Explaining the Signature Bank Collapse and Crypto Impact

Explaining the Signature Bank Collapse and Crypto Impact

Created 11mo ago, last updated 11mo ago

Another crypto-friendly bank collapse and what it means for crypto.

Explaining the Signature Bank Collapse and Crypto Impact

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The past weekend saw the second most valuable stablecoin, USDC, depeg as a result of banks failure, including Silvergate and Silicon Valley Bank. It didn't take much time for the panic to spread, as Signature Bank was also closed by U.S. financial regulators on Sunday. There is one major link connecting these banks: exposure to the crypto industry.

In this article, we will discuss how and why Signature Bank collapsed, and the impact on the crypto industry.

Signature Bank: A Brief History

Signature Bank, a full-service New York commercial bank, was known for its convenient service and deep connection with the real estate and legal sectors. With 40 private client offices across five U.S. states, the banking institution had nine national business lines, including venture banking, mortgage servicing and commercial real estate.

By the end of 2022, the bank had accumulated a total of $110.4 billion in assets and collected deposits amounting to $88.6 billion. In the late 2010s, it grew both geographically and in terms of services provided – most notably with its decision to embrace cryptocurrency businesses which accounted for 30% of its deposits as early as 2021.
Hailed as one of the top crypto-friendly banks, Signature Bank had established a 24/7 network for its crypto clients which led to significant growth in its crypto deposit portfolio. According to CNBC, the total number of deposits went up as high as $16.5 billion from crypto investors.

On March 12, 2023, the New York State Department of Financial Services shut down the bank following two days of turmoil after Silicon Valley Bank imploded – making it one of the most significant financial collapses in U.S. history.

Why Was Signature Bank Seized?

To put it shortly, Signature Bank faced the repercussions of Silicon Valley Bank’s collapse and subsequent seizure by regulators on Friday last week.

Last week, as news of Silicon Valley Bank's woes spread like wildfire, contagion hit Signature Bank’s customers. According to the NY Times, most Signature customers had more than the $250,000 limit insured by the Federal Deposit Insurance Corporation (FDIC) and consequently felt vulnerable about potential losses in case of a similar incident.

A flurry of withdrawals, over $10 billion, began to happen. Despite this, outflows slowed down by Sunday morning.

However, in a shocking turn of events, a statement was released by the Department of the Treasury which announced the resolution of Signature Bank in a move to “protect the U.S. economy by strengthening public confidence in our banking system.”

The good news, however, is that all depositors of Signature Bank will be fully bailed out:

"We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer."

Impact on Crypto

Both Signature Bank and Silvergate Bank had launched Signature's Signet network and Silvergate Exchange Network (SEN) to improve the transactions of digital assets between crypto platforms and their banks. Coinbase, Circle and other crypto companies incorporated Signet and SEN to assist institutional customers in transferring, managing and settling accounts.

However, after the collapse of these banks in quick succession, analysts have cited it as a huge setback for cryptocurrency infrastructure, likely resulting in reduced liquidity within the U.S.

Some in the crypto space believe the seizure was part of a wider move by regulators to shut down crypto in the United States.

Nic Carter posits that Signature Bank was closed by regulators in a deliberate and calculated move:

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Further, the unrealized losses on Signature Bank’s securities portfolio was not as severe as SVB’s.

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After the news of Signature Bank's collapse surfaced, crypto investors took to Twitter to express their frustration as yet another ‘crypto-friendly’ bank went down in less than a week.

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