Silvergate Capital Corp. faces potential failure due to non-performing liabilities
On March 6, according to the Washington Post, if Silvergate Capital Corp. fails, it may become the first bank to fail due to non-performing liabilities rather …
On March 6, according to the Washington Post, if Silvergate Capital Corp. fails, it may become the first bank to fail due to non-performing liabilities rather than non-performing assets, because its bad debts are deposits rather than assets. The deposit of Silvergate is not a deposit in the normal sense. Its characteristics are more like the floating cash held by remittance companies such as MoneyGram International or Western Union. The only reason Silvergate attracts cash is to settle the transaction of entering and leaving a specific group of assets. However, the deposit movement speed of Silvergate may be much slower than the floating speed of this cash, as long as the market’s interest in cryptocurrency decreases, The depositors will begin to disappear.
Washington Post: Silvergate’s bad debts are deposits rather than assets
Interpretation of the news:
Silvergate Capital Corp., a San Diego-based bank that primarily serves cryptocurrency-related businesses, may become the first bank to fail due to non-performing liabilities instead of non-performing assets. According to an article in the Washington Post on March 6, Silvergate’s bad debts are deposits rather than assets. This is because the deposit of Silvergate functions more like the floating cash held by remittance companies, such as Western Union or MoneyGram International.
In essence, the deposit of Silvergate is not a deposit in the traditional sense. Rather, it serves as temporary collateral to settle transactions involving a specific group of assets. However, the speed at which these deposits move may be much slower than the movement of the floating cash that is typically used in such transactions.
As long as the market’s interest in cryptocurrency remains high, Silvergate’s depositors may continue to gain confidence in the bank’s ability to service their investments. However, if the cryptocurrency market were to suddenly collapse, or if interest in cryptocurrency were to wane for other reasons, Silvergate’s depositors would likely begin to disappear.
In other words, Silvergate’s potential failure is contingent upon the performance of the cryptocurrency market. If the market continues to thrive, Silvergate may be able to maintain its deposit base and avoid the types of liquidity problems that have plagued other banks in the past. However, if the market takes a turn for the worse, Silvergate may find itself in a precarious position, as depositors begin to withdraw their funds.
Overall, the message suggests that Silvergate’s unique deposit model may leave it vulnerable to market fluctuations that are outside of its control. While the bank has been successful in attracting deposits as long as cryptocurrency remains in high demand, the nature of its liabilities means that it may be unable to withstand a sudden shift in market conditions. As such, it is imperative that banks take steps to manage their risks effectively, particularly in rapidly evolving markets that are subject to sudden changes.
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