
- Elizabeth Warren (D-Mass.), John Kennedy (R-La.), and Roger Marshall (R-Kan.) wrote a letter to Silvergate CEO Alan Lane asking for more information about its relationship with bankrupt crypto exchange FTX.
- The senators said Silvergateโs risk management and due diligence processes on FTXโmiserably failed.โ
- The lawmakers also said Silvergateโs $4.3 billion loan from the Federal Home Loan Bank (FLHB) to keep it afloat โfurther introduced crypto risk into the traditional banking system.โ
- According to the senators, if Silvergate were to fail to return the loan, it would be the American taxpayers who would be left โholding the bag.โ
United States lawmakers are looking deeper into Silvergateโs 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.
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In the letter, the senators said Silvergateโs risk management and due diligence processes โmiserably failedโ to protect the bank and its users from the FTX fiasco.ย
This, together with subsequent risky actions by Silvergate, introduced โfurther crypto risk into traditional banking.โ
Silvergate Introduced โFurther Crypto Risk into Traditional Banking Systemโ
The senators said Silvergate has โfurther introduced crypto risk into the traditional banking systemโ by taking out a $4.3 billion loan from the Federal Home Loan Bank (FHLB).ย
Silvergate needed the funds to shore up its accounts after experiencing a huge run on a bank with $8.1 billion withdrawn in Q4 2022 amid FTX contagion fears.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.
โIf Silvergate were to fail โ as have banks facing a fraction of the withdrawal rates Silvergate has faced8 โ FHLB could โassert statutory lien priority on other assets โ essentially putting the FLHB ahead of all other creditors,โ including the Federal Deposit Insurance Companyโs (FDIC) deposit insurance fund. Financial experts have noted that such a scenario could leave the FDIC โ and therefore the American taxpayer โ holding the bag,โ the letter explained.
The senatorsโ letter also includes various questions to Silvergate that werenโt addressed in the bankโs 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 โin order to understand how and why these failures occurred.โ
The senatorsโ letter to Silvergate was published a day after BlackRock, the worldโs largest asset manager, disclosed a 7.2% stake in the bank.
Silvergateโs 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.
On the Flipside
- The fact that BlackRock is invested in Silvergate might indicate a brighter future for the bank.
Why You Should Care
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.
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