New York closes crypto-heavy Signature Bank to protect depositors

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New York-based Signature Bank was closed 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 pursuant to Section 606 of the New York Banking Act to protect depositors. The 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. We don’t know what the number is today.

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

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

@federalreserve @USTreasury @FDICgov releases statement on measures to protect the US economy by strengthening public confidence in our banking system, ensuring the safety of depositors’ savings: https://t.co/YISeTdFPrO

— Federal Reserve (@federalreserve) March 12, 2023

Although SVB’s downfall is well documented, details are far from available for Signature Bank. The only takeaway so far is that the bank may have been closed as a precautionary measure rather than being on the verge of immediate collapse.

The details of how Signature Bank got to this point have yet to be fully revealed, 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 a significant portion of its deposits were tied to the cryptocurrency. The bank also reportedly attempted to exit cryptocurrency earlier this year.

The article argues that, unlike Silvergate, Signature did not lend money to the crypto industry, nor were any loans related to crypto, but due to its ties to crypto, its price was dragged down with the wider market.

Signature Bank’s collapse comes as the Friday closure of SVB, the second-largest US bank in history to fail, has come under constant scrutiny. The Federal Reserve moved to guarantee depositors’ funds to fend off what Y Combinator chief Garry Tan could turn into 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 it. Some fear for the future that SVB and Signature Bank are just the beginning.

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