Here is What Caused Silvergate Bank’s Downfall

Elaine Hetrick, chief administrative officer at Silvergate Capital Corporation, has revealed in a bankruptcy filing that the bank's closure in March 2023 was triggered by sudden regulatory changes.

Silvergate Bank, which primarily served the cryptocurrency sector, was the first major bank to fail during the 2023 U.S. banking crisis, which also included collapses of First Republic Bank, Silicon Valley Bank, and Signature Bank.

Despite its role as a significant player in the crypto market, Hetrick’s filing indicates that the bank struggled to adapt to a shifting regulatory landscape in early 2023. Agencies like the Federal Reserve and FDIC signaled an unwillingness to support banks heavily involved with digital assets, forcing Silvergate to reconsider its business model.

The filing highlights that Silvergate had rapidly increased its deposits from $1.8 billion at the end of 2019 to $14.3 billion by 2021, mostly from crypto clients. However, the fallout from high-profile failures like FTX in 2022 led to a dramatic decrease in deposits and a bank run, ultimately resulting in a net loss of $948.7 million in 2022.

While the bank still had assets exceeding its deposits and was positioned to meet capital requirements, increased scrutiny regarding the risks associated with crypto clients made its business unsustainable. Facing mounting pressure, Silvergate’s management decided to close rather than pursue costly alternatives, becoming the first mid-sized bank to collapse in 2023.