#Silvergate – Page 3 – Federal Financial Analytics

11 01, 2023

CRYPTO38

Arezou Rafikian2023-01-12T11:03:19-05:00January 11th, 2023|5- Client Report|

Financial-Policy Consequences of Silvergate’s Travails

Karen Petrou’s memo earlier this week and her comments to the American Banker about Silvergate have sparked many client questions. In this report, we provide additional context for aspects of this bank’s condition with policy consequences. High-profile cases such as this have a long history of suddenly shifting long-pending policies; depending on outcomes, this bank’s challenges and those of any other crypto-heavy banks will almost surely do so. In general, the case already confirms U.S. regulators of the wisdom of additional capital for crypto-exposed banks along the lines recently finalized by global regulators (see FSM Report CRYPTO37). However, it also raises significant questions about the role of the Federal Home Loan Banks, brokered deposits, resolution policy, and AOCI recognition – and these are just for starters as the bank struggles to stay afloat.

CRYPTO38.pdf…

10 01, 2023

American Banker, Tuesday, January 10, 2023

Arezou Rafikian2023-01-11T11:01:42-05:00January 10th, 2023|Press Clips|

Silvergate Bank loaded up on $4.3 billion in FHLB advances

By Kate Berry

When depositors began pulling money out of Silvergate Capital Corp. following the collapse of cryptocurrency exchange FTX, the California bank shored up its liquidity by tapping a quasi-government agency not typically known as a lender of last resort. Silvergate received $4.3 billion from the Federal Home Loan Bank of San Francisco late last year, company filings show….”What the $4.3 billion to Silvergate went to in terms of mission is a very intriguing question,” said Karen Petrou, managing partner at Federal Financial Analytics. “The housing mission of the Home Loan banks is apparently long gone, since this has nothing to do with housing. It has to do with supplementing wholesale funding sources for banks that can’t happen any other way or at greater cost.”

https://www.americanbanker.com/news/silvergate-bank-loaded-up-on-4-3-billion-in-fhlb-advances

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9 01, 2023

Karen Petrou: Is Silvergate Solvent?

Arezou Rafikian2023-01-09T16:42:49-05:00January 9th, 2023|The Vault|

Is Silvergate solvent? Media coverage suggests it can stay in business based on the crypto bank’s liquidity. Liquidity is, though, only a necessary condition for a bank to survive. For it actually to remain in business, a bank must also be solvent. For Silvergate and several other crypto-heavy banks this won’t be easy.

The critical criterion determining whether regulators allow a bank to remain in business is the extent to which its capital meets or exceeds the rules and, when it doesn’t, how much below these thresholds it falls and why. Ever since 1991, regulators are supposed to grant banks little leeway on these capital requirements – “prompt corrective action” provisions demand that regulators sanction banks as capital plummets and close them if they haven’t already done so if ratio’s sink to the “critical-capital” threshold.

Faced with a Lehman-like run, Silvergate has understandably focused on assuring stakeholders that it can continue to sell assets to handle all withdrawals. And so it may, but that’s not its only problem. Even if it’s liquid, Silvergate faces a grim future if its regulatory-capital ratios falter – and they might.

To survive, Silvergate must run a gauntlet between the amount of capital it holds on a shrinking pool of assets and the capital costs of losses taken as assets are sold to handle withdrawals. The bank entered the liquidity wringer with ample capital. According to its third-quarter call report, its leverage ratio was over ten percent. And, even when the bank dumped over …

12 12, 2022

m121222

Arezou Rafikian2022-12-12T15:50:00-05:00December 12th, 2022|6- Client Memo|

Where New Crypto Enforcement, Regulatory Action Will Land

As we’ve learned over the years, a memo written is a memo shared. So it was with my last note on what were then little-noticed links between the tumultuous cryptosphere and what regulators assured us was a banking sector aloof from these violent downdrafts. Sens. Warren and Smith then picked up the examples of several bank/crypto hot spots. The result of new facts combined with heightened political risk will surely lead the bank regulators to follow the tried-and-true strategy of slapping a lot of enforcement actions around before agency heads are hauled up to the Hill. Other than stablecoin legislation, new crypto law is uncertain, but after all the enforcement actions will also surely come new banking crypto regulation….

m121222.pdf…

12 12, 2022

Karen Petrou: Where New Crypto Enforcement, Regulatory Action Will Land

Arezou Rafikian2022-12-12T15:50:07-05:00December 12th, 2022|The Vault|

As we’ve learned over the years, a memo written is a memo shared. So it was with my last note on what were then little-noticed links between the tumultuous cryptosphere and what regulators assured us was a banking sector aloof from these violent downdrafts. Sens. Warren and Smith then picked up the examples of several bank/crypto hot spots. The result of new facts combined with heightened political risk will surely lead the bank regulators to follow the tried-and-true strategy of slapping a lot of enforcement actions around before agency heads are hauled up to the Hill. Other than stablecoin legislation, new crypto law is uncertain, but after all the enforcement actions will also surely come new banking crypto regulation.

First, though, to incoming enforcement actions as these lay the groundwork for next-gen regulation. Any bank with big crypto exposures no matter how otherwise pristine is already under its examiner’s gun in terms of immediate demands for an inventory of all crypto actions anytime for anyone. The senators include this in their asks, looking for names as well as activities and customers. But the banking agencies were surely already hot on this trail.

Any bank that failed to mind its prior-notice manners will surely get a public drubbing so that regulators can point to a host of cases that uncover all risks anywhere they lurk. And banks now casting covetous eyes on cheap crypto assets will get a talking to from Washington if their own internal risk managers haven’t already …

6 12, 2022

DAILY120622

Eliza Allen2022-12-06T16:40:03-05:00December 6th, 2022|2- Daily Briefing|

FSB Again Ratifies Focus on Crypto, Climate, Macro Risks

Following its meeting today, the FSB Plenary announced 2023 priorities to be finalized in January. Focus will center on heightened monitoring of financial stability risks, enhanced NBFI and CCP resilience, work on the global crypto regulatory framework, cross-border payments reform, cyber and operational resilience, and financial risks from climate change.

FinCEN Targets De-Risking Compliance

Pointing to possible enforcement actions, Treasury Assistant Secretary for Terrorist Financing and Financial Crimes Elizabeth Rosenberg today noted FinCEN concerns with the extent to which institutions apply a rules-based approach to de-risking rather than a risk-based one, leaving it vulnerable to fast-changing risks and without access to valuable suspicious activity information.

Warren, GOP Senators Put Silvergate On FTX Hotseat

Reflecting at least some bipartisan agreement on the need for new crypto standards, Sens. Warren (D-MA), Kennedy (R-LA), and Marshall (R-KS) late yesterday sent a letter to the CEO of Silvergate Bank demanding detailed information regarding its relationship with FTX and FTX affiliates.

GOP Threatens Woke Asset Managers With BHC Designation

The Senate Banking GOP report today on ESG asset management contains an interesting aside about the extent to which passive ownership of banking organizations could make the three largest asset managers de facto BHCs.

Brown Fires First Shot in 2023 ILC Wars

Putting down a market for the next Congress, Senate Banking Chairman Brown and two Democratic colleagues today introduced their bill end bar ILC charters for nonbank parents.

Daily120622.pdf…