Crypto-Focused Silvergate Debacle Unlikely to Spread to Broader Banking

A rare run on a US bank is unfolding at the moment as crypto-focused Silvergate Capital Corp. plunges. But the damage to the broader financial system is likely contained, as the trouble facing Silvergate is particular to the bank and mostly limited to its customers and other crypto-linked firms.

Silvergate’s shares sank more than 50% after the company raised concerns about its viability, recalling worries about contagion from the collapse of Sam Bankman-Fried’s FTX. A host of cryptocurrency firms, including Coinbase Global Inc. and Galaxy Digital, say they won’t accept or initiate payments through Silvergate, in an exodus which threatens the bank’s SEN network (its key source of deposits and a platform for crypto participants to transfer money among each other), according to a Bloomberg report. The precarious status of the bank — which holds federally insured deposits and more than $11 billion in assets — will add fuel to the debate among lawmakers and regulators over whether banks can manage crypto risks.