US Senators: Silvergate has introduced cryptocurrency risk into traditional banking

US lawmakers have more questions about embattled crypto bank Silvergate.

In a new letter to company CEO Alan Lane, three US senators claim that the crypto bank’s dealings with the ill-fated FTX exchange “introduced crypto market risk into the traditional banking system,” and demand that Silvergate provide more information.

Signed by Elizabeth Warren (D), John F. Kennedy (R-N), and Roger Marshall (R-Can), the bipartisan group specifically cited a large cash loan Silvergate made to shore up its accounts amid finally mass user withdrawals. Public.

In the fourth quarter of 2022, Silvergate announced that users had withdrawn $8.1 billion in cryptocurrency deposits, something commentators called “worse than the Great Depression.” Because of the bank’s close ties to the now-defunct FTX, this wave of withdrawals is likely related to anxious investors protecting their money amid the ongoing infection.

The same quarterly report also noted that Silvergate sold about $5.2 billion in debt securities as well as secured a $4.3 billion loan from the Federal Home Loan Bank (FHLB) to support its accounts.

It was the last loan that angered the three Senators.

If Silvergate failsSo are banks, which are facing a fraction of the levels of withdrawal Silvergate facedThe letter said the FHLB could “override the legal lien’s priority over other assets — essentially putting the mortgage bank ahead of all other creditors,” including the FDIC’s deposit insurance fund.

The senators argued that this could eventually “leave the FDIC.”Hence the American taxpayerCarry the bag.”

The letter concludes with a comprehensive survey to gather more information about the relationship between FTX, Alameda Research, and Silvergate. The crypto bank is expected to respond by February 13th.

How did Silvergate get here?

Monday’s message was the second from the senators, after Silvergate.

The first, which senators said was “dodgy and incomplete,” came on Dec. 5, 2022, and called on the cryptocurrency bank to reveal its exact relationship with FTX, specifically citing Silvergate’s alleged role in moving FTX users’ funds to its sister business. Alameda Research.

On the same day, Silvergate CEO Alan Lane also wrote a public letter calling for “speculation” and “misinformation” about his company’s health, and insisting that Silvergate had already done “substantial” due diligence on the two companies.

Lawmakers aren’t the only ones investigating Silvergate’s ties to the high-profile collapse of Sam Bankman-Fred’s empire.

The class action lawsuit filed on December 16 went so far as to allege that the bank aided and abetted FTX’s alleged fraudulent activities.

The plaintiff alleged that Silvergate engaged in “direct participation in money mixing, improper transfers, and customer money lending.”

Stay up to date with cryptocurrency news, and get daily updates in your inbox.

Leave a Reply

Your email address will not be published. Required fields are marked *