Signature Bank takeover could send crypto firms scrambling

Treasury Secretary Janet Yellen. Alex Wong—Getty Images

After crypto-friendly Silvergate announced it would voluntarily liquidate amid a capitalization crisis, blockchain companies 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 it had taken possession of Signature, which has deposits totaling $88.59 billion.

In a joint statement, the Treasury Department, the Federal Reserve and the FDIC announced a systemic risk exemption for Signature, guaranteeing that all depositors of the institution would be made whole, with no losses incurred by taxpayers.

“The U.S. banking system remains resilient and on solid footing, in large part because of reforms made after the financial crisis that ensured greater safety for the banking industry,” the statement said. “These reforms combined with today’s actions demonstrate our commitment to taking the necessary steps to ensure depositors’ savings remain safe.”

A weekend of infection

Friday’s failure of Silicon Valley Bank, the first by an FDIC-insured institution since 2020, sparked fears of contagion in the financial system. Like Silvergate, SVB had a concentrated deposit base, serving mainly the tech industry, while Silvergate catered to crypto firms.

Although SVB did not have many clients in the crypto space, the failure still had an immediate impact on the sector, with Circle – the issuer of stablecoin USDC – having $3.3 billion of the token backed by the bank, representing 8% of its reserves. The USDC wobbled against the peg throughout the weekend, at times falling below 90 cents on major exchanges.

Still, Signature — which had emerged as the new safe haven for crypto companies like Coinbase — remained in business. Although the stock fell, halting trading in the shares on Friday, banking experts said Fortune that Signature appeared to have more solid fundamentals thanks to its more diverse deposit base. Unlike Silvergate and SVB, Signature — as well as other banks that appeared to be tilting, like First Republic — also served everyday customers.

Sunday’s announcement by the NYDFS and the three federal banking regulators illustrates how quickly the situation moved. The weekend saw many in the technology industry, as well as financial players such as former Treasury Secretary Larry Summers, calling for depositors in SVB to be made whole to avoid further spreading panic.

Although Treasury Secretary Janet Yellen insisted there would be no government bailout for SVB, regulators raced to find a solution, including launching an auction for the failed bank, with bids due by Sunday afternoon.

The extraordinary statement Sunday night signaled that the agencies had found a way to protect depositors and stem the outflow of funds as confidence wavered in smaller banks — all without using taxpayer funds.

For crypto companies partnering with Signature, the announcement brings immediate relief that their deposits will be protected, but still leaves open the question of where they will be able to find banking services. Regulators have repeatedly warned of liquidity risks posed by crypto customers to the banking sector in the wake of FTX’s collapse, and failure of Silvergate is likely to keep institutions at arm’s length. With Signature now owned by NYDFS, the industry is running out of options.