In the final months of 2022, Silvergate Bank's cryptocurrency business suffered a significant decline, losing over $8 billion in deposits from its crypto customers, which was predicted by the bank's regulators as a potential risk for institutions operating in this industry.
The bank also faced pressure from U.S. banking watchdogs, ongoing investigations from regulators and the U.S. Department of Justice, and potential restating of its financials due to ongoing audits. A CoinDesk analysis of the bank's financial reports over several years revealed that its crypto strengths were starting to drag it down, and the bank's peak was in 2021. Despite its outsized reputation as a core part of the digital assets industry's U.S. banking presence, Silvergate's overall asset size and volume on its Silvergate Exchange Network were relatively small compared to a mid-range community bank. Additionally, the bank's leverage ratio had rapidly decreased to just 5.4% of capital against its overall assets, which is below the "well-capitalized" designation and toward the territory of emergency intervention from regulators.
As several big names in its customer base severed ties with the struggling bank, its deposit base drew down quickly due to its crypto clients' collapses, bankruptcies, and legal disputes. Silvergate's struggles do not offer a shining path for other institutions to follow, as the options for U.S. banking in the digital assets sector are getting narrower, with the Federal Reserve and other banking agencies warning against getting overly exposed to this industry.