FDIC says any buyer of Signature has to give up on crypto

The regulators have reportedly told prospective buyers that they must agree to a “no crypto” policy, seemingly confirming suspicions that the US government is trying to choke digital assets.

Bitcoin art generated by Midjourney

The Federal Deposit Insurance Corporation (FDIC) has asked banks interested in acquiring now-defunct Silicon Valley Bank and Signature Bank to submit bids by March 17, Reuters first reported late Wednesday. But there’s one major caveat: Signature buyer must agree to cease all crypto-related activities at the bank.

Last week, marked by three consecutive bank failures, triggered a financial panic that quickly spread around the globe, fuelling fears over globally connected Swiss bank Credit Suisse and other major European lenders. It all started on March 8, when California-based Silvergate Bank announced its voluntary liquidation after being hit by FTX’s collapse in November. In turn, Silvergate’s troubles sparked a bank run on Silicon Valley Bank, which was closed by the state regulator just two days after, becoming the largest US bank failure since 2008.

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Unlike Silvergate and SVB, Signature Bank had enough capital and liquidity to survive market turmoil, Signature board member and former US Congressman Barney Frank said, conveying his belief that the decision to close bank was spurred by the anti-crypto sentiment.

“I think part of what happened was that regulators wanted to send a very strong anti-crypto message,” Frank told CNBC on Monday. “We became the poster boy because there was no insolvency based on the fundamentals.”

In a Tuesday statement, New York’s financial regulator (NYDFS) denied Frank’s claims, saying that Signature takeover had nothing to do with crypto and “was based on the current status of the bank and its ability to do business in a safe and sound manner on Monday.”

"Signature was a traditional commercial bank with a wide range of activities and customers, including small businesses like food vendors at Hunt’s Point, residential mortgage banking, commercial real estate, to name a few," the spokesperson for NYDFS said in a statement shared with The Block, emphasizing that Signature handled diverse financial operations untied to its crypto business, which represented only a fraction of the bank’s overall activity.

According to Reuters, the regulators will only accept bids for Signature and SVB from institutions with an existing bank charter, favoring traditional lenders over private equity firms. Although FDIC aims to sell both banks in their entirety, it will also consider partial sales should the whole acquisition not happen.

The news about Signature's conditional sale comes amid US Congressman Tom Emmer’s inquiry into the details of the bank’s closure. The House Representative sent an open letter to FDIC Wednesday, asking whether the regulator weaponized its authority to choke the crypto industry.

“If this is the case, these actions to weaponize recent instability in the banking sector—catalyzed by catastrophic government spending and unprecedented interest rate hikes—are deeply inappropriate and could lead to broader financial instability,” Emmer wrote, citing Barney Frank’s claims about Signature closure being an “anti-crypto message” to banks.

In the letter, Emmer asked the regulator about the guidance provided to banks to manage the risks of rising interest rates and whether it has ever warned financial institutions that taking crypto clients can draw increased scrutiny. Congressman requested that the FDIC responds to his questions by March 24, 2023.