Regulators seize Signature Bank in third largest U.S. bank failure

Regulators seized New York regional bank Signature Bank (SBNY) two days after Silicon Valley Bank shut down as banking system watchdogs try to restore calm before markets open on Monday.

Signature becomes the third largest bank to fail in the United States, behind Silicon Valley Bank and Washington Mutual in 2008, if its assets have not changed significantly since the end of 2022. Signature had $110 billion in active as of December 31. ranking 29th among US banks. It had $88 billion in deposits as of that date, and about 89.7% was uninsured by the Federal Deposit Insurance Corporation.

All of those deposit holders will get their money back, according to a joint statement by Treasury Department Secretary Janet Yellen, Federal Reserve Chairman Jerome Powell and FDIC Chairman Martin Gruenberg, who cited a “systemic risk exemption.” which applies equally to everyone. Silicon Valley Bank deposit holders. Shareholders and some holders of unsecured debt will not be protected, they added, and senior management has been removed.

A worker arrives at the Signature Bank headquarters in New York, U.S., March 12, 2023. REUTERS/Eduardo Munoz

Any losses incurred by the FDIC’s Deposit Insurance Fund to support depositors who have exceeded the protected limit of $250,000, they added, “will be recovered through a special assessment on banks, as required by the law”. The FDIC maintains its insurance fund with regular contributions from banks. Government officials did not disclose how many deposits or assets Signature had left at the time of its seizure.

Signature has served clients in the cryptocurrency world and had tried to reduce its exposure. Like Silvergate Bank, another crypto-friendly bank that said last week it would withdraw voluntarily, it suffered from an outflow of deposits following the collapse of crypto exchange FTX. Filings fell 17% in the fourth quarter of 2022 compared to the prior year period.

The value of some of its securities had also fallen due to a rapid rise in interest rates over the past year, a development that also created problems for Silicon Valley Bank once depositors in this California bank started withdrawing money.

Signature last week tried to restore confidence in its position as investors punished regional bank stocks, releasing a filing saying it had “a strong and well-diversified financial position” and reiterating the company’s intention to reduce its exposure to cryptocurrency clients. Its shares have sold more than 20% on Friday and have fallen 76% over the past year.

It acknowledged in its last annual report that “our depositor base is more heavily weighted by larger uninsured deposits than many other banks” and noted that “the loss of our depositor customers or the substantial reduction in our deposits could force us to fund our business with more expensive and less stable funding sources.”

Signature was launched in 2001 by CEO Joesph DePaolo, President Scott Shay, and Vice President and Director John Tamberlane. The bank catered to wealthy individuals. In a 2001 interview with Crain’s New York before the launch, Shay described the bank’s target audience as “the guy who started his business in Brooklyn and is now worth $20 million.” It went public in 2004.

He became Donald Trump’s go-to lender before he became president, according to a 2018 report by The New York Times. Signature helped fund Mr. Trump’s Mar-a-Lago golf course in Florida, according to the report, and Trump’s daughter, Ivanka, served on Signature’s board of directors from 2011 to 2013.

More recently, the bank courted crypto firms by offering SigNet, a blockchain-based payment platform that allowed customers to transfer money to each other outside of normal banking hours.

The largest U.S. crypto exchange, Coinbase, said in a tweet that as of the close of business on Friday, it had a balance of approximately $240 million “in corporate cash” at Signature. He said he expected to get those funds back in full.

Stablecoin issuer and trust company Paxos said in a statement shared with Yahoo Finance that the company currently holds $250 million in Signature Bank and “holds private deposit insurance well in excess of our cash balance and FDIC limits per account”.

Now that Signature has been seized, Circle, issuer of the second-largest stablecoin, “will not be able to process minting and redemption [for the stablecoin] via SigNet” and “will rely on settlements via BNY Mellon,” CEO Jeremy Allaire said on Twitter on Sunday evening.

Circle’s USD coin fell below its crucial $1 peg on Friday after the company disclosed $3.3 billion in cash reserves held with failed Silicon Valley Bank despite attempted withdrawals on Thursday. After falling to 88 cents on Saturday, the company said it plans to cover any shortfall in its SVB losses using “corporate resources”.

Allaire said on Sunday evening that “100% of SVB deposits are secure and will be available when banks open tomorrow” and that “we will be bringing in a new transaction banking partner with automated minting and redemption potentially as early as tomorrow. “.

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