Central Bank's oversight of Silvergate is criticized by the Office of Inspector General (OIG) of the Federal Reserve.

Silvergate experienced rapid expansion over a 5-year span, increasing its assets from nearly $1 billion in 2017 to over $16 billion by the end of 2021, according to a report by the OIG that criticized the central bank's oversight of the bank.

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2025 September 13 . 4:49 AM

2 min read

Central Bank's OIG Criticizes Supervision Over Silvergate

Central Bank's oversight of Silvergate is criticized by the Office of Inspector General (OIG) of the Federal Reserve.

Federal Reserve Board Criticised for Inadequate Supervision of Silvergate Bank

The Federal Reserve Board's Office of Inspector General (OIG) has issued a critical report, highlighting inadequate supervision of Silvergate Bank prior to its failure. The report, which covers oversight activities from 2013 to 2023, notes that the Fed did not act promptly to address the increasing risks at Silvergate as it delved into crypto-related businesses.

The evaluation focused on Silvergate's evolving crypto-focused business strategy, rapid deposit growth, highly concentrated business activities, and governance and risk management practices. The OIG found that examiners did not take sufficient measures to pressure Silvergate to improve its risk management capabilities and key control functions. This oversight led to the bank's multilayered concentration risk, which ultimately resulted in its failure.

The report also reveals that the Fed lacks guidance on supervising banks undergoing extremely rapid growth and validating equivalent risk control evolution. The OIG recommends the Federal Reserve Board should clarify its approach to supervising banks that change their strategy, expand its examiners' guidance related to volatile funding sources, and develop guidance for banking organizations engaged in new and novel business activities.

Moreover, the OIG recommends the Board should ensure that banking organizations under custom-tailored supervisory plans and approaches are in place, appropriate for their uniqueness and associated risks. This includes improving its guidance for institutions and examiners during transitions from the Community Banking Organization portfolio to the Regional Banking Organization one.

The report's executive summary also criticises the Fed and the San Francisco Fed for taking a limited view of whether Silvergate's growing crypto activities required approval under Regulation H. The Fed's limited interpretation allowed Silvergate to transform into a crypto-focused bank without approval or risk mitigation conditions in place.

The bank, which started winding down its operations on March 8, 2023, was left vulnerable when the crypto industry plunged after crypto exchange FTX filed for bankruptcy in November 2022. The bank's parent company failed to submit its annual financial report to the Securities and Exchange Commission on time in March 2023.

The OIG recommends that the Board should respond to the draft report with actions to address each recommendation and follow up to ensure that the recommendations are fully addressed. The report's findings underscore the need for the Fed to strengthen its supervision of banks engaged in novel business activities, particularly those with high growth rates and associated risks.