Last
week,
I
published
a
new
article
revisiting
the
last
days
of
the
doomed
pro-crypto
bank
Silvergate,
alleging
that
it
had
been
effectively
killed
off
by
federal
regulators
within
the
Biden
administration.
You
may
be
wondering
why
I
am
relitigating
events
that
took
place
in
the
spring
of
2023.
The
truth
is,
I
believe
that
those
fateful
events
are
widely
misunderstood,
and
that
hindsight
has
brought
us
more
information
to
better
understand
what
really
took
place.
The
conventional
narrative
is
that
Silvergate,
Signature,
and
others
were
the
architects
of
their
own
demise.
They
accepted
crypto
firms
as
clients
and
paid
the
price
when
the
crypto
space
experienced
tremors
in
2022
and
2023;
and
mismanaged
the
maturity
of
their
asset
portfolio
throughout
a
period
of
rising
rates.
But
I
hold
a
different
view.
In
my
opinion,
we
have
evidence
enough
to
suggest
that
the
two
most
important
pro-crypto
banks,
Silvergate
and
Signature,
were
opportunistically
executed
amid
the
fog
of
war
during
the
2023
banking
crisis,
as
part
of
a
broader
coordinated
attempt
to
de-bank
the
crypto
industry.
The
Biden
administration
went
far
further
than
simply
discouraging
banks
from
serving
crypto;
they
actually
shuttered
the
two
most
critical
banks
that
were
serving
the
sector.
This
brazen
scheme
has
never
been
talked
about
in
DC.
Establishment
post
mortems
of
the
banking
crisis
focus
on
interest
rates,
maturity
mismatches
in
asset
portfolios
and
depository
flight.
We
have
enough
evidence
now
to
make
sense
of
what
really
happened.
One
sign
that
something
was
amiss
was
Signature
board
member
Barney
Frank
alleging
that
the
bank
was
shut
down
“because
of
our
prominent
identification
with
crypto.”
A
banker
familiar
with
the
process
told
me:
“Signature
wasn’t
even
given
a
chance
to
raise
capital
and
save
themselves.
It
was
definitely
an
execution.”
For
their
part,
the
New
York
Department
of
Financial
Services,
the
state’s
main
regulator,
denies
this.
There
were
also
significant
irregularities
in
the
process
of
selling
Signature.
FDIC
refused
to
allow
Flagstar,
Signature’s
acquirer,
to
take
ownership
of
$4
billion
of
deposits
from
crypto
firms.
The
funds
were
forcibly
sent
back
to
depositors.
The
sale
of
Signature’s
SigNet
network,
which
allowed
bank
crypto
clients
to
transact
between
each
other
24/7,
was
also
stymied.
One
banker
involved
in
the
process
told
me
that
Tassat
(the
developer
of
SigNet
tech)
was
interested
in
buying
back
the
asset.
Apollo
Global
Management
had
also
lined
up
a
consortium
to
place
a
bid.
The
person
familiar
with
the
situation
told
me:
“The
FDIC
didn’t
put
it
in
writing,
but
they
called
during
the
bidding
process
and
told
us
verbally
‘Don’t
bid
on
the
crypto
products.’”
The
auction
for
SigNet
finally
went
live
on
Friday,
June
9
2023
–
the
week
that
the
SEC
sued
Binance
and
Coinbase.
There
were
no
bids
and
the
SigNet
asset
was
furloughed
completely.
As
a
reminder,
the
FDIC’s
stated
mandate
is
to
maximize
taxpayer
value
by
arranging
the
sale
of
all
bank
assets,
not
just
the
ones
that
are
politically
benign.
A
subsequent
memo
from
the
Congressional
Research
Service
noted
that
“This
reluctance
[of
banks
to
serve
crypto]
was
evinced
by
the
FDIC’s
announcement
that
it
will
return
Signature’s
deposits
to
crypto
firms…,”
acknowledging
that
the
FDIC’s
excising
of
Signature’s
crypto
business
was
a
telling.
The
WSJ
Editorial
Board,
for
its
part,
felt
that
this
was
a
smoking
gun,
writing
“This
[refusal
by
the
FDIC
to
sell
the
crypto
business]
confirms
Mr.
Frank’s
suspicions
—
and
ours
—
that
Signature’s
seizure
was
motivated
by
regulators’
hostility
toward
crypto.”
And
then
there’s
Silvergate.
Silvergate
was
never
sold,
but
rather
voluntarily
liquidated
by
management.
None
of
its
executives
have
since
dared
speak
up.
In
early
2023,
the
SF
Fed
communicated
to
them,
with
the
seeming
tacit
approval
of
other
regulators,
that
they
would
have
to
reduce
their
crypto
deposits
to
a
de
minimis
share
of
their
overall
business.
This
was
fatal
to
its
practice
–
as
over
90%
of
their
deposits
related
to
the
crypto
space
as
of
Q2
2022.
Following
the
bank
run
in
Dec.
2022-Jan.
2023,
Silvergate
was
still
solvent.
After
all
was
said
and
done,
they
were
able
to
make
all
depositors
whole,
even
though
they
were
cut
off
from
last-resort
liquidity
at
the
FHLB
thanks
to
a
pressure
campaign
from
Sen.
Elizabeth
Warren
(D-MA).
Perversely,
Silvergate
leadership
have
not
been
able
to
speak
up
regarding
the
sudden
change
in
regulatory
policy,
as
they
have
been
busy
settling
cases
with
their
regulatory
overseers,
alongside
class
actions.
