Signing closed by regulators as pain of SVB seizure spreads

(Bloomberg) – Signature Bank was shut down by New York state financial regulators on Sunday in a shocking third bank meltdown in a week, shortly after another crypto-enabled bank Silvergate Capital went bankrupt. Corp. and the Silicon Valley Bank seizure of SVB Financial Group.

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Federal regulators said depositors at New York-based Signature Bank will also have access to their money under a “systemic risk exception” put in place for customers of Silicon Valley Bank. Insured and uninsured customers of Signature and Silicon Valley Bank will be able to access all their money on Monday, regulators announced Sunday.

The decision to put Signature Bank into receivership came as a surprise to its executives, who learned of it shortly before the public announcement, said a person familiar with the company’s operations. The bank faced a torrent of deposit outflows on Friday, but the situation had stabilized by Sunday, the person said, asking not to be identified discussing a private matter.

“I think if we had been allowed to open tomorrow, we could have continued – we have a strong loan portfolio, we are the largest lender in New York under the low income housing tax credit. income,” said former Congressman Barney Frank, a Signature Bank board member known for the Dodd-Frank Act, which overhauled U.S. financial regulations in the wake of the global financial crisis. “I think the bank could have been a working business.”

A representative for Signature Bank declined to comment.


“What happened at Silvergate and SVB was a very traditional bank failure,” said J. Austin Campbell, adjunct professor at Columbia Business School. “This, unless there has been a greater run on deposits than we know, is less. If there aren’t some pretty gory details that came out after the balance sheet, it is difficult to understand why they were singled out.

Much like Silicon Valley Bank, with customers made up almost entirely of businesses, Signature had a deposit base that was mostly uninsured – around 90% of deposits for Signature and north of 93% of national deposits at SVB. This may have caught the attention of regulators interested in banks with large uninsured deposit bases.

The collapse of Signature Bank could cause serious problems for one part of the technology industry: the crypto sector. Coinbase Global Inc., the largest crypto exchange in the United States, said it had a balance of $240 million in the bank Friday night. Paxos Global said there was $250 million and it “held private deposit insurance well in excess of our cash balance and FDIC limits per account.”

“Crypto is almost completely out of US banks now,” said Nisa Amoils, managing partner at A100x Ventures.

Signature is the second crypto-friendly bank to fail in less than a week. On Wednesday, Silvergate announced plans to halt operations and liquidate its bank amid scrutiny from regulators and a criminal investigation by the Justice Department’s fraud unit into dealings with the fallen crypto giants of Sam Bankman-Fried, FTX and Alameda Research. The seizure of Silicon Valley Bank came less than two days later.

After Silvergate’s SEN network shut down in early March, Signature Bank’s Signet – a payment network that allowed commercial crypto customers to make real-time dollar payments anytime, seven days a week – was the only game in city ​​for many crypto customers. when it came to quickly sending payments to exchanges and vendors, or meeting payroll. LedgerX, a crypto derivatives platform, previously instructed customers to send domestic wire transfers to Signature instead of Silvergate.

If Signet goes down, users may find it difficult to enter and exit exchanges quickly, which has a huge impact on the liquidity of the crypto market. Haseeb Qureshi, managing partner at crypto venture capital firm Dragonfly, said the loss of Silvergate and Signature has left his portfolio companies concerned — especially those dealing with centralized finance.

‘Only two’

“The biggest thing about Silvergate and Signature was that they were the only two banks that really had 24/7 global settlement systems,” he said.

The Federal Insurance Deposit Corp. said it transferred all of Signature Bank’s deposits and substantially all of the company’s assets to Signature Bridge Bank NA, a full-service bank that will be operated by the FDIC as it markets the institution to potential bidders .

Frank, the former congressman and member of Signature’s board of directors, said the price achieved in a sale will demonstrate the strength of the bank. He said he thinks clients are overestimating Signature’s exposure to crypto.

“I understand the release of deposits,” Frank said. “But I think it was a classic case of illiquidity but not insolvency, and being illiquid for exogenous reasons that would have been corrected.”

US regulators were racing against time to find solutions to the failed Silicon Valley bank and prevent a potential contagion from spreading to other lenders. Treasury Secretary Janet Yellen said on Sunday she had approved a resolution for Silicon Valley Bank “that fully protects all depositors” – a decision that also applies to Signature Bank customers.

Signature had total assets of about $110.36 billion and total deposits of about $88.59 billion as of Dec. 31, state regulators said in a statement announcing they were taking ownership of the bank. Signature Bank had 40 branches in New York, California, Connecticut, North Carolina and Nevada, according to the FDIC.

Digital distancing

Outside of Signet, Signature had begun to withdraw from digital assets following the FTX explosion late last year, but still had $16.5 billion in crypto-related customer deposits. to March 8.

“As a reminder, Signature Bank does not invest, trade, hold, custodial, lend or make loans secured by digital assets,” Chief Executive Joseph J. DePaolo said. in a statement the day. after Silvergate’s announcement.

FTX had accounts with Signature Bank, which the company said accounted for less than 0.1% of its overall deposits. In December, after FTX collapsed, Signature said it planned to remove up to $10 billion in digital asset customer deposits. This would bring crypto-related deposits to around 15% to 20% of its total, and the bank said it would cap any customer’s share of deposits of digital assets.

“If crypto companies have to find alternative banking relationships, they will run into issues of de-risking already a significant concern for the industry,” said Sheila Warren, CEO of the Crypto Council for Innovation. “We have all seen the passive discouragement of banks by regulators of bank crypto companies.”

Less than a month ago, Signature Bank announced that chief operating officer Eric Howell would replace DePaolo, who served in a newly created advisory role. Howell became chairman on March 1 and would also become CEO once DePaolo completes the transition to his new role this year.

–With help from Olga Kharif, Hannah Miller and Allyson Versprille.

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