A third crypto-friendly bank has officially closed down and will be taken over by the New York Department of Financial Services (NYDFS). This latest closure will join the two other major crypto-friendly banks that ceased operations last week, Silicon Valley Bank and Silvergate.
In this article, we’ll cover the how and why of Signature Bank’s shutdown and what this means for the crypto community.
Signature Bank – A Brief History
Signature Bank was a New-York based commercial bank with over 40 private client offices throughout the US. Signature Bank was founded in 2001 by former executives and employees of Republic National Bank of New York after its purchase by HSBC.
In 2018 it made the risky decision to open itself up to the cryptocurrency industry. This risk paid off as by 2021, cryptocurrency businesses represented 30% of the firm’s deposits.
By the end of 2022, the bank had total assets of $110.4 billion and deposits of $82.6 billion.
A Rapid Closure – March 12th
The surprise decision to close Signature Bank was revealed in an NYDFS press release on March 12th, stating that the chartering authority had taken possession of the bank. The NYDFS cited Section 606 of New York Banking Law, which enables the superintendent’s possession of a banking organization (the NYDFS in this case) to protect depositors.
The NYDFS appointed the Federal Deposit Insurance Corporation (FDIC) as the receiver of the bank. The same watchdog that was appointed to oversee the closure of SVB.
The failure of the bank was rapid in nature and surprised insiders. Even though the bank had experienced significant outflows of deposits on Friday (March 10th), executives believed they were well-capitalized and could absorb their losses. Former U.S. congressman Barney Frank, who had been a member of the bank’s board since 2015, noted that in the wake of the SVB collapse, clients became concerned over the bank’s exposure to crypto and withdrew their funds, resulting in an “SVB-generated panic” that only set in late on Friday.
A Joint Statement – March 12th
In a joint statement by the Department of the Treasury, the Federal Reserve, and the FDIC, the government agencies assured that “all depositors of this institution [Signature Bank] will be made whole.” They continued, “As with the resolution of SVB, no losses will be borne by the taxpayer”.
The Federal Reserve would go on to say that the decision to close the bank was made with the FDIC to protect the U.S. economy and strengthen public confidence in the banking system.
A senior member of the U.S. Treasury reportedly told the press that the actions by the NYDFS and Federal Reserve were designed to limit depositor outflows and prevent additional bank runs.
“The firms are not being bailed out. The depositors are being protected,” said the official. “The operations, the ability to keep payrolls working is really important,” the Treasury official added.
The Fed also announced a $25 billion program to ensure ample liquidity for banks to cover the needs of their customers during times of turbulence.
Crypto exchange Coinbase, crypto lender Celsius and stablecoin issuer Paxos are among the crypto firms with funds reportedly tied up with the now-shuttered Signature Bank.
OKX-Affiliated OKCoin has recently announced its exposure to Signature bank. According to a tweet from CEO Hong Fang, customers’ deposits are safe, but deposits of USD have been temporarily paused as the exchange seeks another banking partner.
Attack on Crypto?
Barney Frank, of the Dodd-Frank Act, is a member of the board of Signature Bank. He publicly stated that the bank’s asset book was good and they could have resumed normal business activity on Monday. He believes the bank was shuttered to send a “strong anti-crypto message.” A worrying sign for anyone actively participating in crypto currency development, trading or investment.
Last week will surely be remembered as a dark day in crypto financing history. In the span of just two days, the second and third-largest bank failures in U.S. banking history occurred. It remains to be seen if this is merely the start of something larger or if government intervention can steady the shaken banking industry.