Signature Bank pursued “rapid, unfettered growth” in part by courting deposits from the volatile crypto industry, and its ties to digital asset firms were a major factor in its failure, the Federal Deposit Insurance Corporation said in a review published Friday.
The bank “did not understand the risk of its association with the crypto industry or its vulnerability to contagion from the crypto industry that occurred in late 2022 and into 2023,” Marshall Gentry, chief risk officer at the FDIC, told virtual press. ..
Signature Bank pursued “rapid, unfettered growth” in part by courting deposits from the volatile crypto industry, and its ties to digital asset firms were a major factor in its failure, the Federal Deposit Insurance Corporation said in a review published Friday.
The bank “did not understand the risk of its association with the crypto industry or its vulnerability to contagion from the crypto industry that occurred in late 2022 and into 2023,” Marshall Gentry, chief risk officer at the FDIC, said at a virtual press conference Friday.
The FDIC placed Signature Bank into receivership last month after a run on deposits made it insolvent in regulators’ eyes, and most of the flight was in “digital asset-related cash deposits” that were “concentrated in very few, very large borrowers or depositors,” Gentry said .
Signature was popular among crypto companies in part because of its blockchain-based internal digital payment platform called Signet, which the bank launched in 2019 and enabled customers to settle US dollar payments globally 24/7, the FDIC report said .
When the prices of cryptocurrencies, including bitcoin
BTCUSD
and ether
ETHUSD
crashed in the wake of the collapse of crypto exchange FTX, Signature’s reliance on clients in the digital asset space put it in a precarious position, and banking investors began to take notice.
“Due to his reputation as a banker to many in the crypto industry, [Signature’s] The share price closely followed these tumultuous events in the crypto industry and fell significantly during 2022, the report said.
Yet bank management failed to quickly grasp how the association with the crypto industry posed reputational risk. After a flurry of negative press coverage, the bank pledged in January to limit its deposits from digital assets to less than 20% of total deposits and to run off between $8 billion and $12 billion in industry deposits over a period of months, down from 23.5% in September last year.
Gentry said FDIC examiners tried to warn bank management about the reputational risks associated with the cryptocurrency and the risks associated with having such a large proportion of deposits concentrated in one industry, but those warnings were not heeded.
