Another setback for digital assets, as a lender Signature Bank was closed by US regulators to circumvent the banking crisis. The United States Treasury Department said on Sunday, March 12, 2023, that the NY regulators closed the crypto lender, while the depositors will have access to their assets by Monday.
The Consecutive Shutdowns – Silvergate, SVB & Signature
The timing of this shutdown was sadly on point with two major collapses of Silvergate Capital Corp. and Silicon Valley Bank. This bank trio was once stated as the United States’ most crypto-friendly banking institution. With these banks out of the picture, crypto could be in troubled waters, with major transactions and other operations hampered.
The Signature bank was referred to as one of the leading banks in the crypto industry and was ranked only next to Silvergate. The biggest crypto-friendly bank collapsed on March 8, 2023, a few days after having a market value of $4.4 billion after a 40% sell-off this year on Friday. Silvergate had already shut their Silvergate Exchange Network (SEN) on March 3, 2023.
As per the securities filings, by December 31, 2022, Signature had total assets worth $110.4 billion and total deposits of $88.6 billion. The Fed and Treasury created an emergency program to revoke Silicon Valley Bank and Signature Bank using the Federal Departments emergency lending authority. This authority was exploited to stem the damage avoiding a bigger crisis.
What will happen to Signature Bank’s depositors?
The deposit insurance fund of FDis will be used to cover depositors, as most of them were uninsured, mainly due to the $250,000 guarantee on deposits. However, depositors of both Silvergate and Signature will have access to their money, equity, and bonds, as per a senior treasury official.
The reasons behind the collapse of Signature
The FTX-saga can be seen as a reason behind every major fallout since its bankruptcy. The Signature bank also started to pull back from the digital asset at the time of FTX’s implosion. But still somehow managed to have $16.5 billion worth of crypto client deposits on March 8, 2023.
Coinbase said that it had $240 million at Signature. Paxos Global had $250 million, saying they hold private deposit insurance over their cash balance and per account limit set by FDIC.
Adjunct Professor for Columbia Business School Austin Campbell said, “Crypto has basically been de-bunked, especially for 24/7 fast payments rails.” Further advising the industry to look for other jurisdictions moving ahead.
Signature bank used to run Signet, a payment network allowing commercial crypto clients to make real-time payments in dollars 24/7. Post SEN shutdown on March 3, 2023, Signet was the only player in the arena, facilitating crypto customers. Granting them the facility of making quick payments to exchanges, vendors, and payroll.
LedgerX is a crypto derivatives platform instructs clients to send domestic wire transfers to Signature rather than Silvergate. USDC issuer Circle Internet Financial Ltd. had agreed to $3.3 billion stuck at Silicon Valley Bank; this news even depegged the stablecoin for a while.
Circle also maintained transaction and settlement accounts for USDC with Signature. CEO Jeremy Allaire said that the company could no longer process the minting and redemption of USDC via Signet. They will now have to rely on settlements through BNY Mellon.
Signature is shut down, and if Signet also goes out of commission, users might face troubles in the facilitation of rapid in and out of exchanges. This could have dramatic effects on the liquidity of the crypto market.
Nancy J. Allen is a crypto enthusiast and believes that cryptocurrencies inspire people to be their own banks and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning.
Source: https://www.thecoinrepublic.com/2023/03/13/signature-bank-closure-strike-three-for-crypto-banking-industry/