• Mon. May 20th, 2024

Us Senators Claim Silvergate Introduces Crypto Risk Into Traditional Banking

Feb 2, 2023

American lawmakers are not done with questions pertaining to the struggling crypto bank Silvergate. Three US senators issued a new letter to the chief executive of the company, Alan Lane.

The lawmakers have demanded that the crypto bank provide them with more information because they allege that its dealings with the now-defunct FTX crypto exchange introduced the risk of the crypto market in traditional banking.

The letter

Roger Marshall, John Kennedy, and Elizabeth Warren were the three senators who signed the letter sent to Silvergate’s CEO.

The bipartisan group specifically highlighted a substantial cash loan that had been executed by the crypto bank for shoring up its accounts when there has been huge user withdrawals recorded in the previous year.

Silvergate announced in the fourth quarter of last year that crypto deposits worth $8.1 billion had been withdrawn by customers, which was referred to as worse than runs seen in depression eras.

Since the crypto bank had close ties with the FTX exchange, it is likely that this wave of withdrawals occurred because investors wanted to safeguard their funds during the ongoing contagion.

The same quarterly filing had also shown that the crypto bank had sold debt securities worth $5.2 billion for shoring up its accounts and obtained a loan worth $4.3 billion from the Federal Home Loan Bank (FHLB).

The concern

It was the loan from FHLB that had drawn the ire of the three senators. They said that a number of banks facing only a fraction of withdrawals that Silvergate dealt with had failed.

They asserted that if Silvergate was also to go down, then FHLB could put itself ahead of the other creditors as statutory lien priority could be asserted.

This would mean that other creditors would come after, which include the deposit insurance fund of the Federal Deposit Insurance Company (FDIC).

The lawmakers argued that this would mean that the FDIC would be left holding the bag, which would ultimately have an impact on the American taxpayer.

The senators ended the letter with a detailed questionnaire for gathering more information about Silvergate’s relationship with FTX and Alameda Research.

It is expected that the crypto bank will respond to the letter by February 13th.

Silvergate’s situation

The letter sent on Monday to Silvergate by the US senators is the second one. The first had been sent on December 5th, 2022 and senators claimed that it had been incomplete and evasive.

In the letter, they had called on the crypto bank to provide information about its precise relationship with FTX.

It referred to the alleged role that Silvergate had played in moving funds of FTX users from the exchange to its sister trading firm, Alameda Research.

Alan Lane, the CEO of Silvergate, had penned a public letter on the same day in which he had called out the misinformation and speculation surrounding his company’s health.

He had also insisted that the crypto bank had done substantial due diligence on both FTX and Alameda Research.

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