Silvergate Bank was the leader in cryptocurrency deposits in the United States at the end of 2022, but it became a pioneer in the wave of bank failures in 2023. The well-known financial blog ZeroHedge rarely disclosed inside information, saying that the US President Biden’s administration issued an informal regulation requiring banks to not hold more than 15% of cryptocurrency deposits, which may lead to a wave of panic runs by customers.

The new bankruptcy filing and exclusive interviews with confidential sources suggest Silvergate Bank might have survived if not for pressure from regulators, which reportedly included an informal rule requiring it to hold no more than 15% of crypto deposits.

Although the San Francisco Fed issued a 15% threshold on cryptocurrency deposits to Silvergate Bank, the policy originated in Washington, D.C., according to people familiar with the matter. The architect of the policy is now widely suspected to be Bharat Ramamurti, who was then vice chairman of Biden’s National Economic Council, a powerful advisory body that coordinates economic policy across many administration agencies.

Ramamurti served as a senior adviser on banking and economic policy in Sen. Elizabeth Warren's office from 2013 to 2019 and as director of economic policy during her 2020 campaign. He is now an adviser to Vice President Kamala Harris' presidential campaign.

The report mentioned that Warren almost entirely accused Silvergate Bank of aiding and abetting the criminal behavior of the bankrupt cryptocurrency exchange FTX, creating a "worrying atmosphere" around Silvergate that could lead to a bank run.

Sources said the Federal Home Loan Bank (FHLB) refused to renew its monthly loan agreement with Silvergate Bank due to political pressure from Warren, which accelerated the bank's losses.

Hundreds of cryptocurrency companies in the United States suddenly lost their banking services after the collapse of Signature Bank, and many companies chose to turn to fintech companies such as Mercury, but the situation is still very unstable.

Even now, in 2024, few banks are willing to work with cryptocurrency companies, especially if they require more customized services than simple cash management. Those that do provide services to the cryptocurrency industry do so quietly, as they realize they will be clamped down on by regulators if they are called “crypto banks.”

This is exactly what happened to two other banks, Customers Bank and Cross River Bank, which tried to replace Silvergate and Signature Bank after they ceased operations. These are the two banks that still provide banking services to cryptocurrency companies, and both of them have been punished by regulators.

“If the (15%) limit hadn’t been put in place, Silvergate Bank would be thriving right now,” said one person familiar with the matter.

Allegations of criminal wrongdoing in Silvergate’s relationship with FTX have never been proven, and the bank has never been criminally charged.

Silvergate’s collapse could be a major contributor to the 2023 regional banking crisis that ultimately led to the collapse of Signature Bank, Silicon Valley Bank (SVB), and First Republic Bank.

At the end of 2022, Silvergate Bank was a leader in the cryptocurrency space. It was once a small California savings and loan association, but has now transformed into the most important bank in the cryptocurrency space, enabling it to conduct an initial public offering (IPO) and occupy most of the institutional deposits in the space. The bank's Silvergate Exchange Network (SEN) has developed into a key infrastructure for institutional participants in cryptocurrency, and the bank's stock price has soared from $35 at the end of 2020 to $220 at the end of 2021.

Today, Silvergate Bank is no more. Although its depositors were compensated, common shareholders lost money and preferred shareholders received only a meager return. The bank paid huge fines to regulators, $43 million to the Federal Reserve, $20 million to the California Department of Financial Protection, and $50 million to the Securities and Exchange Commission (SEC). After announcing their intention to voluntarily liquidate in March 2023, they finally filed for Chapter 11 bankruptcy protection last week.

Summarizing the current situation of the U.S. banking industry, the ZeroHedge article concluded: “Ultimately, if U.S. policymakers want to protect the cryptocurrency industry and prevent it from entering traditional banks, there is an effective way to do so, through public debate and legislation.”

“If they had passed a law through Congress to restrict cryptocurrency companies’ access to banks, it would have been devastating to the industry, at least under the rules of American democracy, which are effective. But that’s not how Biden administration officials are doing it. They’re doing it through secret backroom deals, agency banking sectors, and the use of threats and intimidation rather than open rulemaking. Part of the crackdown is being spread through various agency statements, but much of it is just verbal communication with no paper trail, like the supposed 15% cap on crypto-related deposits. Other measures are simply taken in the normal course of business, such as refusing to sell any crypto business to Signature Bank.”

“The Silvergate bank saga was a farce, and the public has a right to know the truth. Sympathetic members of Congress should hold hearings, give executives of affected banks a chance to testify, and provide immunity from criminal liability for sharing confidential regulatory information.”