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Fed inspector blames crypto focus, nepotism for Silvergate Bank collapse

  • Silvergate Bank collapsed due to over-dependence on risky crypto deposits and nepotism
  • Federal Reserve inspectors pointed out Silvergate’s change in strategy to focus on crypto activities in 2013
  • Silvergate grew rapidly to become the premier bank for crypto clients, with $16 billion in deposits by 2021
  • The majority of Silvergate’s customer deposits were uninsured and non-interest bearing
  • Government supervisors failed to pressure the bank to establish new risk protection measures
  • Silvergate’s over-reliance on crypto became evident after the collapse of the crypto exchange FTX
  • Nepotism within the bank’s senior management undermined the bank’s risk management function
  • Silvergate voluntarily wound down in March 2023, avoiding government intervention

Crypto-friendly Silvergate Bank collapsed this year due to its heavy focus on risky crypto deposits and the presence of nepotism within the institution’s management, according to inspectors at the Federal Reserve. The Federal Reserve Board’s Office of Inspector General, in its review of the collapse of Silvergate Bank, highlighted the bank’s strategic shift towards customers engaged in crypto activities as a key factor. The bank grew rapidly to become a leading crypto bank, with deposits reaching $16 billion by 2021. However, the vast majority of these deposits were uninsured and non-interest bearing. Government supervisors failed to enforce existing banking regulations, and concerns regarding the bank’s activities were not escalated effectively. The collapse of the defunct crypto exchange FTX further exposed Silvergate’s over-reliance on crypto. Nepotism within the bank’s senior leadership team also contributed to an ineffective risk management function. Ultimately, Silvergate voluntarily wound down in March 2023, avoiding the need for government intervention.

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