Why regulators seized Signature Bank in third-biggest bank failure in U.S. history

On Friday, Signature Bank clients spooked by the sudden collapse of Silicon Valley Bank withdrew greater than $10 billion in deposits, a board member advised CNBC.

That run on deposits shortly led to the third-largest financial institution failure in U.S. historical past. Regulators introduced late Sunday that Signature was being taken over to guard its depositors and the soundness of the U.S. monetary system.

The sudden transfer shocked executives of Signature Bank, a New York-based establishment with deep ties to the actual property and authorized industries, mentioned board member and former congressman Barney Frank. Signature had 40 branches, belongings of $110.36 billion and deposits of $88.59 billion on the finish of 2022, in accordance with a regulatory submitting.

“We had no indication of problems until we got a deposit run late Friday, which was purely contagion from SVB,” Frank advised CNBC in a telephone interview.

Problems for U.S. banks with publicity to the frothiest asset courses of the Covid pandemic — crypto and tech startups — boiled over final week with the wind down of crypto-centric Silvergate Bank. While that agency’s demise had been lengthy anticipated, it helped ignite a panic about banks with excessive ranges of uninsured deposits. Venture capital buyers and founders drained their Silicon Valley Bank accounts Thursday, resulting in its seizure by noon Friday.

That led to stress on Signature, First Republic and different names late final week on fears that uninsured deposits could possibly be locked up or lose worth, both of which could possibly be deadly to startups.  

Signature Bank was based in 2001 as a extra business-friendly various to the large banks. It expanded to the West Coast after which opened itself to the crypto trade in 2018, which helped turbocharge deposit progress in recent times. The financial institution created a 24/7 funds community for crypto purchasers and had $16.5 billion in deposits from digital-asset-related clients.

But as waves of panic unfold late final week, Signature clients moved deposits to larger banks together with JPMorgan Chase and Citigroup, Frank mentioned.

According to Frank, Signature executives explored “all avenues” to shore up its state of affairs, together with discovering extra capital and gauging curiosity from potential acquirers. The deposit exodus had slowed by Sunday, he mentioned, and executives believed that they had stabilized the state of affairs.

Instead, Signature’s high managers have been summarily eliminated and the financial institution was shuttered Sunday. Regulators are actually conducting a gross sales course of for the financial institution, whereas guaranteeing that clients could have entry to deposits and repair will proceed uninterrupted.

The transfer raised some eyebrows amongst observers. In the identical Sunday announcement that recognized SVB and Signature Bank as dangers to monetary stability, regulators introduced new services to shore up confidence within the nation’s different banks.

Another financial institution that had been beneath stress in current days, First Republic declared that it had greater than $70 billion in untapped funding from the Federal Reserve and JPMorgan Chase.

For his half, Barney, who helped draft the landmark Dodd-Frank Act after the 2008 monetary disaster, mentioned there was “no real objective reason” that Signature needed to be seized.

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