Fed inspector blames crypto focus, nepotism for Silvergate Bank collapse
Crypto-friendly Silvergate Bank ultimately collapsed this year due to over-dependence on risky crypto deposits and nepotism that led to ineffective management, according to inspectors at the Federal Reserve.
In a Sept. 27 executive summary of its review into the collapse of Silvergate Bank, the Federal Reserve Board’s Office of Inspector General pointed the finger at Silvergate’s change in strategy to focus on “customers engaged in crypto activities” in 2013.
Evolving from a little-known institution in the early 2010s, Silvergate expanded rapidly to become the premier bank for crypto clients, growing from $1 billion in deposits in 2017, to $16 billion by 2021.
During this period of rapid growth, the Fed said the bank grew to become essentially a single-industry lender, with the vast majority of its customer deposits being uninsured and non-interest bearing.
If the institution had been properly following existing banking regulations, it should have filed a new application with the Fed, but government supervisors failed to pressure it to establish new risk protection measures.
While some government supervisors had voiced their concerns with the bank’s activities, the Fed said these should have been escalated through “stronger, earlier, and more decisive supervisory action.”
Silvergate’s over-reliance on crypto became suddenly evident following the collapse of the now-defunct crypto exchange FTX in November 2022, with tens of billions of dollars in capital fleeing the sector in the following months.
Related: Scaramucci leads bidding for Silicon Valley Bank VC arm: Report
Silvergate’s purported wrong-doings weren’t just limited to crypto. Investigators also claimed that nepotism plagued the banks’ senior management,
Read more on cointelegraph.com
