U.S. regulators on Sunday announced they were intervening to close Signature Bank, marking the second U.S. bank to fail days apart and the third-largest bank failure in U.S. history.
The bank said at the time that it would be shrinking its $17.79 billion in crypto-related deposits by $8 billion to reduce risk in “a challenging cryptocurrency environment.”
New York Gov. Kathy Hochul said on Sunday that the closure decision, made alongside the state chartering authority and federal partners over the weekend, was to “stabilize the banking sector and protect the hard-earned money of New Yorkers whose livelihoods depend on impacted companies.”
SVB Fail
Following the failure of the tech-focused Silicon Valley Bank (SVB) in Santa Clara, California, on March 10, stock prices plunged at other banks that cater to technology companies, including First Republic Bank and PacWest Bank. SVB’s closure was the second-largest bank failure in U.S. history at $209 billion, following Washington Mutual’s collapse in the 2008 crisis.U.S. Treasury Secretary Janet Yellen pointed to rising interest rates, which have been increased by the Federal Reserve to combat inflation, as the core problem for Silicon Valley Bank. Many of SVB’s assets that were Treasury bond holdings or mortgage-backed securities, lost value with each rate increase. At the same time, the bank’s startup clients were increasingly drawing down funds amid a sparsity of venture capital investment.
Regulators have stepped in to guarantee customer deposits, both insured and uninsured, in SVB and Signature Bank, seeking to reassure the public and prevent wider bank runs in tech-exposed institutions.
In a joint statement with the U.S. Treasury Department and Federal Reserve, the FDIC—said that it is “announcing a similar systemic risk exception for Signature Bank” as SVB was granted.
“Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law,” the statement continued.
“These actions will reduce stress across the financial system, support financial stability and minimize any impact on businesses, households, taxpayers, and the broader economy,” the Fed said of its emergency management approach.
Earlier on March 8, crypto-focused Silvergate Bank also disclosed plans to wind down its operations and voluntarily liquidate. Its owner, the Silvergate Capital Corporation, said the decision was made “in light of recent industry and regulatory developments.” Silvergate said its liquidation plan included “full repayment of all deposits.”
The bank had been in the spotlight over its alleged involvement in the collapse of cryptofirm FTX.
