American lawmakers have more questions for the embattled crypto bank Silvergate.
In a new letter to the firm’s CEO Alan Lane, three U.S. senators allege that the crypto bank’s dealings with the ill-fated FTX exchange “further introduced crypto market risk into the traditional banking system,” demanding Silvergate provide more information.
Signed by Elizabeth Warren (D-Mass.), John Kennedy (R-La), and Roger Marshall (R-Kan), the bipartisan group pointed specifically to a large cash loan Silvergate executed to shore up its accounts amid mass user withdrawals last year.
In Q4 2022, Silvergate announced that users pulled $8.1 billion in crypto deposits, something commentators have called “worse than great depression-era runs.” Due to the bank’s close ties with the now-defunct FTX, this wave of withdrawals was likely related to worried investors safeguarding their money amid the ongoing contagion.
That same quarterly filing also indicated that Silvergate sold roughly $5.2 billion in debt securities as well as drew a $4.3 billion loan from the Federal Home Loan Bank (FHLB) to shore up its accounts.
It was the latter loan that drew the trio of senators’ ire.
“If Silvergate were to fail—as have banks facing a fraction of the withdrawal rates Silvergate has faced—FHLB could ‘assert statutory lien priority on other assets – essentially putting the Home Loan bank ahead of all other creditors,’ including the Federal Deposit Insurance Company’s (FDIC) deposit insurance fund,” the letter read.
This, the senators argued, could ultimately leave “leave the FDIC—and therefore the American taxpayer—holding the bag.”
The letter concludes with an extensive questionnaire to gather more information about the relationship between FTX, Alameda Research, and Silvergate. The crypto bank is expected to respond by February 13 at the latest.
How did Silvergate get here?
Monday’s letter was the senators’ second to Silvergate.
The first, which the senators said was “evasive and incomplete,” came on December 5, 2022, and urged the crypto bank to disclose its precise relationship with FTX, pointing specifically to Silvergate’s alleged role in moving FTX user funds to its sister trading firm Alameda Research.
On the same day, Silvergate CEO Alan Lane also penned a public letter calling out “speculation” and “misinformation” around the health of his firm, insisting that Silvergate had indeed conducted “significant” due diligence on the two firms.
Lawmakers aren’t the only ones investigating Silvergate’s ties to the high-profile collapse of Sam Bankman-Fried’s empire.
A class-action suit filed on December 16 went as far as alleging that the bank aided and abetted FTX’s alleged fraudulent activities.
The plaintiff argued that Silvergate engaged in “first-hand participation in the commingling of funds, improper transfers, and lending out of customer money.”
