Federal Charters Offer No Shield for Crypto Firms Amid Regulatory Pressure
Silvergate's former chief executive, Alan Lane, revealed that the crypto-focused bank survived withdrawals of approximately 70% of its demand deposits before ultimately choosing liquidation due to political pressure. This raises questions about the protection offered by becoming a federal bank for crypto companies.
Over three years after Silvergate announced its voluntary wind-down, numerous crypto companies are obtaining federal trust-bank charters, putting their custody businesses under the Office of the Comptroller of the Currency (OCC). These charters provide an established legal framework for custody but create a direct supervisory relationship with Washington and leave firms dependent on other banks for cash.
Lane attributed Silvergate's decision to liquidate in March 2023 to political and regulatory pressure, contradicting the Federal Reserve's inspector general review, which blamed concentration of crypto-industry deposits, rapid growth, funding risks, and governance weaknesses.