On the 30th of January, three US Senators sent a new letter to crypto bank Silvergate’s CEO Alan Lane, in which the Senators alleged that Silvergate’s dealings with FTX, which was once the biggest crypto exchange in the world and now is nothing, introduced crypto risk into the traditional banking system. In this letter, US Senators asked more questions from the embattled crypto bank Silvergate and demanded to provide more information.
The US Senators who signed this letter were John Kennedy, Roger Marshall, and Elizabeth Warren, well-known as a bipartisan group. In this letter, the bipartisan group pointed specifically to a large cash loan Silvergate executed to fill up its accounts during mass user withdrawals last year. In the last quarter of 2022, Sivergate announced that users pulled more than $8 billion in crypto deposits, which some of the crypto industry individuals called worse than great depression-era runs.
Due to Silvergate’s strong and close ties with FTX, this huge amount of withdrawals was likely related to investors safeguarding their money during the ongoing contagion. The Q4 filing of last year also revealed that Silvergate sold around $5.2 billion in debt securities and drew a $4.3 billion loan from FHLB, known as the Federal Home Loan Bank, to fill up its reserves. In the letter, the three US Senators wrote that if Silvergate were to fail, the FHLB could assert statutory lien priority on other assets, such as the deposit insurance fund of the Federal Deposit Insurance Company.
In the letter, the Senators argued that this could ultimately leave the FDIC and the American taxpayer holding the bag. Moreover, in the letter, the Senators asked for more information about the crypto bank’s relationship with FTX and Alameda Research, a trading firm founded by Sam Bankman-Fried, the ex-CEO & founder of FTX. According to the letter, the crypto bank Silvergate is expected to respond by the 13th of February.