The FDIC wants the buyer of Signature Bank to give up crypto business, the report says
Signature Bank was one of the dwindling financial options for the US crypto industry, even after New York regulators took over the bank and placed it in the Federal Deposit Insurance Corporation over the weekend.
Now, as potential buyers circle the failed lender, the FDIC is mandating that they agree to divest the bank’s crypto business, according to a Wednesday report from Reuters.
The circumstances surrounding the New York-based bank’s failure have spawned controversy in the US crypto industry. Signature was one of the few US banks to offer financial services to blockchain companies, made even more popular by its real-time payments processor Signet, used by firms such as USDC issuer Circle to process after-hours transactions.
Despite the bank’s status in the crypto industry, the volatile sector only made up about 25% of Signature’s deposit base, with the bank mostly servicing mid-market businesses such as real estate and law firms.
As the crypto bear market accelerated, Signature sought to reduce its exposure, and its CEO announced in December that it would shrink its crypto holdings by $2 billion as its share price fell.
When crypto-friendly Silvergate Bank collapsed last week, many crypto firms fled to Signature — an exodus that prompted some of Signature’s more traditional clients to seek safer alternatives, according to a The Wall Street Journal report from Wednesday.
Then, when the New York Department of Financial Services took possession of Signature on Sunday, bank board member Barney Frank — a former representative who helped craft the banking reform Dodd-Frank legislation — gave a series of interviews in which he blamed Signature for the takeover. crypto exposure. A DFS spokesperson denied the allegations Fortune that the bank failed to provide reliable and consistent data, which created a “significant crisis of confidence in the bank’s management.”
Despite the denial by DFS, speculation continued to spread among the crypto industry that the Signature takedown was motivated by its crypto-friendly stance, with the forced failure of a broader regulatory “Operation Choke Point 2.0” to sabotage crypto in the US, referring to an earlier initiative by the Department of Justice to target banks that work with certain sectors.
Amid the uncertainty, the FDIC kept Signature’s Signet platform operational. Although Circle stopped using the processor, Coinbase announced that it was operating as usual.
“Signet continues to function and all past and future customer deposits continue to be FDIC insured,” a Coinbase spokesperson said Fortune in a statement on Wednesday.
The Reuters report signals that Signature’s future as a crypto-friendly bank is in doubt. According to unnamed sources, the FDIC aims to sell Signature in its entirety, using investment bank Piper Sandler to conduct an auction. In addition to any buyer of Signature agreeing to divest its crypto business, Bloomberg also reported on Tuesday that US prosecutors were investigating Signature’s work with crypto clients prior to the DFS takeover.
The FDIC did not immediately respond to a request for comment.
The decision is likely to end access to the crucial Signet platform for crypto companies, which will have to search for other options. In their Wednesday statement to Fortunethe Coinbase spokesperson said that if Signet quit, there would be other players in the market to fill the void.
“As we saw over the weekend,” the spokesperson said, “crypto is resilient and we will absorb this and move forward just as we have in other events.”
This story was originally featured on Fortune.com
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