WASHINGTON — A bipartisan group of senators asked Silvergate, the bank connected to the failed crypto exchange FTX, if the bank knew about the exchange's alleged misuse of customer funds, and how it plans to use the $4.3 billion it received from the Federal Home Loan Bank of San Francisco late last year.
The letter, sent by Sens. Elizabeth Warren, D-Mass., Roger Marshall, R-Kan., and John Kennedy, R-La., references American Banker's
The senators asked Silvergate if the bank intends to use the $4.3 billion it received from the San Francisco Home Loan bank to support the financing of housing, or how the bank otherwise intends to use the funds.
In the letter, the group of lawmakers said they were "disappointed" by the bank's "evasive and incomplete response" to a previous inquiry about Silvergate's alleged lack of robust risk management practices.
In Silvergate's response to the lawmakers' initial letter, the bank cited supervisory confidential information for not being able to disclose more details. The senators' letter in reply did not accept that excuse.
"This is simply not an acceptable rationale," the letter said. "As members of Congress with enshrined oversight responsibilities, we are happy to work with you to address the confidential nature of any material in your possession. But both Congress and the public need and deserve the information necessary to understand Silvergate's role in FTX's fraudulent collapse, particularly given the fact that Silvergate turned to the Federal Home Loan Bank as its lender of last resort in 2022."
Silvergate's answers "reveal that Silvergate had risk management and due diligence processes in place" and that the bank "did, in fact, fail miserably" to protect itself against the risk of FTX, and to fully answer the lawmakers' original questions, the letter said.
"They reveal that neither the Federal Reserve nor Silvergate's independent auditors were able to identify what we now know were extraordinary gaps in Silvergate's due diligence process," according to the senators' letter. "And they revealed that Silvergate has not held its top risk manager, Mr. Pearson, responsible for these failures. However, the remainder of your letter did not provide the additional information we requested — information that Congress needs in order to understand how and why these failures occurred."
The lawmakers asked Silvergate to respond by Feb. 13, and to include if it discovered that the bank had identified any wrongdoing by FTX and its affiliate Alameda.
