Signature Bank’s Collapse: Why Regulators Took Action

Signature Bank, a New York-based institution with assets of $110.36 billion and deposits of $88.59 billion at the end of 2022, was taken over by regulators late Sunday to protect its depositors and the stability of the U.S. financial system. The move came after a run on deposits of over $10 billion on Friday due to the sudden collapse of Silicon Valley Bank, the third-largest bank failure in U.S. history.


Shocking Collapse

Signature Bank had no indication of problems until the deposit run on Friday, which was purely contagion from Silicon Valley Bank, according to board member and former U.S. Rep. Barney Frank. The sudden move shocked executives of Signature Bank, which had deep ties to the real estate and legal industries.

Signature Bank was founded in 2001 as a more business-friendly alternative to big banks. It expanded to the West Coast and then opened itself to the crypto industry in 2018, which helped turbocharge deposit growth in recent years. The bank created a 24/7 payments network for crypto clients and had $16.5 billion in deposits from digital-asset-related customers.

But as waves of concern spread late last week, Signature customers moved deposits to bigger banks including JPMorgan Chase and Citigroup, leading to pressure on the bank on fears that uninsured deposits could be locked up or lose value, either of which could be fatal to startups. Signature executives explored “all avenues” to shore up its situation, including finding more capital and gauging interest from potential acquirers.


Rising Concerns

According to Frank, the deposit exodus had slowed by Sunday, and executives believed they had stabilized the situation. However, instead, Signature’s top managers were summarily removed, and the bank was shuttered Sunday. Regulators are now conducting a sales process for the bank while guaranteeing that customers will have access to deposits, and service will continue uninterrupted.

The move raised some eyebrows among observers. In the same Sunday announcement that identified Silicon Valley Bank and Signature Bank as risks to financial stability, regulators announced new facilities to shore up confidence in the country’s other banks. Some believe that regulators wanted to send a strong anti-crypto message and that Signature Bank became the poster boy for this message.