Regulators Shut Down Crypto-Friendly Signature Bank
If we had a magic wand to travel back in time, we’ll use it to go back to 2020 and…
If we had a magic wand to travel back in time, we’ll use it to go back to 2020 and give all American banks a clear warning; “If it looks like cryptocurrency, walks like cryptocurrency, and talks like cryptocurrency…abstain from it!”. Why, you may ask? It is because the two major American banks that became friendly with the cryptocurrency industry have literally fallen apart.
The first to go was Silvergate Bank, which announced last week that it was ending operations and returning deposits after heavy financial losses. The second, Signature Bank (NASDAQ: SBNY), has been suddenly shut down by regulators.
The New York Department of Financial Services (DFS) has taken possession of Signature Bank, it announced on Sunday. The action was taken to “protect depositors”, according to agency head Adrienne Harris.
- Signature Bank had $89 billion in customer deposits as of December 2022. It was one of the two major banks that enabled cryptocurrency companies (exchanges, hedge funds, lenders, trading firms, etc.) to move money in and out of the traditional finance system.
- Signature is the second crypto-friendly bank and the third bank overall to fail in less than a week. That third bank is Silicon Valley Bank (SVB), a go-to bank for venture capitalists and startups in the Silicon Valley region. The bank was taken over by the Federal Deposit Insurance Commission (FDIC) after depositors rushed to pull out $42bn in one day, which the bank couldn’t fulfill.
- Silicon Valley Bank’s woes came shortly after it announced a $2.25bn emergency share sale on Wednesday to shore up its balance sheet. The announcement signaled liquidity issues and caused depositors to panic and rush to withdraw their funds. Silicon Valley Bank mostly caters to startups, venture capitalists, and institutional investors rather than everyday users; A recent regulatory filing showed that over 85% of its deposits were in accounts above the FDIC-insured $250,000 limit.
- As to Silicon Valley Bank’s woes, regulators have stepped in to rectify the issue. A recent joint statement by the U.S. Treasury, Federal Reserve, and FDIC noted that depositors will have access to all their funds and that “no losses will be borne by the taxpayer.”
Signature Bank’s depositors will also have access to all their deposits. But, investors in the bank, which had a $4.4bn market value as of market close on Friday, are being wiped out. The same applies to Silicon Valley Bank, which had a market value of over $6bn before entering FDIC receivership.
It seems that state regulators anticipated a bank run on Signature Bank similar to what happened to Silicon Valley Bank, so taking possession was the reasoned move to keep customers calm. With Silvergate and Signature Bank now gone, many cryptocurrency companies will have to find new banks willing to offer their services at a time when most financial institutions are steering clear of the sector.
- This week will undoubtedly enter the history books as the week when three banks failed, including Silicon Valley Bank which represents the 2nd-largest U.S. bank failure ever.