According to an announcement by the Federal Reserve, New York-based Signature Bank, which had several clients in the cryptocurrency space, was shut down by state regulators.
Signature Bank Shut Down
New York State financial regulators on Sunday shut down Signature Bank. The move comes as the fallout from the implosion of SVB Financial Group’s Silicon Valley Bank threatens to start a domino effect. According to regulatory authorities, depositors of the New York-based banks would be able to access their funds under a “very similar systemic risk exception” to that of Silicon Valley Bank, according to a joint statement by the Treasury Department, the Federal Reserve, and the Federal Insurance Deposit Corp. The statement stated,
“We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.”
The joint statement also outlined several actions that federal regulators would be undertaking to ensure the protection of depositors in SVB.
“Signature Bank is a New York state-chartered commercial bank and is FDIC-insured, with total assets of approximately $110.36 billion and total deposits of approximately $88.59 billion as of December 31, 2022. DFS is in close contact with all regulated entities in light of market events, monitoring market trends and collaborating 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.”
An Unexpected Decision
The decision by regulatory authorities to put Signature Bank into receivership came as a surprise to many, most of all to its managers, who, according to sources, found out about the decision just before the public announcement. As a result of the announcement, the bank faced a barrage of deposit outflows on Friday. However, the situation seemed to stabilize over the weekend, according to a person familiar with the matter.
Silicon Valley Bank Contagion Spreading?
Silicon Valley Bank’s abrupt failure on Friday saw the bank unravel in less than 48 hours after announcing a plan to shore up capital in its support. SVB had taken a significant loss on the sale of its securities against the backdrop of soaring interest rates. As a result, worried depositors began pulling their money from the bank, with $42 billion withdrawn on Thursday alone.
As a result, regulators are struggling to find a way to stop the SVB contagion from spreading to other lenders. Treasury Secretary Janet Yellen stated that she had approved a resolution for SVB that would protect all depositors. As the concern for the health of smaller banks focused on the startup and venture capital communities grows, regulators are considering extraordinary measures to protect depositors and financial institutions.
Signature Was Looking To Reduce Crypto Exposure
Signature Bank first came under scrutiny during the collapse of the FTX exchange, as it emerged that the exchange held accounts with the bank. Signature Bank stated at the time that these accounts represented less than 0.1% of its overall deposits. The bank also stated that it was planning to shed around $10 billion in deposits from digital assets clients. This would bring down its crypto-related deposits to around 15-20% of its total.
Another bank hit by the FTX debacle was Silvergate, which as a result, lost all its depositors and business partners. As a result, the bank announced that it was shutting down its operations just days before the seizure of Silicon Valley Bank.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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