Silvergate bank is currently under fire
Silvergate Bank, a leading cryptocurrency-friendly financial institution, has come under fire from three U.S. senators over its dealings with the now-defunct FTX exchange and Alameda Research. In a recent letter to Silvergate CEO Alan Lane, senators Elizabeth Warren (D-Mass.), John Kennedy (R-La), and Roger Marshall (R-Kan) have accused the bank of further introducing crypto market risk into the traditional banking system and demanded more information from the firm.
The senators’ letter pointed specifically to a large cash loan of $4.3 billion that Silvergate received from the Federal Home Loan Bank (FHLB) in Q4 2022 to shore up its accounts during a mass user withdrawal of $8.1 billion in crypto deposits. The senators were concerned that in the event of Silvergate’s failure, the Federal Home Loan Bank could assert statutory lien priority over other assets, including the Federal Deposit Insurance Company’s deposit insurance fund, potentially leaving the American taxpayer holding the bag.
The senators’ letter also included an extensive questionnaire to gather further information about the relationship between FTX, Alameda Research, and Silvergate. The crypto bank is expected to respond by February 13 at the latest.
This is the second letter that the senators have sent to Silvergate, with the first one being sent on December 5, 2022. In that letter, the senators asked the bank to disclose its precise relationship with FTX and its alleged role in moving FTX user funds to Alameda Research. However, the senators stated that the response from the bank was “evasive and incomplete.” In response to the senators’ letter, Silvergate CEO Alan Lane wrote a public letter refuting the speculation and misinformation surrounding the health of the firm and insisting that the bank had conducted significant due diligence on the two firms.
The senators’ concerns and allegations come amidst a class-action lawsuit filed on December 16, which accused Silvergate of aiding and abetting FTX’s alleged fraudulent activities. The plaintiff argued that the bank engaged in first-hand participation in the commingling of funds, improper transfers, and lending out of customer money.
Growing Scrutiny
The situation with Silvergate highlights the growing scrutiny and concern that traditional financial institutions are facing as they increasingly embrace the cryptocurrency industry. The senators’ allegations and the class-action lawsuit against Silvergate raise important questions about the risks associated with the intersection of traditional banking and the crypto market, as well as the need for closer examination and regulation of the sector.
The ongoing controversy surrounding Silvergate Bank’s dealings with FTX and Alameda Research highlights the need for increased transparency and accountability in the crypto industry. The allegations raised by the senators and the class-action lawsuit against the bank serve as a reminder that the crypto market is still in its infancy and is facing significant challenges, including the need for better regulations to ensure the protection of consumers and the stability of the financial system.
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