Signing off by regulators as pain spreads from SVB seizure

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(Bloomberg) — Signature Bank was shut down on Sunday in a shocking third banking crash in a week by New York state financial regulators, shortly after the failure of fellow crypto-friendly bank Silvergate Capital Corp. and the seizure of SVB Financial Group’s Silicon Valley bank. was done. ,

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Federal regulators said depositors at New York-based Signature Bank would also have access to their money under “a systemic risk exception” for customers of the Silicon Valley bank. The regulator announced on Sunday that insured and uninsured customers of Signature and Silicon Valley Bank would be able to access all their money on Monday.

The decision to put Signature Bank into receivership came as a surprise to its managers, 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, said the person, asking not to be identified discussing a private matter.

think if we were allowed to open tomorrow, we could continue – we have a solid loan book, we are the largest lender in New York City under the low-income housing tax credit,” East said. said Congressman Barney Frank, a signature bank board member best known for the Dodd-Frank Act, which completely changed US financial regulation in the wake of the global financial crisis. “I think the bank could have been a going concern.”

A representative for Signature Bank declined to comment.

‘singled out’

“What happened at Silvergate and SVB was a very traditional bank failure,” said Jay Austin Campbell, assistant professor at Columbia Business School. “This, unless there was a big run on deposits, low as far as we know. Unless some very eerie details about the balance sheets have come to light, it is to work out why they were separated. Went.

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Like Silicon Valley Bank, with customers made up almost entirely of businesses, Signature had a deposit base that was mostly uninsured—about 90% of deposits for Signature, and north of 93% of household deposits at SVB. This may have attracted the attention of regulators tracking banks with large uninsured deposit bases.

The collapse of Signature Bank could spell serious problems for one corner of the tech industry: the crypto sector. Coinbase Global Inc., the largest US crypto exchange, said it had $240 million in bank balances as of Friday night. Paxos Global said it had $250 million in there, and that “private deposit insurance exceeds our cash balances and FDIC per-account limits.”

“Crypto almost completely disconnected from US banking now,” said Nyssa Amoiles, managing partner at A100x Ventures.

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

Following the shutdown of Silvergate’s SEN network in early March, Signature Bank’s SIGNAT – a payment network that allowed commercial crypto customers to make real-time payments in dollars at any time, seven days a week – was closed to many crypto customers. was the only game in town when it came to quickly sending payments or payroll to exchanges and vendors. LedgerX, a crypto derivatives platform, previously instructed customers to send domestic wire transfers to Signature instead of Silvergate.

If Signet falls out of commission, users may have trouble getting in and out of exchanges faster, dramatically affecting crypto- liquidity. Haseeb Qureshi, managing partner at crypto venture-capital firm Dragonfly, said the loss of Silvergate and Signature has worried his portfolio companies — especially those that deal in centralized finance.

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‘only two’

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

Federal Insurance Deposit Corp. said it has transferred all Signature Bank deposits and substantially all of the firm’s assets to Signature Bridge Bank N.A., a full-service bank that will be governed by the FDIC, as it protects the institution from potential bankruptcy. Brings the to bidders.

Frank, a former congressman and Signature board member, said the value realized in the sale would demonstrate the bank’s strength. He said he thinks customers underestimate the risk of signing up for crypto.

understand deposit outflows,” Frank said. “But I think it was a classic case of being illiquid but not insolvent, and would have been corrected for being illiterate for exogenous reasons.”

US regulators were racing against the clock to find a solution for the failing Silicon Valley bank and prevent a potential contagion from spreading to other lenders. Treasury Secretary Janet Yellen said Sunday that she has approved a resolution for the Silicon Valley bank “that fully protects all depositors” — a move that also applies to Signature Bank customers.

Signature had total assets of approximately $110.36 billion and total deposits of approximately $88.59 billion as of December 31, state regulators said in a statement that they were taking over the bank. According to the FDIC, Signature Bank had 40 branches in New York, California, Connecticut, North Carolina, and Nevada.

digital distancing

Outside of Signet, Signature began the pullback from digital assets in the wake of the FTX explosion late last year, but still held $16.5 billion in crypto-related client deposits as of March 8.

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“As a reminder, Signature Bank does not invest in, does not trade in, does not hold, does not custody and does not lend or make loans against digital assets,” Chief Executive Officer Joseph J. DePaolo said in a statement following the Silvergate announcement.

FTX had accounts at Signature Bank, which the company said represented less than 0.1% of total deposits. In December, following the collapse of FTX, Signature said it planned to cut more than $10 billion in deposits from digital-asset clients. This would bring crypto-related deposits to around 15% to 20% of its total, and the bank said it would limit the share of deposits from any one digital-asset customer.

Sheila Warren, CEO of the Crypto Council for Innovation, said, “If crypto companies were to find other banking relationships, they would be taking away what already a significant concern for the industry.” “We have all seen the passive discouraging of banks by regulators from banking crypto companies.”

Less than a month ago, Signature Bank announced that Chief Operating Officer Eric Howell would replace DePaolo, who was moving into a newly created advisory role. Howell became on March 1 and will also become CEO this year after DePaolo completes the transition to his new role.

— With assistance from Olga Kharif, Hannah Miller and Alison Versprill.

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