Authorities shut down crypto-friendly Signature Bank

Financial authorities shut down crypto-focused Signature Bank on Sunday, two days after California-based Silicon Valley Bank collapsed.

"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," reads a joint statement by the Federal Reserve, Treasury Department and Federal Deposit Insurance Corporation (FDIC).

Per New York's Department of Financial Services, Signature owned $110.4 billion in total assets and held $88.6 billion in total deposits as of the end of 2022. Financial data institution FactSet reported that Signature's market value was $4.4 billion as of Friday after a 40 percent selloff in 2023.

The FDIC has taken over Signature's insurance process and established a "bridge" that will allow the bank's clients to access their money on Monday. The FDIC said that all Signature's depositors and borrowers would automatically become clients of the bridge bank.

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The agency has named Greg Carmichael, former CEO of banking firm Fifth Third Bancorp, as the chief executive of the bridge bank.

Regulators assured that all depositors of Signature would be "made whole" and taxpayers would not have to bear the losses, a similar resolution to the SVB's failure case.

According to the regulation, FDIC's deposit insurance fund — capped at $250,000 per client — will be used to cover depositors. However, many depositors were uninsured because a significant portion of Signature's clients kept over the maximum limit of federally-insured deposits at the bank.

Officials also explained that shareholders and certain unsecured debtholders of the defunct bank are not protected under federal regulation. Instead, a special assessment will be conducted on Signature to support the recovery of uninsured depositors.

Additionally, the Fed and Treasury established an emergency program to backstop deposits at Signature and SVB using the central bank's lending authority to ensure that both banks could meet the needs of their depositors.

The news of Signature's collapse followed SVB, which announced its closure on Friday after experiencing a bank run. SVB shutdown was the second-largest failure in the history of the U.S. banking sector.

"I'm grateful that the Federal regulators have taken steps to do just that, and I hope that these actions will provide increased confidence in the stability of our banking system."

Kathy Hochul, Governor of the State of New York

New York Governor Kathy Hochul said she expected the federal government's actions regarding Signature, as well as SVB, would make the public more confident in the stability of the banking sector.

"Many depositors at these banks are small businesses, including those driving the innovation economy, and their success is key to New York's robust economy," Hochul added.

Signature's focus on crypto

Signature was one of the largest crypto-friendly banks in the U.S., alongside Silvergate. California-based Silvergate already announced voluntary liquidation last week, citing regulatory pressures and the development of the crypto industry as major reasons.

As of September 2022, nearly a quarter of Signature's deposits were from the crypto sector. However, at the end of last year, Signature announced that it would reduce its crypto-related deposits by $8 billion to $10 billion.

Analysts explained that Signature had been able to handle the aftermath of the crypto exchange FTX failure last year because of its more diverse depositories. However, the deposit outflow continued as many investors avoided crypto assets due to the development in the macro economy and a series of crypto firm failures.

Crypto exchange Coinbase is one of several crypto companies with exposure to Signature, saying that it held $240 million at the bank as of Friday.

Signature was established in 2001 as a commercial bank. It served private client offices in New York, California, Connecticut, North Carolina and Nevada. The bank had nine national business lines, including digital asset banking and commercial real estate.

Last February, the bank announced that its then-chief operating officer Eric Howell would replace then-CEO Joseph DePaolo, who would become a senior adviser. As of Sunday, financial regulators had removed Signature's senior management.