In order “to protect depositors,” the New York Department of Financial Services seized the cryptocurrency-friendly Signature Bank, according to a statement made by the state banking regulator on Sunday night.
The Federal Deposit Insurance Corp. was also appointed receiver of the New York-based bank, after a similar course of action taken by California’s banking regulator on Friday in response to an exceptional run on deposits at Silicon Valley Bank.
The full restoration of customer deposits at Silicon Valley and Signature Bank was guaranteed by U.S. federal bank regulators in a separate statement. “This institution will make all depositors whole. Like with Silicon Valley Bank’s bankruptcy, the taxpayer won’t bear any losses, “In a joint statement, the Federal Reserve Board, Treasury Department, and FDIC promised that “no damages will be incurred by the taxpayer.”
In the case of deposit runs like the one that occurred at Silicon Valley Bank, the Federal Reserve has created an emergency lending backstop accessible to banks. The Fed would provide money in exchange for banks’ high-quality assets.
According to a senior Treasury source, regulators were worried about additional deposit runs spreading to other banks.
The official stated, “The moves that we made today were meant to restrict the implications of the depositor outflows from Silicon Valley and from Signature and to reduce any spillover effects. The concern of depositors toward other institutions increased.
The source did, however, emphasize that this step by the federal government to compensate all depositors is not a bailout. “The companies are not receiving a bailout. The official assured that the depositors were safe. Companies that hold uninsured deposits at those two banks “truly depend on the operations, the capacity to keep payrolls going,” according to the institutions.
Although both banks have dealings with stablecoin businesses, Signature has a more direct relationship with the digital asset sector. Due to its location and competence, Silicon Valley was able to bank a disproportionately high number of tech startups and venture capital companies. Top banks used by cryptocurrency companies included Signature and the now-defunct Silvergate, which opted to cease operations this week. This raises the question of where they will be able to turn to next.
In the end of 2017, Signature took action to reduce the concentration of cryptocurrency deposits it held by enforcing a 20% cap.
The authorities declared, “Today we are taking strong moves to defend the U.S. economy by enhancing public confidence in our financial system. This action will make sure that the American banking system continues to play its crucial functions in safeguarding deposits and granting credit to individuals and companies in a way that encourages robust and long-term economic growth.
The statement indicated that stockholders, some unsecured loan holders, and top management of Signature had all been fired.