Signature Bank's collapse was astonishingly swift, leaving the question of whether there were fundamental flaws in the way the company was run or whether it was simply a victim of the panic that followed the collapse of Silicon Valley Bank.
There were few outward signs that Signature Bank was failing before the New York City Department of Financial Services seized the bank's assets and sued the Federal Deposit Insurance Corporation on Sunday. resume operations. The FDIC will operate it as a Signature Bridge Bank until it is sold.
But before the money was withdrawn, there were calls on social media for depositors to withdraw their funds from the bank, and a veritable withdrawal frenzy ensued. So far, there have been no public reports on the exact amount of money withdrawn from a bank that is friendlier to the cryptocurrency industry than most of the United States.
"When it comes to Signature Bank, it's not a specific industry," Adrienne Harris, head of the Financial Services Department, said at a press conference this week. "But we have acted quickly to ensure savers are protected."
The department described the New York financial institution as a "traditional commercial bank," but its 20-year history has certainly been unconventional.
Imza has served both private companies and their owners and managers. Thus, it has become one of the 20 largest banks in the country by the volume of deposits. By the same count, it was the third US bank to fail, following the collapse of Washington Mutual in 2008 and Silicon Valley Bank last week.
Founded in 2001, it has grown to become one of New York's leading residential mortgage companies. Clients have included the family of former President Donald Trump and his son-in-law and former White House adviser Jared Kushner. Trump's daughter Ivanka, who was also a senior adviser in the Trump administration, served on the bank's board from 2011 to 2013 before her father ran for president.
He wasn't the only prominent member of the board. Two former members of Congress have also served there over the years: Senator Alphonse D'Amato, a Republican from New York, and a representative. Massachusetts Democrat Barney Frank sponsored landmark legislation in 2010 that overhauled regulation of the financial sector.
Signature has also made loans to New York cabbies applying for medallions, part of a business that has been hurt by the rise of ride-sharing services like Uber and Lyft and the drop in the price of medallions.
Unlike most US banks, it has also been crypto-friendly, becoming the first FDIC-insured bank to offer a blockchain-based digital payment platform in 2019.
Bank deposits will grow by 67% in 2021, thanks in part to cryptocurrencies. But last year, when FTX went bankrupt and filed for bankruptcy, Imza exited. For the year, its deposits were down $17 billion, or about 17%. This was largely due to what the bank called a "planned curtailment" of cryptocurrency-related activity.
During an earnings call in January, then-Signature CEO Joseph DePaolo said the bank planned geographic expansion.
“We see growth on the horizon,” DePaolo said.
Even as he made the prediction, the bank's stock was tumbling due to a crackdown on cryptocurrencies and a slide in the broader stock market. After hitting $365 in early 2022, the bank's shares fell to less than a third of that value by the end of February this year. The free fall started this month until it traded below $70 on March 10th.
Prior to its closure, it was a popular bank for the cryptocurrency industry. Konstantin Shulga, co-founder and CEO of Cyprus-based Finery Markets, which connects cryptocurrency businesses with banks and other businesses, said many of his firm's clients have done business with Signature or Silvergate Capital, which last week they voluntarily closed their banks with one caveat. . it could be "not very well written".
Shulga said there are so few banks serving the cryptocurrency industry that this is a problem.
"Both sides have failed because of this focus," he said. "Clients failed because they only had to work with these two banks and banks failed because they couldn't expand into other areas to diversify."
According to him, another problem is that social media accelerates the flow of corporate deposits.
Twice in March, Signature took the unusual step of releasing financial statements after depositors left Silicon Valley Bank, which was turned over to regulators two days before the signing.
As of March 8, he said, 80 percent of his applications were from "middle-market" companies, including law and accounting firms, healthcare companies, manufacturers and property management firms.
But it also has a key characteristic of a Silicon Valley bank, a major player in tech finance: a high percentage of uninsured local deposits. Signature Bank was ranked fourth in this category at the end of 2021, with nearly 90% uninsured. Silicon Valley Bank was second. Uninsured deposits are amounts that exceed the FDIC insurance limit of $250,000 for an individual account. The bank didn't take control until the FDIC lifted the insurance limit for the bank and Silicon Valley Bank depositors.
Meanwhile, bancassurance hasn't slowed the pullback, which picked up on Friday and then continued over the weekend until regulators intervened.
Frank, a former congressman, called it an “unwarranted total shutdown” and said he believed it was because New York bankers wanted to send a message to banks to stay out of the cryptocurrency industry. He said the situation is stabilising.
The state regulator that shut it down denied the request and highlighted what bank management was doing as withdrawals continued to climb.
"The bank has failed to provide reliable and consistent data, leading to a major crisis of confidence in the bank's management," an agency spokesman said in an email.
A spokeswoman for the bank's former executives declined to comment, but Frank said the numbers have changed as the situation has evolved.
A bank account can be played in court.
A shareholder filed a lawsuit this week in US District Court in Brooklyn alleging that the bank and its executives misrepresented the facts with two assurances this month that the company was healthy.
"We are purposefully maintaining high levels of capital, a strong liquidity profile and strong earnings," Signature Bank's then president and chief operating officer Eric Howell said in a March 9 statement, three days before the bank closed. in its old form. to exist. "This continues to set us apart from our competitors, especially in these challenging times."