Crypto Fallout Continues as Banks Seek to Reassure Investors

New York’s Signature Bank has hit out at recent media coverage of its links to cryptocurrencies in the wake of the collapse of FTX.

The bank was linked to the failed crypto broker in an article in the Wall Street Journal (WSJ) this week, which highlighted a $10 billion loan that Signature secured from the Federal Home Loan Bank of New York to maintain its liquidity position as it began reducing the amount of depositary business it did with crypto-asset customers.

Signature had borrowed $11.3 billion from the Federal Home Loan Bank as of December 31, 2022, it reported, up from $2.6 billion a year earlier. This was “within its normal range”, the bank said in a statement, adding that it retained “sufficient liquidity” to continue operating as normal.

Signature reported a significant decline in its deposit base in the fourth quarter, with total deposits falling by more than $14 billion to $88.6 billion. Just over half of this amount related to digital asset banking deposits, according to the bank’s fourth quarter results.

Since the start of 2023, there has been a further $691 million reduction in digital asset banking deposits, the bank said, but overall deposits are up by $1.8 billion.

Signature issued a statement in November stating that it had a “deposit relationship” with FTX that accounted for less than 0.1% of total deposits.

President and CEO Joseph DePaolo said at the time: “Signature Bank is a well-diversified institution that employs appropriate risk management strategies that help us navigate the current challenging digital asset landscape. Our strong capital, solid earnings and overall diversification, continues to provide a source of strength for our depositor clients.”

Meanwhile, California-based Silvergate Bank — also mentioned in the WSJ article — has laid off approximately 200 staff as part of efforts to manage its cost base. Silvergate has positioned itself as a specialist banking partner for digital assets companies, meaning it was more affected by the turmoil in the sector in 2022.

In its fourth quarter results, the bank reported a fall in total deposits from $12 billion to $7.3 billion during the last three months of the year and a net loss of more than $1 billion, amid a “crisis of confidence” in the crypto sector.

Silvergate experienced “significant outflows of deposits during the quarter and took several actions to maintain cash liquidity”, it said in its results statement. These actions included obtaining loans, selling debt securities, and shrinking its workforce.

In November, CEO Alan Lane said in a statement explaining its exposure to BlockFi — another troubled digital asset business — that Silvergate’s platform “was purpose-built to manage stress and volatility”.