Crypto-Focused Bank Silvergate Capital Delays Filing Results Raising Doubts of Its Survival

On Wednesday, March 1, crypto-focused banking Silvergate Capital announced that it would be delaying the filing of its annual report beyond the scheduled date of March 16.

The crypto-friendly said that it might have to delay the filing of its annual 10K report for the fiscal year 2022, which might need an additional two weeks to complete. The bank stated that the delay comes amid the weakening of its capital position since the last month.

During the fourth quarter of 2022, Silvergate Capital reported a heavy loss of $1.1 billion. A majority of the loss comes amid multiple bankruptcies in the crypto space following the fallout of crypto exchange FTX. Besides, regulators are also investigating Silvergate Capital’s business dealings with FTX ahead of the exchange’s crash.

The crypto-focused bank stated that it was “evaluating the impact that these subsequent events have on its ability to continue as a going concern for the twelve months following the issuance of its financial statements”.

Furthermore, Silvergate Bank took heavy losses on its securities portfolio. As a result, this would impact the capital ratios for the bank. In an effort to meet the major withdrawals from its crypto customers, Silvergate Capital has been selling off securities in what it describes as the “crisis of confidence” in the sector.

The bank stated: “These additional losses will negatively impact the regulatory capital ratios . . . and could result in the company and the bank being less than well-capitalised”.

In its forward-looking section, Silvergate Bank also hinted at regulatory scrutiny ahead. "There are or will be important factors that could cause the Company’s actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to ... restrictions on the Company’s business, resulting from various litigation (including private litigation) and regulatory and other inquiries and investigations against or with respect to the Company, investigations from our banking regulators, congressional inquiries and investigations from the U.S. Department of Justice,” it noted.

Soon after the news, the stock price of Silvergate Capital (NYSE: SI) tanked by more than 30% in the aftermarket hours.

With the current development around Silvergate Capital, regulators’s fears are coming true whether banks linked to crypto markets can have a spillover to the traditional financial markets.

With red flags all around Silvergate, regulators are likely to turn extra cautious over banks’ exposure to crypto companies. In January 2023, three top financial regulators — the Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. - issued straight warnings to banks to weigh their crypto risks and that, they should, in no way affect the traditional banking system.