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Bitcoin The Almighty Buck

Bank May Go Bust Due To FTX Collapse (cnn.com) 39

Longtime Slashdot reader smooth wombat writes: Late Wednesday night, Silvergate Capital informed the SEC it won't be able to file its annual report on time, and is determining if it can continue to operate. Unlike most traditional banks which have steered clear of crypto, Silvergate is a dominant lender to the crypto industry.

The La Jolla, California-based bank reported a $1 billion loss for the fourth quarter as investors panicked over the collapse of FTX, the exchange founded by Sam Bankman-Fried that is now at the center of a massive federal fraud investigation.

FTX's collapse in November rippled through the digital asset sector, forcing several firms to halt operations and even declare bankruptcy as liquidity dried up and investors fled. But unlike FTX, BlockFi, Celsius, Voyager and other crypto companies that folded last year, Silvergate is a traditional, federally-insured lender that has positioned itself as a gateway to the crypto sector.
Coinbase, the largest U.S. crypto exchange, severed ties with Silvergate. The company tweeted: "Out of an abundance of caution, Coinbase is no longer accepting or initiating payments to or from Silvergate."

Galaxy Digital, a crypto financial services company, issued a similar statement: "In light of recent developments, Galaxy has stopped accepting or initiating transfers to Silvergate. As a firm, we continue to have no material exposure to Silvergate, and this action was taken out of an abundance of caution."
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Bank May Go Bust Due To FTX Collapse

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  • by Ed Tice ( 3732157 ) on Thursday March 02, 2023 @01:43PM (#63336407)
    It seems that the banks entire business model was built around doing things like lending out real money with crypto-currency as collateral. That's a very precarious business model. Those loans cannot be sold for anywhere near face value. Silvergate chose to sell loans at a loss to meet redemptions (rather than be put into receivership) but that means they now have capital reserve issues. How an FDIC insured bank was allowed to take on such outsize risk for little reward is mind-boggling.
    • Can banks invest in whatever the hell they want to? Pretty much. Especially if you can just wrap that investment in a corporation, then the bank is simply investing in a corporation. https://www.law.cornell.edu/cf... [cornell.edu]

      • by shanen ( 462549 )

        Nice FP branch, but I may laugh myself sick.

      • by Ed Tice ( 3732157 ) on Thursday March 02, 2023 @02:35PM (#63336707)
        Banks can lend or invest in whatever they want. But if they lose a portion of their own money, they are supposed to get shut down before they can lose depositors' money. That's a pretty strong incentive to invest well. Clearly not strong enough as the FDIC winds down a lot of banks. When banks take deposits they are essentially leveraging their own money with huge downside risks so most banks are pretty conservative. Clearly there are exceptions.
    • by guruevi ( 827432 )

      They wouldn't be taking such risks if it weren't for the FDIC. Basically any worries about liquidity are regulated out of scope for these entities, because the government can just print more liquidity for them.

      FDIC should be an insurance policy, not a bailout. Right now 100% of their assets are covered by FDIC, so they can happily take that money and make high-risk high-reward investments and reap the profits. Bank accounts should just be treated like what they actually have become through federal reserve b

      • FDIC is not a lot of insurance - it is insurance for customers not the bank itself. If a bank is going under then FDIC won't be able to bail it out.

      • by Powercntrl ( 458442 ) on Thursday March 02, 2023 @02:32PM (#63336695) Homepage

        They wouldn't be taking such risks if it weren't for the FDIC.

        The FDIC bails out you, not the bank.

        What happens to my deposits if my bank fails?
        In the unlikely event of a bank failure, the FDIC acts quickly to protect insured deposits by arranging a sale to a healthy bank, or by paying depositors directly for their deposit accounts to the insured limit.
        source [fdic.gov]

        A bank that decides to play with cryptocurrency is risking their own solvency, and while their customers will be made whole (at least up to the amounts FDIC covers) if things go pear-shaped, the bank itself can still go under.

        • by guruevi ( 827432 )

          The corporate structure of the bank goes under, the CEO goes to another corporate entity and becomes a "healthy" bank.

          The bank itself does not lose value, it's likely using customer deposits to fund these investments, so if the FDIC bails out the 'customers', they're basically scrubbing that debt with printed money.

          My point was that it's not the bank's money they're losing, they're at best losing tax payer money.

          • Corporate slimeballs do this in every industry, not just banking. How many failed businesses did the former president have? It has absolutely nothing to do with the government bailing out the customers and everything to do with the fact that if you're wealthy/influential enough at the start, you can run a business straight into the ground and yet there will still be enough clueless investors willing to fund your next endeavor.

