Labelled the third-biggest ‘bank failure’ in history, Signature bank was actually solvent when taken over by regulators on Sunday. Did regulators seize their chance to cut off crypto banking?
Crypto life blood cut off
After the failures of Silvergate Bank and Silicon Valley Bank (SVB) it only needed Signature Bank to fall for crypto’s life blood to be cut off almost completely.
There are still banks that serve the crypto industry but Signature bank was the 16th biggest bank in the U.S. and its significance for crypto could not be understated.
A joint announcement by the Treasury, the Federal Reserve, and the FDIC on Sunday stated that the depositors of SVB would be made whole, but it also said that Signature Bank would be closed for a “similar systemic risk exception”.
Regulatory seizure of Signature Bank a shock
However, according to former congressman Barney Frank, co-sponsor of the 2010 Dodd-Frank Act, and board member at Signature Bank, the closure of the bank came as a real surprise to its executives.
Frank said that there had been no real issues until a deposit run began late on Friday. He said that this was not a reflection on Signature Bank itself, but was just “purely contagion” from SVB.
The former congressman said that the bank had tried to find more capital to shore up its finances and had even looked for potential buyers. However, by Sunday the situation had stabilised given that the depositors demanding their money had reduced to a trickle.
Nevertheless, the State regulatory authorities moved in later on Sunday, closing the bank, and removing its top executive team. The official statement given was that this action took place in order to protect depositors and the stability of the U.S. banking system.
Regulatory move was “inordinately aggressive”
According to an article on CNBC, the move by the regulators was “inordinately aggressive”. Frank said:
“I think that if we’d been allowed to open tomorrow, that we could’ve continued — we have a solid loan book, we’re the biggest lender in New York City under the low-income housing tax credit. I think the bank could’ve been a going concern.”
Operation choke point
Some media outlets have been commenting on what is commonly known as “operation choke point”. This appears to be the way in which government, the regulators, and other financial agencies are trying to shut down the crypto industry.
Things do look rather grim for the industry right now, and it may be that crypto innovators have to move offshore in order to carry on with their work. However, with the legacy banking system on the edge of breakdown a lot more developments have yet to transpire.
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.