Signature Bank’s ‘dependency on the crypto industry’ contributed to its failure, FDIC says

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By Chris Matthews

Signature Bank pursued “rapid and uncontrolled growth” in part by courting deposits from the volatile crypto industry, and its association with digital asset companies was a major factor in its failure, the Federal Deposit said. Insurance Corporation in a review published Friday.

The bank “did not understand the risks of its association with the crypto industry or its vulnerability to the crypto industry contagion that occurred in late 2022 and into 2023,” Marshall Gentry said, director of risk at the FDIC, during a virtual press conference. Friday.

The FDIC put Signature Bank into receivership last month after a run on its deposits rendered it insolvent in the eyes of regulators, and most of the leak involved “digital asset-related cash deposits” that were ” concentrated in a very small number, very large depositors,” Gentry said.

Signature was popular with crypto companies in part because of its in-house blockchain-based digital payments platform called Signet, which the bank launched in 2019 and allowed customers to settle payments in US dollars around the world. 24 hours a day, 7 days a week, according to the FDIC report. .

When the prices of cryptocurrencies, including bitcoin and ether, crashed following the collapse of crypto exchange FTX, Signature’s reliance on customers in the trading space digital assets put it in a precarious position, and banking investors began to take notice.

“Because of his reputation as a banker for many in the crypto industry, [Signature’s] the stock price has closely followed these tumultuous events in the crypto industry space and has fallen significantly in 2022,” the report states.

Nonetheless, the bank’s management was not quick to realize how its association with the crypto industry posed reputational risks. After a flurry of negative media coverage, the bank pledged in January to limit its digital asset industry deposits to less than 20% of total deposits and offload between $8 billion and $12 billion in deposits from the industry. industry over a period of several months, compared to 23.5% last September.

Gentry said FDIC examiners tried to warn the bank’s management about the reputational risks of association with cryptocurrency and the risks associated with concentrating such a large portion of its deposits in one sector, but that these warnings have not been heeded.

-Chris Matthews

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(END) Dow Jones Newswire

04-29-23 1259ET

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