Bank Salvage Talks Are Underway Between Silvergate And The FDIC

US regulators have been dispatched to Silvergate Capital Corp.'s headquarters as the beleaguered crypto-friendly bank searches for a means to continue operating.

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Officials from the Federal Deposit Insurance Corp. have reportedly been talking with management about measures to prevent a closure. One of the participants said that one approach might be to round up investors from the crypto sector to aid Silvergate in bolstering its liquidity. Last week, the people alleged, FDIC examiners showed up at the company's La Jolla, California, premises.

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According to the persons who asked not to be identified because they were discussing internal debates, the lender hasn't decided how to handle its worsening financial situation. According to one of the witnesses, the Federal Reserve, the lender's primary federal regulator, gave the FDIC examiners permission to visit the bank's premises.

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Emails and phone calls to a Silvergate official requesting comment were not returned. The Fed declined to comment, while the FDIC stated that it does not comment on "open and operational institutions".

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The FDIC's intervention is the most recent indication of how urgent Silvergate's problems are. The company said last week that growing losses would compel it to consider its future. The government insures client deposits at the lender, therefore the regulator may have a role any potential solution.

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Another person stated that even though the Fed and FDIC are involved, the bank will ultimately be able to manage its problems without regulators.

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According to documents filed by the company, Silvergate had deposits of $6.3 billion as of December 31. It reported $13.2 billion at the end of September, which is less than half of that amount.

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According to one of the people, the FDIC examiners are looking over the company's books and records.

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The collapse of cryptocurrency exchange FTX had a significant impact on Silvergate, which disclosed in January that a spike in customer withdrawals had prompted it to sell assets worth billions of dollars and take measures to stabilize its balance sheet. The bank disclosed a $1 billion loss for the most recent quarter and said last week that it was ending its leading cryptocurrency payments network as a result of clients turning away from the bank amid growing unease.

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The Justice Department's fraud branch has been investigating Silvergate's interactions with FTX and trade firm Alameda Research in the meantime. The investigation may be over without charges being brought against the bank because no wrongdoing has been alleged.

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Although no decision has been made on Silvergate's future, authorities have the option to place a bank into receivership when it is in danger of failing financially, effectively taking control of the lender.

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The FDIC can then intervene and look for solutions to the problem. The agency could instead decide to pay off depositors, who are insured for up to $250,000 per depositor, per investment account, for each account owning category. In that situation, the agency typically favors merging the troubled establishment into a healthy lender, but in the utter lack of a buyer, the agency also could choose to do so.

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Regulator Initiatives

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The debates over Silvergate's future have accelerated US bank authorities' attempts to regulate the digital asset market.

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Jerome Powell, the chairman of the Fed, was questioned on Tuesday about the work being done to regulate cryptocurrency. In answer, he didn't specifically reference Silvergate or any other company.

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He told senators on the Senate Banking Committee, "Like everyone else, we're following what's been occurring in the crypto area, and what we perceive is quite a lot of turmoil. What we've been doing is ensuring that the licensed financial institutions that we monitor and regulate are cautious, are taking great care in how they connect with the entire crypto ecosystem, and that they give us advance warning.