This Crypto Bank Is Giving Sleepless Nights to US Watchdogs

The problems for crypto bank Silvergate Capital (NYSE: SI) continue to get from bad to worse. On Wednesday, March 1, Silvergate Bank announced that it would be delaying the filing of its annual report.

The announcement had an instant impact on the SI stock price which plunged more than 30% in the aftermarket hours. This happened as Silvergate Bank stated that they need more time in assessing the extent of damage to its finances stemming from the crypto rout of 2022.

Amid a wave of high-profile bankruptcies during the fourth quarter, Silvergate Bank reported a net loss of $1 billion. These events have left the crypto bank at risk of being “less than well-capitalized”. In its recent filing submitted on Wednesday, Silvergate Bank stated:

It was “evaluating the impact that these subsequent events have on its ability to continue as a going concern for the twelve months following the issuance of its financial statements”.

Besides, it further added that some important factors could cause the company’s actual results to differ from their forward-looking statements. Additionally, the crypto bank also hinted at the possibility of regulatory scrutiny in the future.

Silvergate also added that the bank’s capital ratios could take a hit from the fresh losses on their securities portfolios. In order to meet the heavy withdrawals from its crypto customers, the bank has been selling securities describing it as a “crisis of confidence” in the crypto sector.

“These additional losses will negatively impact the regulatory capital ratios . . . and could result in the company and the bank being less than well-capitalised,” Silvergate said.

Silvergate Crisis Gives Worst Fears to US Regulators

The recent turn of events at Silvergate Capital has forced US authorities to rethink the involvement of crypto within the traditional financial system. Thus, US lawmakers have started to rethink whether banks can handle risks associated with digital assets. Todd Baker, a senior fellow at Columbia University’s Richman Center for Business, Law and Public Policy told Bloomberg:

“It confirms the fears that many regulators have had. If this bank fails, it’s going to be held up as an example of why banks should be extremely conservative in dealing with crypto companies.”

Last month in January, the top three US regulators issued a strict warning that banks shouldn’t undertake crypto-related risks that they can’t manage themselves. The Silvergate episode has waded deeper into the US policy debate.