Signature Bank Seizure 'Nothing To Do With Crypto,' New York Says
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Signature Bank Seizure 'Nothing To Do With Crypto,' New York Says

Signature also faced a probe by federal prosecutors, Securities and Exchange Commission, into its anti-money-laundering controls.

Signature Bank Seizure 'Nothing To Do With Crypto,' New York Says

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The decision to seize and shutter Signature Bank over the weekend had "nothing to do" with its activities as a crypto banker.

That's according to the New York Department of Financial Services (NYDFS), which regulated Signature. On Sunday, it closed the bank and turned it over to the Federal Deposit Insurance Corporation (FDIC) to liquidate its assets.

Instead, the New York bank regulator told Reuters, the problem was a "significant crisis of confidence in the bank's leadership."

That came in response to a board member's accusation on Monday that the NYDFS acted to warn other mainstream banks to avoid getting involved with the crypto industry.

It was revealed also Tuesday that it was under investigation by both federal prosecutors and  Securities and Exchange Commission over its adherence to anti-money laundering regulations. No criminal or civil charges have been reported or filed.

Encourage the Others

That board member's comment might sound a bit like sour grapes, except that the board member in question was Barney Frank, a longtime member of the House of Representatives from Massachusetts.

The Democratic Congressman has a strong reputation in bank regulation, having provided the Democratic half of the name of the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2008.

Dodd-Frank was the legislative response to the subprime mortgage crisis in terms of bank regulation, which sought to protect the U.S. economy from similar crises and improve accountability in the banking system. Notably in the wake of some of the banks involved in the financial crisis being bailed out by taxpayers as "too big to fail."

Frank told the New York Times on Monday that Signature's failure shocked him as he believed the bank's condition had stabilized Sunday. It had seen a run that began in the aftermath of the collapse of Silicon Valley Bank — the second largest bank failure in U.S. history after the 2008 collapse of Washington Mutual.

Instead, Frank said he believed the bank was "shot to encourage the others to stay away from crypto."

That refers to the French phrase "pour encourager les autres" — which referred to the execution of a British Admiral after losing a battle to Napoleon's navy.

The NYDFS said in response that the bank's executives were "not providing consistent and reliable data," according to reports. That led to concerns about whether it could "do business in a safe and sound manner."

Not Crypto-Only

The contagion causing the collapse of several crypto-friendly banks began with Silvergate Bank, which was essentially a crypto-only bank that was hurt by the collapse of FTX but even more so by its unpreparedness for the Federal Reserve's interest rate hikes. It announced a voluntary winding down of its business.

Unlike Silvergate, Signature was not a one-industry bank, although the two competed in offering 24/7 movement of funds between crypto institutions via the Silvergate Exchange Network and SigNet. They were vital parts of many crypto exchanges and other businesses' ability to on and off-ramp dollars.

Frank's interest in Signature was related more to its housing business, but it also had a big interest in providing services to professional firms, among others.

Whether other banks will take Signature's closure as a warning shot remains to be seen. CoinDesk noted that its parent company, Digital Currency Group, revealed that it had gotten expressions of interest from Santander, HSBC and Deutsche Bank as it looks for a new banking partner.

After its stablecoin depegged for several days when it was revealed that it had $3.3 billion in SVB, Circle moved all of its USDC stablecoin backing reserves to Bank of New York Mellon, founded in 1784 by Alexander Hamilton. And on Sunday, it announced that Cross River Bank would be its partner for automated settlements.

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