To lessen the effects of the recent instability in the cryptocurrency business, Silvergate Bank, which offers conventional and fintech banking services, including lending to cryptocurrency companies, has said in a press statement recently that it will “voluntarily liquidate” its assets and wind down operations.
According to media reports, Silvergate had invested a chunk of crypto-related deposits in mortgage-backed securities and bonds sold by state and local governments. Their value, however, slumped as benchmark rates started to rise.
IMAGE CREDIT: www.silvergate.com
For over 20 years, Silvergate Bank has been serving entrepreneurs in unique and niche industries. It recognized the digital currency’s potential during the sector’s infancy and was able to build strong relationships with pioneers who had been turned away by traditional banks.
This way, the bank was able to solidify its position as an industry-leading partner and innovator.
However, a confluence of misfortunes felled Silvergate and another tech-focused lender, Silicon Valley Bank, not least the end of rock-bottom interest rates.
When crypto markets tumbled in 2022 and exchanges such as FTX hit the wall, Silvergate’s clients rushed to withdraw money. It thus had to sell securities to honor those withdrawals, losing more than $1 billion along the way and hastening its demise.
In the same vein, Silicon Valley Bank also collapsed after a bank run and a capital problem, becoming the second-largest financial institution failure in US history. Due to their focus on serving private enterprises, both Silvergate Bank and Silicon Valley Bank now have a sizable proportion of uninsured deposits.
No material influence on the Philippine banking industry
In reaction to these developments, the Bankers Association of the Philippines (BAP) has reassured the public that these repeated bank failures had no significant or material influence on the Philippine banking industry.
According to the BAP, Philippine banks can withstand economic shocks thanks to the prudential measures implemented by the Bangko Sentral ng Pilipinas (BSP).
“The prudential controls put in place by the BSP have given the Philippine banking system the support it needs to resist economic shocks,” the BAP said in a press statement.
“Banks have diversified deposit bases that include all sectors of the Philippine economy, allowing them to continuously provide the liquidity needs of their clients,” it added, noting that Philippine banks now also have capital and liquidity ratios that exceed the requirements set by the BSP.
However, this does not imply that the BSP won’t alter the capital and liquidity ratio standards that it has already established because some business experts think that this could result in harsher rules or changes to the policy.