            Lack of FDIC insurance doesn't make companies behave more responsible with custo

            • by guruevi ( 827432 )

              Lack of FDIC insurance would make the consumer more careful and aware of where they are 'investing' or demand better assurance (such as cryptographic tokens) of their deposits.

              Sure some people would still fall for the 'high return, no risk' scams, but you can't legislate away stupid people. The crypto exchanges are a perfectly good example of what SHOULD happen. Nobody 'poor' lost any money on crypto, some rich investors lost some money, everybody got wiser, Joe Public sure is going to think twice before in

      • by brunes69 ( 86786 )

        What on earth makes you think Silvergate is FDIC insured?

        What products do they have that would even be insurable?

        All they do is offer business and crypto loans. It's not like this is a retail bank. Even calling it a "bank" at all is a stretch, it is closer to a VC firm.

      • by bws111 ( 1216812 )

        None of what you wrote is true. The FDIC does not protect the bank at all. It is the Federal DEPOSITORS Insurance Corporation. The depositors are insured, not the bank. If they make bad investments, the depositors are (if the bank is a member of the FDIC) protected. The investors in the bank itself are not, they will lose their investment.

    • ...misfortune favors the brave.

  • They should ask their cryptobros to teach them how to create a few billion tokens, and proclaim that the tokens are worth $1 each. Then use that token as collateral to borrow money. it works every time.

    • Yep. They can simply create a new currency and pay it all off. Shouldn't take them more than a few hours...

  • Caution... (Score:5, Funny)

    by yo303 ( 558777 ) on Thursday March 02, 2023 @02:02PM (#63336507)

    Silvergate had earlier said, "Out of a scarcity of caution, Silvergate has decided to invest in FTX."

  • by rsilvergun ( 571051 ) on Thursday March 02, 2023 @02:02PM (#63336513)
    in my finance system. We'll let the crypto firms collapse, but if the big guys like Goldman Sach's get their claws dug in we'll bail them out when it's time or they'll take the whole economy with it. They're holding us all hostage because we won't just nationalize things when they make the system collapse with their gambling, so don't let them gamble with our lives.
  • is so important. The bank can crash and burn to rubble, and the real-life cash account holders will still get their $$$ back up to the FDIC limit.

    The rest of the speculators who piled into crypto can go pound sand.
  • If the bank goes tits up, you are insured by the US Federal gov't for up to this amount, at least on "normal" products like checking and savings account balances. If you've got more than that in cash, you may want to spread it around, especially if a bank is involved with "non-standard" investing like this crypto garbage. Do your homework before writing that check!
    • The other day someone was complaining that the student loan debt forgiveness wasn't fair. You know what's really not fair? The fact that someone could possibly have more than $250k and yet somehow still be too ignorant to notice the FDIC sign that is literally staring you right in the face at every bank.

      Every time I see that sign, I think to myself "Each depositor insured up to $250k, you say? That must be a nice problem to have."

      • The other day someone was complaining that the student loan debt forgiveness wasn't fair.

        And yet, all those PPP loans handed out to elected officials which were forgiven [npr.org] is completely fair.

        Wonder if that other poster complained about that as well.
  • by fahrbot-bot ( 874524 ) on Thursday March 02, 2023 @02:20PM (#63336631)

    According to a quick Google search, Silvergate Capital is the parent company of Silvergate Bank; don't know which is actually affected as TFS/A seem to be mixing these two entities together.

  • Seriously. These people should all be behind bars.

    • Is being bad at business a crime? Presumably the bank met its regulatory requirements to operate as a bank.

      • by gweihir ( 88907 )

        Being thick in a known scam as a regulated entity is a sure sign of being a criminally-minded fool. Not that stupid and greedy management is really much less of a problem in regulated industries.

        • A failed business plan is not a criminal act. What evidence do you have of criminal behavior on the part of Silvergate?

          Making bad loans is bad business but it is not criminal unless you can prove intent. This is a situation where there is a properly accounted for loss, no funny business with accounting, no executives disappearing to far away places. The bank took a risk in loaning out dollars that would be used for things crypto, the bank didn't plan for an FTX type event and got left holding the bag. Being

  • The bank will go bust. Cry me a river. The bankers will keep their houses. The FDIC will pick up the tab. The mortgages will still have to be be paid by people.
  • Silvergate deserved to go belly-up.

    If you can't tell real crypto from a DNC laundromat then, uh, stay away from investing?
    • by hey! ( 33014 )

      It takes a special talent to bankrupt a bank, absent some kind of global financial catastrophe.

  • "Unlike most traditional banks which have steered clear of crypto, Silvergate is a dominant lender to the crypto industry."

    No, Silvergate was a dominant lender to the crypto industry. Right now the employees are probably looting the supply room for pens and paper before their position disappears.

I do not fear computers. I fear the lack of them. -- Isaac Asimov

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