Federal Reserve investigators found that the collapse of Silvergate Bank was caused by dependence on crypto deposits and ineffective senior management.
FED Investigator Blames Crypto Focus and Nepotism for Silvergate Bank Collapse
Crypto-friendly Silvergate Bank collapsed this year due to nepotism that led to over-reliance on risky crypto deposits and ineffective management, according to United States Federal Reserve investigators.
“Silvergate's concentration of crypto industry deposit customers, rapid growth and multi-layered funding risks led to the bank's voluntary liquidation.”
Developing from a little-known institution in the early 2010s, Silvergate has rapidly grown to become the leading bank for crypto customers, growing its deposits from $1 billion in 2017 to $16 billion by 2021.
During this period of rapid growth, the bank essentially became a single-industry lender, with the vast majority of customer deposits uninsured and interest-free, the Fed said.
Silvergate's overreliance on crypto came into sharp relief following the collapse of now-defunct crypto exchange FTX in November 2022, with tens of billions of dollars of capital fleeing the sector in the following months.
Silvergate's alleged misdeeds were not limited to crypto. Investigators also alleged that nepotism plagued the bank's senior management, leading to an inept and ineffective corporate structure that failed to address the many risks present at the time.
*This is not investment advice.
