Crypto Serves As the Wrecking Ball for Signature Bank, but Not Like You’d Think
Recently, Signature Bank, the historic New York financial institution with one of the soundest real estate foundations on the planet tried expanding into the cryptocurrency deposit scene and found themselves shuttering on March 12th. With regulators saying that their continued operations would put the entire financial system at risk, it wasn’t surprising to see them close shop. With the recent and sudden demise of the Silicon Valley Bank out in California, many see Signature as collateral damage.
The closure of Silicon Valley served as a bold underscore to the challenges small and midsized banks face as they were forced to close. Their niche lines of business as well as a smaller customer base when compared to companies like JP Morgan Chase make them prime targets for bank runs to take them out.
The demise of Signature Bank was firmly rooted in the destruction of Silicon Valley Bank going under just 48 hours prior on March 10th. Between ill-timed financial decisions, their struggles to meet customers’ withdrawal requests, and a massive decline in venture capital funding, it pushed fledgling companies to drain and close their accounts even more. For them, the idea of crypto was a savior that backfired greatly.
Likewise, Signature Bank’s customer base saw what was going on, and started calling to check on the safety of their deposits as well. Much like Silicon Valley bank customers, many had well over $250,000 in their accounts, and as such, are not subject to the same Federal Deposit Insurance Corporation insurance protection that lower accounts are. However, on the 12th, regulators stated that account owners in both banks had nothing to worry about, as everyone would be made whole, no matter how big their accounts were.
Gov. Kathy Hochul (D-NY) spoke out following the announcement of speculation that Signature Bank would be shutting its doors. “Many depositors at these banks are small businesses, including those driving the innovation economy, and their success is key to New York’s robust economy.” Despite her words of “encouragement,” many depositors were at the branches leaving their coffers. As a result, their stock as well as the stock of many closely linked to them plummeted.
Nevertheless, the leaders at Signature Bank expected to weather the storm since the number of people draining accounts had slowed on the morning of the 12th. When the announcement from regulators reached bank executives, they were shocked. With 40 branches across the country, and the HQ in NY, the state’s regulators worked hand in hand with the FDIC to also remove the executive team completely.
With under $100 billion in assets, the demise of Signature was a real gut punch to the professional services firms that had been relying on the company. Holding money for clients in escrow was one of their biggest features, and they offered multiple other services, too.
First founded by Scott Shay, Joseph DePaolo, and John Tamberlane in 1999, Signature opened with backing from Israel’s biggest lender, Bank Hapoalim. Over the years, thousands of people have had accounts there, with President Trump, and his family serving as some of their biggest clients. They are also partially responsible for the financing of Trump’s Florida golf course.
One of the biggest red flags for Signature Bank was the number of accounts without FDIC coverage. Per regulatory findings, $79 billion, or nearly 90% of the $88 billion they held in deposits were in accounts that were uninsured at the end of 2022. More shockingly, 80% of their deposits were from law firms, accounting firms, health care companies, manufacturers, and real estate management companies.
Given the scrutiny these companies tend to put their clients under, many would expect them to give their banking decisions the same level of investigation. Yet, they failed to. So, when the FDIC is bailing them out, guess where that money will come from? That’s right. Mr. and Mrs. John Q. Taxpayer.
If the failure of two massive banks in two of the most liberal states in the nation doesn’t convince you that the left is failing, then not much else will.