Binance, Coinbase partner Signature Bank closed by regulators

Depositors of both Signature and Silicon Valley Bank will be made whole, and "no losses will be borne by the taxpayer," federal regulators said in a joint statement.

Silicon Valley Bank closure, falling market, realistic. Generated by Midjourney

State regulators took control of the New-York based Signature Bank in order "to protect depositors," just days after the failure of Silvergate Capital and Silicon Valley Bank. The Federal Deposit Insurance Corporation (FDIC) said it transferred all Signature’s deposits and assets to the “bridge” successor bank and customers can access their funds starting on Monday.

"All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer," Secretary of the Treasury Janet Yellen, Federal Reserve Board Chair Jerome Powell, and FDIC Chairman Martin Gruenberg said in a statement late Sunday.

As of December 2022, Signature had $110.36 billion in assets and $88.59 billion in deposits. Almost a quarter of its September deposits came from the crypto firms, but the bank took steps to reduce its exposure to the cryptocurrency sector by as much as $10 billion at the end of the year in the wake of FTX’s collapse, which was one of the bank’s clients.

“We are not just a crypto bank and we want that to come across loud and clear,” Signature’s CEO Joe DePaolo said at the time. “We recognize that in certain cases, especially as we look at stablecoins and other parties in that space, that there’s a better way for us to utilize our capital.”

Read also: Silvergate short seller is now betting against Binance’s partner Signature

According to the Sunday announcement, shareholders and certain unsecured debtholders of both Signature and SVB will not be protected, and any losses to the FDIC’s Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks. The senior management of both banks has been removed.

Signature Bank, like Silvergate and SVB, was widely recognized as one of the U.S. most crypto-friendly financial institutions, raising concerns about the industry becoming even more illiquid and “de-banked.” Major cryptocurrency exchange Coinbase said that it had a $240 million balance at Signature but noted that it expects to fully recover funds. Stablecoin issuer Paxos admitted having $250 million at the bank and tweeted that it “holds private deposit insurance well in excess of our cash balance and FDIC per-account limits.”

According to Conor Ryder, a research analyst at digital assets market data provider Kaiko, the possible outcomes of Silvergate collapse include the uptick in stablecoin transactions to make for the lack of USD in crypto, moving crypto firms overseas to more friendly jurisdictions, smaller banks stepping in to take reigns from Silvergate, and the rise of euro stablecoins.

“If crypto firms continue to be cut off from the banking system, for no apparent good reason, it’s highly likely that the more mobile companies will move elsewhere,” Ryder wrote on his Medium blog. “It seems lately that there is a new headwind every day for US companies in the form of regulatory enforcement, and a struggle to get banked in the US could be the push they need to move elsewhere.”

In a separate Sunday statement, federal regulators announced the launch of emergency measures to strengthen public confidence in the US banking system. The officials said that both SVB and Signature Bank customers will have full access to their funds on Monday as part of multiple moves to offset the fear of systemic contagion.

The Federal Reserve also said it will launch the new Bank Term Funding Program (BTFP) aimed at providing an additional source of liquidity to banks, savings associations, credit unions, and other eligible financial institutions.

“This action will bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy,” the Fed said in a statement. “The Federal Reserve is prepared to address any liquidity pressures that may arise.”