Acquisition of Silvergate by Flagstar Bank
One of the causes attributed to the sad departure of Silvergate Bank was its adoption of digital currencies and assets. The regulators in the United States are not ready to let the crypto firms run loose in the jurisdiction.
However, the regulators have changed their stance and are going with a different approach. They have realized that it would be a long process if they went after one crypto firm after another.
This is the reason why they have decided to go after the banks. This way, the crypto users based in the US won’t be able to withdraw their funds from crypto firms. Eventually, they will stop using cryptocurrencies.
This has been so agitated by the Board of Directors of Silvergate Bank, however, declined by the regulator concerned from New York.
Currently, it does not matter as to what was the actual reason behind Silvergate’s failure as the bank has already collapsed. In fact, an acquisition deal has been entered into with Flagstar Bank which has agreed to take over Silvergate.
Federal Deposit Insurance Corporation of the US (FDIC), which was looking after the post-fall affairs of Silvergate, was looking for interested parties.
FDIC wanted someone to acquire Silvergate and it found one in the shape of Flagstar Bank.
Overtaking of Assets and Liabilities Belonging to Silvergate
Reportedly, an acquisition deal was executed between Flagstar and FDIC under which assets, belonging to Silvergate, were to be acquired by Flagstar.
Apart from acquiring assets, the deal entitled Flagstar to overtake Silvergate’s branches as well as liabilities and deposits.
The overtaking process was reportedly completed on the 20th of March 2023.
Silvergate branches will now be operating and rendering banking services for and under the banner of Flagstar instead of Silvergate Bank. The branches would however no longer serve the depositors and customers of Silvergate.
Pre-Acquisition Discussion
When Silvergate’s affairs were overtaken by FDIC, the regulator determined that a loss of $2.6 Billion was unavoidable because of the bank’s failure.
Secondly, FDIC was concerned that nobody from the conventional banking sector would come forward since Silvergate owed liabilities to crypto customers.
However, FDIC wanted to make sure that during the discussion with the potential buyer, the buyer must agree to overtake crypto liabilities.
It is now confirmed that though Silvergate has been successfully acquired by Flagstar, the acquirer bank has excluded crypto liabilities.
During the pre-acquisition discussion between Flagstar and FDIC, the regulator had insisted upon Flagstar overtaking Silvergate’s crypto depositors. However, Flagstar outrightly rejected taking over such liabilities and operations.
It was hence mutually decided that Silvergate Bank should be allowed to be acquired by Flagstar minus crypto liabilities and operations.
Post-Collapse Scenario
Prior to Silvergate’s acquisition, the rumor was taking rounds amongst the public as if cryptocurrencies’ hand was behind the collapse. However, it was categorically denied by FDIC as well as by the Financial Services Department of NY.
Both authorities confirmed that it was due to financial hardships and not crypto which led to the ultimate departure of Silvergate.
Despite this, many in the US still believe that Silvergate’s involvement in digital assets was the main reason for the bank’s failure.
For instance, Barney Frank, an ex-politician claimed that Silvergate’s closure was a message that regulators do not appreciate banks engaging with cryptocurrencies.
Even Frank’s assumption was clarified by FDIC denying that there was any ‘anti-crypto’ agenda behind Silvergate’s closure.
It may however be noted that Silvergate was in possession of crypto deposits worth more than $4 Billion when it collapsed. These deposits belong to the customers which were once part of Silvergate Bank.
Now the responsibility of returning crypto deposits to their original beneficiaries has been taken over also by FDIC.
It has been informed by FDIC that it shall soon be contacting the depositors of Silvergate Bank to whom the crypto funds belong. They shall all be paid by FDIC directly.
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