{"title":"The rise and fall of Silvergate Bank: lessons for prudential regulation of crypto-sector banking","authors":"Mark Warren","doi":"10.1057/s41261-024-00243-0","DOIUrl":null,"url":null,"abstract":"<p>Silvergate Bank began to “wind down operations and voluntarily liquidate” its bank in March 2023. Whereas Silicon Valley Bank and Signature Bank would be shut down by the Federal Deposit Insurance Corporation in the following days, this “crypto-sector bank” was able to satisfy depositor withdrawals and enter into voluntary liquidation. This paper examines how Silvergate Bank managed its balance sheet in a manner that maintained liquidity and its ability to satisfy substantial and unpredictable outflows from depositor withdrawals by its “crypto-firm” clients. Its approach was consistent with the ethos of the Basel III liquidity requirements to which many banks—though not Silvergate Bank—are subject. Yet the Silvergate model went further by recognising the idiosyncratic depositor dynamics of “crypto-firms”. This paper argues that prudential regulation should apply this model to (i) any bank that sources a substantial proportion of its funding from “crypto-firm” clients, irrespective of that bank’s size, and (ii) all deposits related to crypto-asset market participants at all banks.</p>","PeriodicalId":15105,"journal":{"name":"Journal of Banking Regulation","volume":null,"pages":null},"PeriodicalIF":1.3000,"publicationDate":"2024-05-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Banking Regulation","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.1057/s41261-024-00243-0","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q3","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
Silvergate Bank began to “wind down operations and voluntarily liquidate” its bank in March 2023. Whereas Silicon Valley Bank and Signature Bank would be shut down by the Federal Deposit Insurance Corporation in the following days, this “crypto-sector bank” was able to satisfy depositor withdrawals and enter into voluntary liquidation. This paper examines how Silvergate Bank managed its balance sheet in a manner that maintained liquidity and its ability to satisfy substantial and unpredictable outflows from depositor withdrawals by its “crypto-firm” clients. Its approach was consistent with the ethos of the Basel III liquidity requirements to which many banks—though not Silvergate Bank—are subject. Yet the Silvergate model went further by recognising the idiosyncratic depositor dynamics of “crypto-firms”. This paper argues that prudential regulation should apply this model to (i) any bank that sources a substantial proportion of its funding from “crypto-firm” clients, irrespective of that bank’s size, and (ii) all deposits related to crypto-asset market participants at all banks.
期刊介绍:
Under the guidance of its highly respected Editors and an eminent and truly international Editorial Board?Journal of Banking Regulation?has established itself as one of the leading sources of authoritative and detailed information on all aspects of law and regulation affecting banking institutions.Journal of Banking Regulation?publishes in each quarterly issue detailed briefings analyses and updates which are of direct relevance to practitioners working in the field while meeting the highest intellectual standards.Journal of Banking Regulation?publishes the latest thinking and best practice on:Basel I II and IIIModels for banking supervisionInternational accounting standardsDeposit protectionEnforcement decisions in banking regulation and supervisionCross-border competition in banking servicesCorporate governance in banksHarmonisation in banking marketsSupervising credit riskAnti-money laundering legislation and regulationsMonetary integrationRisk capital and capital adequacySystemic risk in banking operationsCross-border regulationCross-border bank insolvencyModels for banking riskEssential reading for:central bankersbanking supervisorsfinancial regulatorsbankerscompliance officersheads of risk managementpolicy makersbank associationslawyers specialising in banking lawaccountantsinternal and external bank auditorsacademics and researchers