Silvergate Shows What May Happen If Community Banking Crisis Arrives

A preferred bank of the cryptocurrency industry, Silvergate, managed through a liquidity crisis and incurred substantial realized losses. They are a high profile example of the problems that may be hiding in the balance sheets of community banks, and under high stress situations other institutions may not survive.

The U.S. banking system is widely regarded as a leader in safety and security, and the Federal Deposit Insurance Corporation (FDIC) is quite rightly proud that “since the start of FDIC insurance on January 1, 1934, no depositor has lost a penny of insured funds as a result of a failure.” At the end of September, 2022 there were 4,746 institutions insured by the FDIC, 96.1% of those banks were profitable, and the FDIC designated only 42 “Problem Institutions.”