Signature Bank, the New York-based banking firm known for its crypto-friendly approach, has been taken over by the New York Department of Financial Services (NYDFS) and closed down. The bank had $88.6 billion in deposits as of the end of 2022, with only 25% of its deposits coming from the crypto industry.
The takeover by the NYDFS was made in accordance to Section 606 of New York Banking Law, and the Federal Deposit Insurance Corporation (FDIC) has been appointed to manage the insurance process. The Federal Reserve has announced that it is backing all depositors of Signature Bank, but shareholders and certain unsecured debt holders will not be protected.
@federalreserve @USTreasury @FDICgov issue statement on actions to protect the U.S. economy by strengthening public confidence in our banking system, ensuring depositors’ savings remain safe: https://t.co/YISeTdFPrO
— Federal Reserve (@federalreserve) March 12, 2023
The decision to close the bank was made in coordination with the FDIC, with the underlying goal set to protect the US economy and strengthening public confidence in the banking system. The move has been interpreted by some as an effort to limit depositor outflows and prevent additional bank runs.
In a statement, a senior member of the US Treasury reportedly explained that the actions were designed to “reduce any spillover effects” and protect depositors. They emphasised that “the firms are not being bailed out” and that “the operations, the ability to keep payrolls working is really important”.
The closure of Signature Bank follows the collapse of Silvergate Bank, another institution known for being friendly towards the crypto industry. Silvergate Bank announced last week that it would shut down and voluntarily liquidate “in light of recent industry and regulatory developments”.
According to some analysts, Signature Bank was able to weather the storm caused by the collapse of FTX due to the fact that its depositories were more diversified than those of Silvergate Bank. The news of the collapse of Silicon Valley Bank, however, may have contributed to the decision to close Signature Bank.
The collapse of two crypto-friendly banks in quick succession may have wider implications for the cryptocurrency industry. It highlights the challenges that banks face in working with cryptocurrencies, which are still subject to regulatory uncertainty and volatility. It may also prompt a reassessment of the risks and rewards of banking in the crypto industry.