FDIC Sends Team to Silvergate Headquarters as Powell Warns Banks to Be Cautious When Engaging in Crypto Space

According to a report by Bloomberg, the Federal Deposit Insurance Corporation (FDIC) has sent representatives to the headquarters of Silvergate Capital Corp. to discuss how to prevent insolvency or increase liquidity. Federal Reserve Chairman Powell, when asked about issues between financial institutions and the cryptocurrency industry in Congress, also stated that the Federal Reserve, FDIC, and the Office of the Comptroller of the Currency (OCC) will work together to ensure that regulated financial institutions remain cautious when engaging with the cryptocurrency sector.

FDIC Sends Staff to Silvergate Headquarters

According to a report by Bloomberg, the U.S. regulatory agency FDIC has dispatched staff to the headquarters of Silvergate Capital Corp. as the struggling crypto-friendly bank seeks ways to sustain its operations. The regulatory agency is in discussions with the bank on how to prevent closure or enhance its liquidity.

FDIC's intervention underscores the urgent situation at Silvergate. Last week, Silvergate stated it was unable to file its financial reports on time, with mounting losses prompting an assessment of its viability. Silvergate is a bank protected by the U.S. Federal Deposit Insurance Corporation (FDIC), which safeguards customer deposit products, including general deposit accounts and money market deposit accounts, up to $250,000 per depositor. Hence, FDIC's involvement at this juncture is particularly noteworthy.

When a bank is on the brink of insolvency, regulatory authorities may opt to place it under receivership – typically leaning towards merging the troubled institution with another bank. However, if there are no buyers to take over, FDIC can choose to reimburse depositors up to the insured amount they are entitled to.

Powell's Comments

During his testimony before Congress, Federal Reserve Chair Powell, when questioned by Senate Banking Committee Chair Sherrod Brown about issues related to the crypto industry, emphasized the importance of innovation. Regulatory bodies aim not to stifle innovation but to ensure economic progress. However, he noted the significant turmoil in the crypto sector over the past year, involving bankruptcies, fraud, and many opaque practices. The Federal Reserve, along with FDIC and the Office of the Comptroller of the Currency (OCC), will work together to ensure that regulated financial institutions exercise caution when engaging with the crypto space.

When asked about the supervision of banks, Powell also pledged to pay closer attention to banks' capital requirements.