On Sunday, New York-based Signature Bank became the third American bank to close its doors within a week, following Silicon Valley Bank and Silvergate Capital. Depositors in Signature Bank were reassured that they would be “made whole” by the US Federal Reserve, the Federal Deposit Insurance Corporation, and the Treasury. As of December 31, Signature Bank had total assets of approximately $110.36 billion and total deposits of around $88.59 billion.
While the collapse of Silicon Valley Bank was triggered by a run on the bank, Silvergate Capital wound down due to its dealings with the controversial FTX, operated by Sam Bankman-Fried. Depositors in Signature Bank began to panic when they learned of Silicon Valley Bank’s troubles, as they, like business customers of Silicon Valley, had mostly deposited more than $250,000 in their accounts, and the Federal Deposit Insurance Corporation only insures deposits up to that amount. The regulator’s decision to shut down Signature Bank came as a surprise to its managers, who were informed shortly before the public announcement. Despite experiencing a torrent of deposit outflows on Friday, the situation had stabilized by Sunday, and the bank’s leaders had expected to weather the storm since the outflows had slowed.
Signature Bank had entered into the business of accepting deposits of crypto assets in 2018, making it one of the few financial institutions to do so. This turned out to be a fateful decision because the bottom fell out of crypto assets after the collapse of FTX and the ensuing criminal investigation. Since Silvergate Bank, another cryptocurrency-focused bank, was forced to voluntarily close last week, depositors of Signature Bank became worried too.
Signature Bank had already been under scrutiny since the collapse of FTX, which happened to have accounts with the bank. However, Signature Bank had stated that FTX deposits represented less than 0.1% of its overall deposits. In December, after FTX’s collapse, Signature Bank announced plans to shed up to $10 billion in deposits from digital-asset clients. This would bring crypto-related deposits to around 15-20% of its total, and the bank said it would cap the share of deposits from such clients at that level.
In a tweet on Sunday, Coinbase Global Inc announced that it had approximately $240 million in corporate cash balance with Signature Bank, while Circle Internet Financial Ltd., the issuer of the USDC stablecoin, said it maintained transaction and settlement accounts for USDC at Signature Bank.