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Crypto-friendly Silvergate Bank ultimately collapsed this year due to over-dependence on risky crypto deposits and nepotism that led to ineffective management, according to inspectors at the Federal Reserve.<\/p>\n
In a Sept. 27 executive summary<\/a> of its review into the collapse of Silvergate Bank, the Federal Reserve Board\u2019s Office of Inspector General pointed the finger at Silvergate\u2019s change in strategy to focus on \u201ccustomers engaged in crypto activities\u201d in 2013. <\/p>\n \u201cSilvergate\u2019s concentration in crypto industry deposit customers, rapid growth, and multilayered funding risks led to the bank\u2019s voluntary liquidation.\u201d<\/p><\/blockquote>\n Evolving from a little-known institution in the early 2010s, Silvergate expanded rapidly to become the premier bank for crypto clients, growing from $1 billion in deposits in 2017, to $16 billion by 2021. <\/p>\n During this period of rapid growth, the Fed said the bank grew to become essentially a single-industry lender, with the vast majority of its customer deposits being uninsured and non-interest bearing. <\/p>\n If the institution had been properly following existing banking regulations, it should have filed a new application with the Fed, but government supervisors failed to pressure it to establish new risk protection measures.<\/p>\n While some government supervisors had voiced their concerns with the bank\u2019s activities, the Fed said these should have been escalated through \u201cstronger, earlier, and more decisive supervisory action.\u201d<\/p>\n Silvergate\u2019s over-reliance on crypto became suddenly evident following the collapse of the now-defunct crypto exchange FTX<\/a> in November 2022, with tens of billions of dollars in capital fleeing the sector<\/a> in the following months. <\/p>\n Related: <\/em><\/strong>Scaramucci leads bidding for Silicon Valley Bank VC arm: Report<\/em><\/strong><\/a><\/p>\n Silvergate\u2019s purported wrong-doings weren\u2019t just limited to crypto. Investigators also claimed that nepotism plagued the banks\u2019 senior management, leading to an incompetent and ineffective corporate structure that failed to address the many risks present at the time. <\/p>\n “Further, nepotism, evidenced in the several familial relationships among members of the bank\u2019s senior leadership team, undermined the effectiveness of the bank\u2019s risk management function.”<\/p><\/blockquote>\n \u201cSilvergate\u2019s board of directors and senior management were ineffective, and the bank\u2019s corporate governance and risk management capabilities did not keep pace with the bank\u2019s rapid growth, increasing complexity and evolving risk profile,\u201d concluded the report. <\/p>\n