President Herbert Hoover Saves the Day for a Crypto Bank? Yeah, That’s Weird

Silvergate Bank (SI) started in San Diego in 1988 as a savings and loan association (S&L) when that was all the rage. It’s a bank now – for … uh … reasons – that markets itself as a “leading provider of innovative financial infrastructure solutions and services for the growing digital currency industry.”

Basically, Silvergate is the bank for a lot of crypto businesses (1,300+, according to the company website, if you include “fintechs”), which tend to have problems maintaining banking relationships. As such, it’s probably not surprising to learn that Silvergate’s assets under management (AUM) has grown quickly the last few years. Its stock price did, too, by more than 1,500% between November 2019 and November 2021.

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But once FTX collapsed, Silvergate customers fled (withdrawing $8.1 billion in the fourth quarter, aka roughly 70% of total deposits) and U.S. Senator Elizabeth Warren (D-Mass.) sent it a scathing letter. The stock price tanked, down more than 40% in the past month.

Now I’m not here to spread fear that Silvergate is insolvent. After all, Silvergate satisfied the customer withdrawals and has started leaning into cost cuts by way of laying off 40% of its staff and abandoning expensive ideas like the Diem project it bought from Meta Platforms (META) early last year.

What is worth highlighting here, though, is how Silvergate satisfied those customer withdrawals.

Silvergate used something meant for housing as a lifeline

In November, I wrote that the crypto credit contagion was “unlikely to spread to other markets,” but Silvergate just proved me wrong. To satisfy the spike in withdrawals, Silvergate received billions of dollars in advances from the Federal Home Loan Bank (FHLB) of San Francisco, ending 2022 with $4.3 billion of FHLB money on its balance sheet. For context, Silvergate held just $700 million of these advances at the end of September 2022.

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