• US Department of Justice has launched a probe into Silvergate Bank’s dealings with now-defunct cryptocurrency exchange FTX and its trading arm Alameda Research.
• Following the news, Silvergate shares took a nosedive, plunging by as much as 10% in pre-market trading.
• Silvergate had to sell $5.2 billion of debt securities it was holding on its balance sheet at a significant loss to cover around $8.1 billion in user withdrawals.
DOJ Investigation into Ties with FTX and Alameda
The US Department of Justice has launched a probe into Silvergate Bank’s dealings with now-defunct cryptocurrency exchange FTX and its trading arm Alameda Research. The inquiry is reportedly centered around one key question: „What did banks and intermediaries working with Bankman-Fried’s firms know about what US officials have called a years-long scheme to defraud investors and customers?“
Silvergate Shares Plunge
Following the news of the DOJ investigation, Silvergate shares took a nosedive, plunging by as much as 10% in pre-market trading. Notably, the company’s shares lost roughly 88% of their value in 2022 amid the broader crypto market downturn that saw around $2 trillion wiped out of the market.
Bank Run After Collapse of FTX
Silvergate was among the lenders hit hardest by the fall of FTX in November last year. As reported, Silvergate suffered a bank run following the collapse of FTX and had to sell $5.2 billion of debt securities it was holding on its balance sheet at a significant loss to cover around $8.1 billion in user withdrawals. As a result, it incurred a $718 million loss, which reportedly exceeds the bank’s total profits since 2013. Furthermore, Silvergate had only $3.8 billion of deposits at the end of 2022, compared to $11.9 billion in 2021.
Loans from Federal Home Loan Banks
It is worth noting that Silvergate has received at least $3.6 billion in loans from the Federal Home Loan Banks, a system originally designed to support housing finance and community investment. This could be an indication of the growing relationship between crypto-exposed banks and TradFi companies..
Sam Bankman-Fried Charges
Sam Bankman-Fried, the disgraced founder