Crypto-friendly Signature Bank is the third to fall in the space of a week despite being solvent.
New York based Signature Bank was closed down by regulators on March 12, marking the third largest failure in U.S. banking history. The collapse comes two days after the closure of tech-friendly Silicon Valley Bank and less than a week after the collapse of crypto-friendly Silvergate bank.
Signature Bank, which held $88.59 billion in deposits at the end of last year, is now under the control of the Federal Deposit Insurance Corporation (FDIC). A statement from the Federal Reserve, FDIC and U.S. Treasury Department said all depositors who used Signature Bank “will be made whole” at no cost to the tax payer.
Good to know
The FDIC (Federal Deposit Insurance Corporation) is an independent U.S. government agency that provides insurance coverage for deposits at banks and savings associations in the United States. It was created in 1933 in response to the widespread bank failures of the Great Depression.
Signature Bank was known to service “quirky” customers including real estate and crypto companies, and it facilitated crypto-to-fiat transactions via its now-closed Signet network. In November 2022, roughly 24% of Signature Bank’s deposits come from digital assets ($23.5 billion), but the following month, the bank announced it would be shrinking its crypto-related by $8-10 billion. The move was likely more fallout from the collapse of FTX .
Donald Trump and his family were also customers at Signature Bank until the bank cut ties following the Capitol Hill riots in 2021.
Why did the bank collapse if it was solvent?
Regulators insist that the closure of Signature Bank was due to a “crisis of confidence”, not because of its ties to crypto.
On Monday, Superintendent Adrienne Harris, pointed out that the Signature Bank had a wide range of clients including food vendors, and that the closure was “not about a particular sector”.
A DFS spokesperson confirmed Harris’s remarks a day later, stating that the bank “failed to provide reliable and consistent data, creating a significant crisis of confidence in the bank’s leadership.” The spokesperson added rather vaguely that “the decision to take possession of the bank and hand it over to the FDIC was only made when it was clear the bank would be unable to do business in a safe and sound manner on Monday.”
Not everybody accepts that Signature’s crypto-ties had nothing to do with its closure, though.
Barney Frank, a Signature Bank board member and former U.S. congressman, told CNBC that he believed regulators shuttered Signature “to send a very strong anti-crypto message”, adding that the bank “became the poster boy because there was no insolvency based on the fundamentals.”
Frank was one of the co-authors of the Dodd-Frank Act – an act passed in 2010 in response to the 2008 financial crisis. The purpose of the act was to create a regulatory framework for the financial industry to prevent another crisis and to protect consumers from fraudulent and deceptive practices.
Some of Signature’s biggest crypto clients included Coinbase, Celsius and Paxos.