On Sunday, New York-based financial institution Signature Bank abruptly closed its doors after regulators determined that keeping the bank open could threaten the stability of the entire financial system. Signature Bank has a big real estate lending business and had recently bought massive amounts of digital assets including $3.3 Billion Dollars in $USDC. This is why we saw $USDC plunge and depeg. Fear, uncertainty, and doubt. Would $USDC get the funding required to buy back their token to repeg it to $1? They have been working with investment firms supposedly getting enough that is required.
Unfortunately, $USDC became a victim of the panic around Silicon Valley Bank, which regulators seized on Friday. The closure highlights the challenges that small and midsize banks face. These banks often focus on niche lines of business and have a narrower base of customers than larger banks like JPMorgan Chase or Bank of America. This leaves them especially vulnerable to old-fashioned bank runs.
Silicon Valley Bank, which primarily lends to start-ups, imploded on Friday due to some ill-timed financial decisions, leaving it struggling to meet customer withdrawal requests. This happened just as slowing venture capital funding prompted fledging companies to tap their accounts more. Similarly, Signature Bank became one of the few banks to welcome cryptocurrency deposits, just before the overheated industry blew up last year.
As word about Silicon Valley Bank’s troubles began to spread last week, business customers of Signature Bank became concerned about the safety of their deposits. Many were worried that their deposits could be at risk because, like business customers of Silicon Valley, most had more than $250,000 in their accounts. The Federal Deposit Insurance Corporation, which seized Silicon Valley Bank, only insures deposits up to $250,000. In announcing the closure of Signature on Sunday, regulators said that customers of both banks would be made whole regardless of how much they held in their accounts.
“Many depositors at these banks are small businesses, including those driving the innovation economy, and their success is key to New York’s robust economy,” Gov. Kathy Hochul of New York said in a statement. However, on Friday, with customers panicking about their money, Signature Bank experienced a torrent of deposits leaving its coffers, according to an insider. The bank’s stock, along with the stocks of some of its peers, also continued to decline.
Despite this, the bank’s leaders expected to be able to weather the storm because the outflows had slowed by Sunday morning, the insider said. When regulators told bank executives that they were effectively seizing the bank, which had 40 branches across the country, some of them were shocked. In shuttering the bank, New York bank regulators, acting in concert with the F.D.I.C., also removed its executive team.
The demise of Signature Bank, with assets of under $100 billion, is a blow to many of the professional services firms that have come to rely on it. The bank long specialized in providing banking services to law firms, including escrow accounts for holding client money and other services. Signature Bank was founded in 1999 by Scott Shay, Joseph DePaolo, and John Tamberlane with backing from Israel’s biggest lender, Bank Hapoalim. Mr. Shay, who describes himself as a “thought leader” and author of several widely read books on profound issues facing the Jewish community, has a personal bio page on the bank’s website. The bank went public in 2004.
Signature Bank, a New York-based financial institution with a significant real estate lending business and a niche focus on providing banking services to law firms and real estate companies, has recently been in the news after abruptly closing its doors due to regulatory pressure. The bank had recently made a move to accept deposits of cryptocurrency, a business it entered into in 2018, which ultimately proved to be fateful as the bottom fell out of the cryptocurrency market after the collapse of FTX and an ensuing criminal investigation. The bank’s cryptocurrency-related client deposits were valued at $16.52 billion at the time of its closure.
Signature Bank had also made headlines due to its connection with former President Donald J. Trump’s company, having lent money to Jared Kushner, Trump’s son-in-law, and to Mr. Kushner’s father, Charles. It had also helped finance Trump’s Florida golf course.
The bank’s focus on niche lines of business and its narrower customer base, as compared to larger banks like JPMorgan Chase and Bank of America, left it particularly vulnerable to the type of panic that surrounded Silicon Valley Bank’s recent closure. Signature’s clients began to call the bank last week, asking if their deposits were safe, after news broke of Silicon Valley Bank’s financial struggles. The majority of Signature Bank’s clients had holdings above $250,000, which meant that they were not fully insured by the Federal Deposit Insurance Corporation (FDIC). In fact, more than $79 billion, or close to nine-tenths of Signature Bank’s approximately $88 billion in deposits, were uninsured at the end of last year.
The FDIC, which insures deposits only up to $250,000, announced that it would make customers of both Signature Bank and Silicon Valley Bank whole regardless of how much they held in their accounts. The closure of Signature Bank also had an impact on the professional services firms that had come to rely on the bank’s specialized services, including providing escrow accounts for holding client money.
The demise of Signature Bank highlights the challenges that small and midsize banks face in the current financial climate. These banks often focus on niche lines of business and have a narrower base of customers, leaving them more vulnerable to old-fashioned bank runs. Signature Bank’s digital asset-related client deposits were among the uninsured deposits that contributed to the bank’s downfall, highlighting the risks associated with new and untested business lines.
“Result was the same in a deposit run,” said Christopher Whalen of Whalen Global Advisors, which specializes in analyzing and consulting on financial institutions. “This story has more to do with crypto, huge error in judgment by veteran bankers.”
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