New York shuts down crypto-heavy Signature Bank to protect depositors

by Arthur · March 12, 2023

New York-based Signature Bank was shut down by New York state authorities today, making it the third bank to close this week, following SilverGate Bank on Wednesday and Silicon Valley Bank on Friday.

The New York Department of Financial Services took control of Signature Bank under Section 606 of the New York Banking Law to protect depositors. Federal Deposit Insurance Corp. was appointed receiver of the bank.

Signature Bank had total assets of $110.36 billion and total deposits of $88.59 billion as of December 31. It is unclear what the figure is today.

“DFS is in close contact with all regulated entities in light of market events, monitors market trends and works closely with other state and federal regulators to protect consumers, ensure the health of the entities we regulate, and preserve the stability of the global financial system,” said Superintendent Adrienne A. Harris in a statement.

Along with an offer to guarantee the funds of Silicon Valley Bank depositors, the Federal Reserve has also extended its offer to Signature Bank customers, with their funds available starting Monday.

@federalreserve @USTreasury @FDICgov Issuance Statement on Actions to Protect the American Economy by Strengthening Public Confidence in Our Banking System and Ensuring Depositors’ Savings Remain Safe:

— Federal Reserve (@federalreserve) March 12, 2023

While SVB’s downfall is well documented, nowhere near the details are available for Signature Bank. The only option so far is that the bank may have been closed as a precaution rather than on the brink of immediate collapse.

The details of how Signature Bank got to this point have yet to be fully disclosed, but the bank had exposure to cryptocurrency and FTX.

In an article written on March 4, Amy Castor and David Gerard describe how Signature Bank was the East Coast equivalent of Silvergate in terms of the US cryptocurrency industry and how significant portions of their deposits were tied to cryptocurrency. The bank is said to have also tried to get out of cryptocurrency earlier this year.

The article argues that, unlike Silvergate, Signature did not lend money to the crypto industry, nor were any loans tied to crypto, but because of its links to crypto, its price was pulled down with the broader market.

Signature Bank’s collapse comes amid ongoing attention surrounding the closure Friday of SVB, the second-largest U.S. bank in history to go out of business. The Federal Reserve has moved to guarantee depositor funds to avert what Y Combinator CEO Garry Tan said could be an extinction-level event for startups, but the collapse of three banks in one week has fundamentally shaken the market.

The underlying macroeconomic conditions that led to this point remain, and investors know this. The fear for some in the future is that SVB and Signaturbank can only be the beginning.