US regulators shut down crypto-friendly Signature Bank as financial crisis grows
NY-based financial institute founded by Bank Hapoalim, which sold stake in 2005, collapses as investors pull deposits following crash of SVB; 3rd largest bank failure in US history
US regulators closed Signature Bank on Sunday, a New York-based regional-size lender with significant cryptocurrency exposure after its stock price tanked.
Signature Bank was founded in 2000 by Israel’s Bank Hapoalim, the Globes news site reported.
It went public in 2004 and Bank Hapoalim sold its stake in the business in 2005.
In a joint statement the US Treasury, Federal Reserve, and Federal Deposit Insurance Corporation announced “a systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority.”
At more than $110 billion in assets, Signature Bank is the third-largest bank failure in US history.
Depositors will still have access to their money, they said. The bank’s senior management was removed in accordance with regulations.
“All depositors of this institution will be made whole,” the statement said. “As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer. Shareholders and certain unsecured debtholders will not be protected.”
Regulators on Friday took control of SVB — a key lender to startups across the United States since the 1980s — after a huge run on deposits left the medium-sized bank unable to stay afloat on its own.
A source told The New York Times that Signature Bank also saw a run of withdrawn deposits and its stock dropped after the SVP failure.
Signature Bank entered into the crypto market in 2018 and would accept crypto assets as deposits, unlike most financial institutions, the NY Times said.
According to the report, the bank specialized in financing the purchase of taxi medallions, as well as providing bank services to law firms and real estate companies. It also was a bank for local wealthy families and had lent money to Jared Kushner, as well as his father Charles.
With the two bank failures rattling nerves, US President Joe Biden vowed Sunday to hold “fully accountable” the people responsible for “this mess” and said he would deliver remarks on Monday morning on maintaining a resilient banking system.
“The American people and American businesses can have confidence that their bank deposits will be there when they need them,” Biden said.
In a joint statement, financial agencies including the US Treasury said SVB depositors would have access to “all of their money” starting Monday, March 13, and that American taxpayers will not have to foot the bill.
The “core goal” of the moves was to reassure bank customers they would have their money “to meet payroll to keep their businesses operating, and to make sure households are able to pay the rent or the mortgage or any of their other bills,” US Federal Reserve officials told reporters Sunday night.
And in a potentially major development, the Fed announced it would make extra funding available to banks to help them meet the needs of depositors, which would include withdrawals.
In their joint statement on the latest bank woes and efforts to protect depositors of SBV and Signature, the agencies stressed shareholders and certain unsecured debtholders will not be protected.
Fed officials explained to reporters: “Investors in those two banks will lose everything. Senior management of those two banks will bear losses and be removed.”
Following the 2008 failure of Lehman Brothers and the ensuing financial meltdown, US regulators required major banks to hold additional capital in case of trouble.
US and European authorities also organize regular “stress tests” designed to uncover vulnerabilities at the largest banks.
SVB’s implosion represents not only the largest bank failure since Washington Mutual in 2008 but also the second-largest failure ever for a US retail bank.
Little known to the general public, SVB specialized in financing startups and had become the 16th largest US bank by assets: at the end of 2022, it had $209 billion in assets and approximately $175.4 billion in deposits.
The company previously boasted that “nearly half” of technology and life science companies had US funding banked with them, leading many to worry about the possible ripple effects of its collapse.