Silvergate Capital is trying to find poise after crypto-related deposits fell by 70%

Autor: Article based upon analysis from Reuters Breakingviews | Link: Crypto bank run vindicates watchdogs’ vigilance
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Silvergate Capital announced on Thursday that total deposits from digital asset customers declined to $3.8 billion from $11.9 billion at the end of Q3.

The withdrawals came as crypto exchange FTX, a Silvergate customer, collapsed in scandal, raising questions about the stability of the digital asset industry.

The crypto-focused bank was forced to raise funds in a hurry and flog assets due to customers pulling their balances accounting for roughly 70%.

At the end of December, $150 million of the bank’s deposits were held by customers who had filed bankruptcy, Silvergate said.

The government only insures deposits up to $250,000, and institutions are likely to have much more than that in their accounts.

So this added to the pressure, since Silvergate had to sell securities it holds, and tap wholesale funding markets to meet the demand for cash.

Still, the situation isn’t as bad as it could have been, for Silvergate was able to raise the money through the easy-to-sell assets it invested in.

The bank’s decision to stack its $15 billion balance sheet with these and also with government bonds paid off now.

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It has around $1.1 billion of approved lending commitments to customers, secured exclusively against bitcoin, but those have registered no losses according to Reuters.

Nonetheless, Silvergate sold $5.2 billion of debt securities, creating a loss on sale of $718 million, announcing that it is laying off 200 employers.

That’s about 40% of its workforce; the bank also decided to exit its mortgage warehouse lending business.

Still, Silvergate’s equity capital in September was equivalent to roughly 40% of its risk-weighted assets, around four times higher than most big banks.

Despite that, bank regulators – like the Fed or the California financial regulator in Silvergate’s case – have their eyes on crypto since FTX’s collapse.

The watchdogs warned on Tuesday that they are closely monitoring banks with crypto-focused business models, since they can’t hold crypto directly.

Silvergate shares are down 90% in less than six months, but the bank is still standing and that’s a good sign especially since it lost most of its deposits without failing or spreading chaos to other institutions.