What Happened To Signature Bank? The Latest Bank Failure Marks Third Largest In History

Topline

Signature Bank, a New York-based regional bank that became a leader in cryptocurrency lending, shuttered suddenly on Sunday, marking the third-biggest bank failure in U.S. history just two days after the country’s second biggest failure, Silicon Valley Bank, rocked the stock market and reignited fears of “challenging and turbulent” economic times.

Signature Bank became the third bank to collapse this month.

Key Facts

State regulators in New York shuttered Signature Bank—a 23-year-old regional bank that had previously focused on digital assets by becoming one of a few banks to accept crypto deposits—after regulators warned the stability of the financial system could be threatened if the bank remained open.

New York’s Department of Financial Services announced Sunday it had taken possession of the bank, which had more than $110 billion in assets and more than $88 billion in deposits as of the end of last year.

Signature Bank became the third regional bank to collapse in a matter of weeks, following the high-profile collapse of California-based crypto-friendly banks Silvergate Bank and Silicon Valley Bank, whose failure spooked investors wary of widespread financial vulnerability.

Signature had announced new financial data Thursday and said it had limited crypto deposit balances in an attempt to increase its diversification, telling investors, “we want to make it clear again that Signature Bank is a well-diversified, full-service commercial bank with more than two decades of solid performance serving middle market business.”

The bank previously announced in December it would pare back its crypto-related deposits by between $8 billion and $10 billion.

On Friday, however, customers swiftly withdrew their deposits, the New York Times reported, after shares fell by nearly 25%, to $70, in the bank’s worst day ever on Wall Street, and after briefly being halted Friday morning over fears of volatility.

Fearing Signature could suffer the same fate as SVB just days earlier, customers moved their deposits to larger banks, including JPMorgan Chase and Citigroup, former Rep. Barney Frank (D-Mass.), who sat on Signature’s board, told CNBC.

Ilya Volkov, CEO of fintech platform YouHodler, said he doesn’t believe the bank’s failure will have a long-term impact on the crypto industry, arguing crypto giants Bitcoin and Ethereum have already recovered since the collapse of the banks, which he called a “sign of increased confidence in independent decentralized assets.”

Volkov believes the biggest impact from Signature’s failure will most likely be an increase in examination of banking regulations, how banks strategize risk management and how they partner with crypto companies, saying it’s “not clear what new financial institutions will partner with these crypto companies in the wake of Silvergate, SVB and now Signature.”

Crucial Quote

“I think all markets are in for a volatile time in the short term,” Volkov, said when asked about the strength of European and U.S. stock markets following the collapse of SVB, adding that “even though Silicon Valley Bank is a regional bank, the news surrounding it presents a lack of confidence in the banking sector” that could have a “domino effect on another U.S. regional banks.” Volkov noted the fear of economic volatility is “reasonable,” but predicted it won’t last long.

Tangent

The collapse of SVB and Signature created a ripple effect on both major U.S. banks and smaller, regional banks, as investors lost confidence. Losses in market value at the 10 biggest bank stocks exceeded $165 billion since SVB’s final trading session Wednesday before its sudden collapse.

News Peg

In his first speech on the banks since SVB’s failure last week, President Joe Biden said Monday Americans can “breathe easier,” following a string of measures his administration took over the past few days, which he argued left the banking system “safe.” Those measures included a plan announced by the Treasury Department, FDIC and Federal Reserve in a joint statement Sunday to safeguard all deposits at Signature Bank and SVB, and to give depositors at SVB full access to their deposits Monday morning. Biden also said he would ask Congress and banking regulators to “strengthen the rules for banks” intended to reduce the risk of a future bank failure.

Contra

Not all economists or policymakers were optimistic about the Biden Administration’s approach. In a New York Times column published Monday, Sen. Elizabeth Warren (D-Mass.) expressed skepticism of federal regulators’ goal of having banks, and not taxpayers, “bear the cost of the federal backstop required to protect deposits,” writing: “We’ll see if that’s true.” In the column, Warren also argued banks would have been required to implement regular “stress tests” on their own risk of vulnerability had congressional lawmakers and the Federal Reserve “not rolled back the stricter oversight” through the Dodd-Frank Act.