Silvergate is required to submit a liquidation plan within 10 days

Silvergate is required to submit a liquidation plan within 10 days

One of two crypto-friendly banks that provided much-needed liquidity to the industry - both of which went bankrupt earlier this year - Silvergate Bank, has been ordered to submit a concrete plan for voluntary liquidation, to which they have agreed, within the next ten days.

The liquidation should take place as quickly as possible

Silvergate first announced plans for voluntary liquidation on March 8. Under the supervision of financial advisor Centerview Partners LLC and law firm Cravath, Swaine & Moore LLP, the Federal Reserve issued a consent decree - a non-appealable settlement agreement - to enforce the promised liquidation.

The announcement was made on June 1 by the Federal Reserve and gives Silvergate Capital Corporation and its subsidiary Silvergate Bank ten days to submit a detailed liquidation plan to the court.

@federalreserve Announces Consent Order Against Silvergate Capital Corporation and Silvergate Bank to Facilitate the Voluntary Self-Liquidation Silvergate Announced on March 8, 2023: https://t.co/iWp4mfUeYI

– Federal Reserve (@federalreserve) June 1, 2023

Silvergate prioritizes deposit funds

Although Silvergate has promised to make a “full repayment of all deposits” since announcing its liquidation plans, investigations by the US government and its regulators have uncovered numerous problems at the bank – most of which are said to have worsened following the collapse of FTX. As one of Silvergate's largest business partners, the sudden collapse of the former crypto empire is said to have caused Silvergate to face a liquidity crisis.

To prevent misappropriation of remaining liquidity, the court limited the use of funds to prevent executives with “golden parachutes” from receiving generous severance packages that would allow them to emerge unscathed from their failure.

"The Federal Reserve's order ensures that Silvergate will implement its previously announced plan to wind down the Bank's operations in a manner that protects the Bank's depositors and the Deposit Insurance Fund. Silvergate is also prohibited from making capital distributions, wasting cash, and engaging in certain other activities without regulatory approval."

The Federal Reserve's order will be enforced in collaboration with the State of California Department of Financial Protection and Innovation (DFPI), the state charter authority, and the designated private regulators listed above.

With Silvergate, Signature and Silicon Valley Bank out of the game, the crypto industry as a whole is looking for alternative banks that can provide fiat reserves for all operations. Unfortunately, the collapse of FTX and other crypto platforms has clouded the banking industry's view of cryptocurrencies, an attitude that is made worse by the current, supposedly Wild West-style regulatory enforcement by the SEC and other regulators.

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