Regulators shut down Signature for sending message that crypto is toxic – Barney Frank

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(Kitco News) – Barney Frank – the former congressman who co-authored the Dodd-Frank Act after the market collapse of 2008 in an effort to overhaul US banking regulation to prevent another global financial crisis – recently spoke about developments related to Signature Bank and proposed. that regulators were trying to make a point that crypto is dangerous.

“Crypto panic generated that set of withdrawals,” said Frank, who sits on the board of Signature Bank. “By Sunday, we had stabilized the situation … But I think the regulators, especially the New York state regulators, wanted to send the message that crypto is toxic.”

Frank made the comments during an interview on Bloomberg radio on Sunday. “I think if we had been allowed to open tomorrow, that we could have continued — we have a solid loan book, we’re the largest lender in New York City under the low-income housing tax credit,” Frank said in the Sunday night interview. “I think the bank could have been a going concern.”

The New York Department of Financial Services (NYDFS) took control of Signature Bank on Sunday, just two days after tech-friendly Silicon Valley Bank (SVB) experienced a bank run that resulted in regulators shutting down the bank to prevent further contagion.

“They shut us down even though there was no good, compelling reason to do it because they wanted to show that banks shouldn’t be involved in crypto,” Frank said. “We were kind of the poster child for being involved in crypto.”

The collapse of SVB and subsequent announcement of Signature Bank threw the crypto market into chaos and threatened the stability of the second leading stablecoin, USD Coin (USDC), whose parent company Circle held some of the cash reserves backing USDC at SVB.

However, prices began to reverse course late Sunday, after President Biden announced that his administration was taking emergency action to extend a federal backstop to all Silicon Valley Bank deposits to ensure access to all of those funds on Monday.

Frank applauded the government’s response to create an emergency safety net for uninsured deposits, but suggested that if the Federal Reserve and the Federal Deposit Insurance Corp. had acted earlier, taking Signature Bank could have been avoided.

“If they had done it on Friday, by the way, we would still be a bank,” Frank said, adding that the bank had been in talks with regulators since Friday. “They called the bank on Sunday and said, ‘We’ll come over.’ And they came in and took over.”

Signature Bank was a major service provider to some of the biggest firms in crypto, including Circle, Coinbase, and Coinshares, so it’s possible the government moved preemptively to prevent another major contagion event in the crypto ecosystem.

“We, like Silicon Valley, have a large number of uninsured deposits and are seen as a crypto bank, although our crypto involvement is very different from what people thought and is very carefully constructed so as not to put us at risk,” Frank said, and adding that the US needs more crypto regulation. “The banks should be strictly regulated in terms of, for example, people having crypto that they say is 100% dollar-backed, they absolutely have to show that.”

As it stands now, Signature Bank’s customers have automatically become customers of the FDIC-controlled Signature Bridge Bank. Regulators will continue to sell the bank and its assets in the coming days, which will provide further insight into how serious the problem actually was, according to Frank.

“What’s the sale price?” Frank said. “If it has to sell at a very deep discount, well, maybe that shows there were problems with Signature. If it sells at a better price, which I think it will, that’s proof of our argument that they shut down Signature as a general warning shot against crypto rather than something that was Signature’s fault.”

According to the New York Department of Financial Services, Signature had $110.36 billion in total assets and $88.59 billion in deposits as of Dec. 31.