The collapse of Silvergate Bank is linked to its heavy reliance on crypto deposits and issues related to senior management, including nepotism, according to a recent investigation by the United States Federal Reserve.
A recent investigation by the United States Federal Reserve has shed light on the factors behind the collapse of Silvergate Bank. The bank’s downfall was primarily attributed to its heavy reliance on risky crypto deposits and ineffective senior management marked by nepotism.
Once considered crypto-friendly, Silvergate Bank’s over-dependence on crypto deposits ultimately led to its demise this year. The Federal Reserve inspectors pointed out that:
“Silvergate’s concentration in crypto industry deposit customers, rapid growth, and multilayered funding risks led to the bank’s voluntary liquidation.”
While Silvergate had grown rapidly over the years, becoming a go-to bank for crypto clients with deposits soaring from $1 billion in 2017 to $16 billion in 2021, it neglected to adhere to proper banking regulations. The majority of its customer deposits remained uninsured and non-interest bearing.
Furthermore, the investigation revealed issues of nepotism within the bank’s senior management, which hindered effective risk management and contributed to an incompetent corporate structure.
In the end, Silvergate Bank voluntarily wound down operations in March 2023, avoiding a formal failure and the need for government intervention to reimburse depositors.