After crypto-friendly Silvergate announced it was going into voluntary liquidation amid a capitalization crisis, the blockchain firm rushed to one of the last US banks to offer financial services to the volatile industry—New York-based Signature Bank.
On Sunday, two days after the spectacular failure of Silicon Valley Bank, the New York Department of Financial Services announced that it had acquired Signature, which had total deposits of $88.59 billion.
In a joint statement, the Treasury, Federal Reserve, and FDIC announced a systemic risk exemption for Signature, guaranteeing that all depositors to the institution will be settled, with no losses incurred by taxpayers.
“The US banking system remains resilient and on solid footing, in large part due to reforms implemented after the financial crisis that ensured better protection for the banking industry,” the statement read. “These reforms combined with today’s actions show our commitment to take the necessary steps to ensure that depositors’ savings remain safe.”
A week of contagion
The failure of Silicon Valley Bank on Friday, the first of an FDIC-insured institution since 2020, raised fears of contagion in the financial system. Like Silvergate, SVB has a concentrated deposit base, mostly serving the tech industry, while Silvergate caters to crypto companies.
Although SVB doesn’t have many clients in the crypto space, the failure still has a direct impact on the sector, with Circle—the issuer of the stablecoin USDC—holding $3.3 billion of its backing tokens with the bank, representing 8% of its reserves. The USDC faltered against its peers over the weekend, falling below 90 cents on major exchanges.
Still, Signature—which has emerged as a new haven for crypto companies such as Coinbase—remains operational. Even though the stock fell, it stopped trading in the stock on Friday, banking experts said fortune that Signature seems to have a more solid base thanks to a more diverse deposit base. Unlike Silvergate and SVB, Signature—as well as other banks that seem to be teetering, such as First Republic—also serve customers on a daily basis.
Sunday’s announcement from the NYDFS and three federal banking regulators illustrates just how quickly the situation has changed. The weekend saw many in the tech industry, as well as financial luminaries such as former Treasury Secretary Larry Summers, calling for depositors in SVB to be made whole so as not to spread panic.
Even as Treasury Secretary Janet Yellen insisted there was no government bailout for SVB, regulators scrambled to find a solution, including starting an auction for the failed bank, with bids due Sunday afternoon.
The extraordinary statement on Sunday afternoon signaled that the agency has found a way to protect depositors and prevent an exodus of funds due to trust in small banks—all without using taxpayer funds.
For crypto companies that cooperate with Signature, the announcement brings immediate relief that their deposits will be protected, but there are still open questions about where they will be able to find banking services. Not only is Sign one of the last banks to offer services to crypto companies, but it also runs the popular real-time payment processor SigNet. Circle CEO Jeremy Allaire declare who will be able to use the network for minting and redeeming USDC, instead of relying on settlements through BNY Mellon.
Regulators have repeatedly warned of the liquidity risk created by crypto clients to the banking sector after the collapse of FTX, and the failure of Silvergate and Signature will keep other institutions on their toes. With Signature now owning NYDFS, the industry is running out of options.
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