NY State Steps in to Shut Signature Bank

New York State Department of Financial Services stepped in to shut Signature Bank late last week as regulators sought to limit the impact of runs on banks with crypto-asset exposures.

Over the weekend, the Federal Deposit Insurance Corporation (FDIC) was appointed as receiver and has established a new entity, Signature Bridge Bank, to take over deposits and “substantially all of the assets” of Signature “as it markets the institution to potential bidders”.

The collapse is the third largest bank failure in US history and comes after the failure of Silicon Valley Bank just two days previously. At the end of 2022, the bank had $110.4 billion in assets and total deposits worth $82.6 billion. A financial update on Thursday reported assets in excess of $100 billion and total deposits of $89.2 billion.

In a statement, the FDIC said all depositors and borrowers would automatically become customers of the bridge bank with “uninterrupted customer service and access to their funds”. It also emphasized that “no losses will be borne by the taxpayers”.

“These actions will protect depositors and preserve the value of the assets and operations of Signature Bank, which may improve recoveries for creditors and the [Deposit Insurance Fund],” the corporation stated.

The intervention came after Signature Bank had seen its share price fall substantially due to its exposure to crypto-related companies in the past few weeks. This was despite repeated attempts by the bank to reassure investors and stakeholders of its ongoing strength.

The bank has been seeking to actively reduce its activity in the cryptocurrency sector and had a relationship with the failed digital asset exchange FTX — although this was only depository and accounted for less than 0.1% of Signature’s total deposits.

The bank “does not invest in, does not trade, does not hold, does not custody and does not lend against or make loans collateralized by digital assets”, said co-founder and CEO Joseph DePaolo in a statement on March 9.

“We have repeatedly communicated that our relationships in the digital asset space are limited to US dollar deposits only, and we remain fully committed to executing on our plan to deliberately reduce these deposits further,” DePaolo added.

Other banks were hit by share selloffs last week amid news of the insolvency of Silicon Valley Bank and the planned liquidation of Silvergate Bank.

Trading in the shares of PacWest, Western Alliance, and First Republic banks was halted by stock exchanges on Friday due to excessive volatility, according to the Financial Times, with prices falling as much as 40-50%. The moves came as investors reacted to the news that Silicon Valley Bank had been closed by California regulators after customers sought to withdraw as much as $42 billion in total deposits.

Western Alliance Bank, based in Arizona, issued a financial update amid the volatility. It emphasized that its deposit base “remains strong” and has increased by $7.8 billion since the end of 2022, reaching $61.5 billion as of March 9.

It added that liquidity “remains robust” with $2.5 billion of cash on the balance sheet and $5.3 billion worth of assets available for sale. In addition, the bank had a large amount of credit available from financial institutions and the Federal Home Loan Bank of San Francisco, it said.

“Asset quality remains excellent, and we have experienced no significant changes since year end, including classified assets, non-performing assets, and charge-offs,” Washington Alliance said.