The FTX debacle has triggered a bank run on Silvergate, causing the company to sell off its assets at a loss and cut staff by 40% to cover $8.1 billion worth of customer withdrawals.
According to a report published by The Wall Street Journal, the bank liquidated debt that it was holding on its balance sheet to keep up with withdrawals, losing $718 million in the process. The loss reportedly surpasses the firm’s profits since 2013. In addition, crypto-related deposits in the firm dropped by 68% in the fourth quarter of last year.
Because of this, Silvergate dismissed around 200 employees, which was 40% of its total personnel. The bank also canceled a plan to launch its own digital currency project, writing off almost $200 million that it paid Facebook to buy the technology it built for the Diem project.
Despite this, the bank remains positive in its commitment to crypto and claims to have enough funds to handle a transformation phase. The bank highlighted that it’s “taking decisive action” to navigate the current market situation.
The bank has been under scrutiny from United States lawmakers because of its ties to FTX and Alameda Research. On Dec. 6, three U.S. senators wrote a letter to Silvergate to probe the bank’s involvement in customer losses as the FTX exchange collapsed. The company’s role in transferring FTX customer funds to Alameda seems to be a failure on its end in monitoring and reporting suspicious activity according to the letter.
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On Dec. 16, a class-action lawsuit was filed against Silvergate in an attempt to hold it accountable for its alleged roles in the loss of FTX customer funds. The lawsuit alleged that the bank is liable for its involvement in “furthering FTX’s investment fraud.”