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Bankruptcy of SILVERGATE Bank: The Federal Reserve warns of excessive reliance on cryptocurrencies.

Trapped in Cryptocurrencies

There is no doubt that the historic collapse of the cryptocurrency market, which began with the sudden disappearance of the Terra ecosystem, set off a domino effect that eventually revealed some US banks as crypto-friendly. The bankruptcy of the FTX platform, which became increasingly surreal, was announced as a voluntary liquidation in March of last year. Now, the Federal Reserve has just released its examination on the matter concerning Silvergate Bank…

SILVERGATE BANK: Bankruptcy due to excessive crypto

With a belated look, it is necessary to consider the question. It is evident that the inquiry is deserving of being raised. Incurring losses amounting to $100 billion in 2023, it is likely that the data will show an upward trend for Bitcoin. Historically, the main reason for the existence of BTC has been to aid in combating financial crises, as seen in the past in March. However, the financial institution led by Jerome Powell spearheaded the investigation into.

At the time of its voluntary liquidation, Silvergate Bank became the first US cryptocurrency bank

The leading bank in this sector, and the truth is that the strong support of this bank has contributed to the growth of many American players in 2021. According to Federal Reserve inspectors, this is all it took to cause its downfall…

This comes after a change in direction that was made in 2013, which propelled Silvergate Bank to the top of a portfolio valued at around “Silvergate’s focus on deposit customers in the cryptocurrency sector, rapid growth, and multi-layered funding risks led to the voluntary liquidation of the bank.”

The Fed admits its failures in the Silvergate file

This report from the Federal Reserve Bank primarily points to the single-sector nature of Silvergate Bank, which became rapidly paced. All of this coupled with corporate governance and risk management capabilities that appear unable to keep up with its growth, which is presented as immense. But that’s not all…

Are Federal inspectors to blame?

It also appears that the Federal Reserve Bank is determined to absolve itself of blame in this matter. The report not only points to Silvergate Bank’s failures as the reason behind its bankruptcy. According to the inspectors responsible for this report, the responsibility of the Federal Reserve Bank examiners will also be indirectly questioned.

“The examiners should have raised their concerns through stronger, faster, and more decisive supervisory actions (…) in light of the bank’s uncontrolled growth, volatile funding, concentration of deposits, and significant and ongoing weaknesses in key control functions.”

The Federal Reserve Bank investigators specifically point to “resource constraints” that hinder the supervisory efforts of these examiners. But also the absence of clear indicators issued to them in the context of overseeing “banks experiencing significant and rapid growth.” Because it is evident that they do not possess the necessary tools to assess risks when they are growing. But

then, what is their actual use?
This report issued by the Federal Reserve Bank itself presents a set of recommendations aimed at improving its own supervisory processes.

This should include a number of recommendations targeting the examiners who seem to have lost their bearings.

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