Signature Bank has become the newest victim of the financial crisis that is currently plaguing the industry after the collapse of Silicon Valley bank. The New York-based bank has been shut down following orders received from U.S. regulators. However, depositors are set to recoup the money in their accounts.
News about banks collapsing has been all the rage in recent days. Before Silicon Valley’s crash, Silvergate, a crypto-centric bank, bit the dust—an incident that knocked the stuffing out of various crypto enthusiasts.
As a mainstay for several crypto firms, there are worries that Signature’s shutdown might leave the crypto market crippled, suffering, and bruised. In a statement released today by the Board of Governors of the Federal Reserve System, the New York authorities have closed Signature Bank; however, it assured investors and customers that deposits made in the bank would be fully returned to customers.
Some of Signature’s crypto clients include Circle, Binance, Coinbase, and the defunct crypto exchange FTX. Circle recently explained that it used Signature Bank to control transactions and settle accounts for USDC. With Signature Bank’s collapse, Circle is left with Customers Bank, which holds $1 billion of its cash reserves.
Signature Bank’s woe began following the Silvergate shutdown; it triggered after news of SVB’s meltdown dropped.
More details on Signature Bank’s shutdown
The New York regulator took possession of Signature Bank according to Section 606 of New York Banking Law and appointed the U.S. Federal Deposit Insurance Corporation to oversee the insurance process.
In a statement issued on March 12, the Federal Reserve explained that the decision to close the bank was made in consultation with the United States Federal Deposit Insurance Corporation (FDIC) to protect the US economy and strengthen public confidence in the banking system.
“The actions that we took today were designed to limit the consequences of the depositor outflows from Silicon Valley and from Signature and to reduce any spillover effects. The firms are not being bailed out,” a senior member of the U.S. Treasury told the press. He added that the depositors were being protected. The Federal Reserve further stated that it financially supports all Signature Bank depositors.
“All depositors of this institution will be made whole. No taxpayer losses will be borne, as with the Silicon Valley Bank resolution.”
“This step will ensure that the United States banking system continues to perform its critical roles of deposit protection and credit access to households and businesses in a way that promotes strong and sustainable economic growth,” the statement added.
As deduced from the statement, shareholders and certain unprotected debt holders will not receive financial support. Some analysts believe Signature survived the FTX’s contagion because its depositories were much more split amongst different angles, unlike Silvergate Bank. However, seeing some of the most friendly crypto banks go extinct is devastating.
Nic Carter of Castle Island Ventures thinks that Bitcoin and crypto liquidity will be somewhat impaired overall because Silvergate and Signature were crucial for companies to get fiat. However, he adds that he is hopeful that customer banks will step in to fill the void left by Silvergate and Signature.
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