Switzerland’s central bank also released a statement yesterday to assure that Credit Suisse “meets the strict capital and liquidity requirements imposed on systemically important banks”.
Swiss National Bank and the Swiss Financial Market Supervisory Authority vowing to step in and provide Credit Suisse with liquidity, if needed, while dismissing any links to the recent collapse of US banks.
“There are no indications of a direct risk of contagion for Swiss institutions due to the current turmoil in the US banking market.”
But its chequered past has investors on tenterhooks that Credit Suisse might default on its debts as it had declared a loss of nearly US$6 billion as recently as in March 2021 after Archeges Capital Management collapsed.