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Silvergate Bank, the La Jolla based bank that made a name for itself by specializing in providing banking services to the crypto industry, has recently come under scrutiny for using a (quasi) federal lending program, designed to make mortgages more affordable, to meet the storm of withdrawals that occurred shortly after FTX collapsed. Silvergate customers withdrew $8.1 billion in the fourth quarter of 2022, roughly 70% of Silvergate’s deposits. Silvergate was able to meet the outflow, in part, by securing $4.3 billion in loans from the Federal Home Loan Bank (FHLB) of San Francisco. Silvergate posted an almost billion dollar loss for the fourth quarter of 2022.

The FHLB system was created under Herbert Hoover in 1932 with the primary goal of making homeownership more affordable for the average American. One method for achieving this goal was to create FHLBs and allow them to provide secured loans (so called “advances”) to their member banks (which includes Silvergate) so member banks could create mortgages at lower rates. While long-term advances by the FHLBs are generally restricted to funding residential housing financing, short-term advances have no such restrictions. This permitted Silvergate to secure funds from the FHLB to satisfy the frenzy of withdrawals it experienced during the 4th quarter. While FHLBs are privately capitalized, they enjoy a special statutory lien priority which can place them ahead of other parties, including the FDIC, in bankruptcy proceedings. Thus, if Silvergate were to join the spate of major crypto industry entities that filed bankruptcy recently, it could leave the FDIC holding the (empty) bag, responsible for paying out deposit insurance on Silvergate’s FDIC insured accounts while the FHLB is first in line for any assets remaining.


The crypto industry has largely been believed to be siloed off from more traditional financial arenas. Some federal regulators seem keen on keeping it that way. Earlier this month federal banking regulators warned banks of the risks associated with dealing in crypto-assets and crypto-asset participants. The advances Silvergate received from the FHLB are a clear indication that the lines are blurring and crypto is bleeding into traditional financial channels. Given that and the current climate surrounding the crypto industry, it seems likely that federal law makers and regulators will be further emboldened to pursue more extensive oversight and regulation of the industry.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm or its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.


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Casey Jennings

Casey Jennings | Counsel

A member of Seward & Kissel’s Financial Services Regulatory Group and Blockchain and Cryptocurrency Group, Casey advises financial services companies – including banks, broker-dealers, investment funds, service providers, and financial technology companies – on federal and state banking and securities law issues and the structuring of new financial products, including anti-money laundering, deposit issues, token offerings, custody of traditional and crypto assets, transfer and liquidity issues, Volcker Rule issues, and investments in crypto assets by funds and other investors. Before joining the firm, Casey served as counsel to the Consumer Financial Protection Bureau, where he developed and implemented financial regulatory policy, including the first CFPB rulemaking to rely on unfair, deceptive, and abusive acts and practices (UDAAPs) authority. Since then, he has:

  • Represented e-retailer APMEX Inc. and alternative asset manager Sprott Inc. in connection with the launch of the online marketplace, OneGold.com.

“The whole notion of crypto is that there are no gatekeepers and the BSA requires that there be gatekeepers. Those two notions are very much at odds with one another. But the BSA is the best system that we’ve got right now.”

Casey’s perspective on crypto AML regulations as published in Cointelegraph article “How U.S. authorities are using old AML tools to crack down on crypto”


Colin Hill | Associate

Colin Hill is an associate at Seward & Kissel LLP. Colin received a B.A. from University of Nebraska-Lincoln and a J.D. from Washington University School of Law.