A new view on Silvergate's unwinding

New testimony has come out in the bankruptcy of Silvergate Bank, one of the two banks that was primarily serving the cryptocurrency world, and it supports the narrative that the bank was never insolvent.

Why it matters: If the testimony is accurate, that would mean Silvergate was effectively choked off by banking regulators, much as former Rep. Barney Frank said its peer bank, Signature, had been.

• Silvergate had become a boutique bank devoted to serving the crypto industry.
• One of its most important lines of business was running a 24/7 operation that allowed high-profile exchanges to send each other dollars.
• It saw major withdrawals amid the FTX unwinding.

Driving the news: "Following the rapid contraction of Silvergate Bank's business, Silvergate Bank had stabilized, was able to meet regulatory capital requirements, and had the capability to continue to serve its customers that had kept their deposits with Silvergate Bank," chief administrative officer Elaine Hetrick wrote in sworn testimony submitted last week to the Delaware bankruptcy court.

• "However, the increased supervisory pressure on Silvergate Bank and other banks focused on servicing crypto-asset businesses forced Silvergate Bank to a point where it would have needed to remake its business model."
• Instead, the testimony avers, it decided the best way to preserve value for shareholders was to wind down.

Similarly, Frank, who served on the board of Signature Bank, said the wind down there was political, asserting that there was no fundamental problem with the New York bank's balance sheet.

Between the lines: CoinDesk reviewed Silvergate's regulatory filings amid the collapse and its findings squared with Hetrick's testimony.

• It would have been close, but the bank remained adequately capitalized even after facing a massive run and losses on its bond investments, reporters there found.

Zoom out: The testimony was surfaced by investor Nic Carter, who has been arguing that the current White House has been executing what he calls Operation Chokepoint 2.0 (reminiscent of the Obama administration's campaign against the firearms industry), where banking regulators put the squeeze on digital asset companies.

• The Fed took a similar action against a small bank in Pennsylvania, Customers, which had been operating a similar business, in August.