Revelations
regarding
the
informal
cap
on
deposits
that
made
their
business
impossible
are
considered
“confidential
supervisory
information”
and
hence
ineligible
to
be
publicly
shared.
This
kind
of
financial
redlining
is
a
violation
of
the
due
process
clause
in
the
Fifth
Amendment
However,
in
recent
bankruptcy
filings,
Silvergate
Chief
Accounting
Officer
Elaine
Hetrick
for
the
first
time
laid
out
Silvergate’s
version
of
the
story.
She
directly
accuses
regulators
of
forcing
a
shutdown
of
the
bank,
writing:
“This
public
signaling
and
sudden
regulatory
shift
made
clear
that,
at
least
as
of
the
first
quarter
of
2023,
the
Federal
Bank
Regulatory
Agencies
would
not
tolerate
banks
with
significant
concentrations
of
digital
asset
customers,
ultimately
preventing
Silvergate
Bank
from
continuing
its
digital
asset
focused
business
model.”
Both
Silvergate
and
Signature
faced
rumors
during
the
panic
of
2023
that
they
were
under
criminal
investigation
relating
to
their
dealings
with
the
crypto
space.
Silvergate
was
infamously
a
service
provider
to
FTX.
These
allegations
formed
a
large
part
of
the
case
against
the
banks
made
by
high
profile
short
sellers
–
as
well
as
Warren.
No
criminal
allegations
ever
materialized.
Silvergate
settled
with
regulators
for
surveillance
outages
on
SEN,
the
bank’s
exchange
network.
It
settled
with
the
SEC
with
respect
to
perceived
inaccuracies
in
statements
made
by
management
regarding
their
compliance
program.
Thus,
the
passage
of
time
has
brought
things
into
focus.
The
allegations
of
criminality
swirling
around
the
banks
ended
up
being
vacuous.
New
filings
from
Silvergate
lend
credence
to
the
idea
that
they
were
liquidated
by
political
mandate.
And,
since
the
crisis,
bank
regulators
have
continued
to
harass
banks
known
to
serve
crypto,
like
Customers
and
Cross
River,
who
have
both
been
hit
with
enforcement
actions
or
consent
orders.
Newer
banks
are
being
prohibited
from
filling
the
gap,
too.
Custodia
continues
to
wage
a
protracted
legal
campaign
to
obtain
a
master
account
at
the
Fed,
a
necessary
precondition
to
becoming
a
full-fledged
bank.
Meanwhile,
Protego
Trust
Company,
which
had
received
a
preliminary
federal
charter
from
the
OCC,
saw
its
charter
revoked.
Not
only
were
existing
pro-crypto
banks
killed
off,
and
new
aspirants
discouraged
from
doing
business
with
the
sector,
but
newer
entrants
were
simply
prohibited
from
opening
their
doors.
Within
the
conventional
banking
sector,
bad
rules
like
the
SEC’s
SAB121
(whose
congressional
overturn
was
vetoed
by
Biden)
effectively
prohibit
banks
from
touching
crypto.
The
Fed
has
also
issued
dire
warnings
about
banks
wanting
to
do
business
with
stablecoins.
The
crackdown
on
crypto
via
financial
regulation
has
been
incredibly
comprehensive
and
involved
every
important
U.S.
financial
regulator.
U.S.-based
crypto
entrepreneurs
and
operators
know
first-hand
that
obtaining
banking
is
uniquely
challenging
–
harder
than
it
should
be.
Even
though
we
in
the
crypto
space
are
the
primary
victims
of
this
round
of
financial
repression,
this
issue
goes
far
beyond
crypto.
Ultimately,
it’s
about
the
government
unconstitutionally
choosing
to
marginalize
a
specific
(legal)
industry,
not
by
passing
a
law
or
with
notice-and-comment
rulemaking,
but
via
covert,
informal
threats
made
to
bankers.
As
the
law
firm
Cooper
&
Kirk
has
argued,
this
kind
of
financial
redlining
is
a
violation
of
the
due
process
clause
in
the
Fifth
Amendment,
because
affected
firms
are
not
given
the
opportunity
to
challenge
these
rules.
Secret,
informal
rulemaking
also
may
violate
the
administrative
procedures
act.
Ultimately,
this
issue
comes
down
to
the
fundamental
question:
should
banking
infrastructure
–
effectively
an
arm
of
the
state
–
be
weaponized
for
political
ends,
or
should
it
remain
neutral,
free
for
any
legal
business
to
rely
on?
Sadly,
the
contemporary
left
appears
comfortable
using
bank
regulation
against
political
disfavored
industries,
both
under
Obama
and
again
under
Biden.
While
Trump
was
more
reticent
to
employ
the
same
tactics,
it’s
not
inconceivable
that
the
shoe
could
be
on
the
other
foot
soon.
There
is
a
partisan
tinge
to
the
fact-pattern
but
there
doesn’t
have
to
be
one.
As
a
highly
regulated
industry
with
barriers
to
entry,
banking
should
not
be
deputized
for
arbitrary
political
ends.
Crypto
is
the
latest
victim
of
this
misbehavior,
but
this
issue
should
deeply
concern
anyone.
Note:
The
views
expressed
in
this
column
are
those
of
the
author
and
do
not
necessarily
reflect
those
of
CoinDesk,
Inc.
or
its
owners
and
affiliates.
