U.S. Senators Bash Silvergate, Say Bank ‘Further Introduced’ Crypto Risk to Traditional Banking

United States lawmakers are looking deeper into Silvergate’s involvement in the FTX scheme.

Elizabeth Warren (D-Mass.), John Kennedy (R-La.), and Roger Marshall (R-Kan.) sent a new letter to Silvergate CEO Alan Lane demanding answers to questions the senators asked in their first letter.

In the letter, the senators said Silvergate’s risk management and due diligence processes “miserably failed” to protect the bank and its users from the FTX fiasco. 

This, together with subsequent risky actions by Silvergate, introduced “further crypto risk into traditional banking.”

The senators said Silvergate has “further introduced crypto risk into the traditional banking system” by taking out a $4.3 billion loan from the Federal Home Loan Bank (FHLB). 

Silvergate needed the funds to shore up its accounts after experiencing a huge run on a bank with $8.1 billion withdrawn in Q4 2022 amid FTX contagion fears. The senators said that if Silvergate were to fail to repay the loan, the American taxpayers would be the ones affected the most.

“If Silvergate were to fail – as have banks facing a fraction of the withdrawal rates Silvergate has faced8 – FHLB could “assert statutory lien priority on other assets – essentially putting the FLHB ahead of all other creditors,” including the Federal Deposit Insurance Company’s (FDIC) deposit insurance fund. Financial experts have noted that such a scenario could leave the FDIC – and therefore the American taxpayer – holding the bag,” the letter explained.

The senators’ letter also includes various questions to Silvergate that weren’t addressed in the bank’s response to the first letter, as well as new questions regarding audits, the FHLB loan, and other areas. The letter said that Congress needs to have the answers to those questions “in order to understand how and why these failures occurred.”

The senators’ letter to Silvergate was published a day after BlackRock, the world’s largest asset manager, disclosed a 7.2% stake in the bank.

Silvergate’s shares are currently trading at around $14.73, down around 94% from the all-time high of $219.75, according to data from Yahoo! Finance.

Silvergate is the largest crypto-focused bank in the world. Its recent issues show that the bank has been under a lot of stress lately. Investors and users should consider following the story to understand better how crypto banks work and how involved Silvergate was with FTX.