Signature Bank’s collapse was triggered in part by the fall of Silicon Valley Bank, another financial institution woven into the fabric of the tech industry, New York Governor Kathy Hochul (D) told reporters on Monday during a ‘a press conference.
Few banks were as deeply entrenched in cryptocurrency businesses as Signature Bank and Silvergate, and their downfall is a symbolic and practical blow to the beleaguered industry, legal experts have said. Institutions offered an air of legitimacy to crypto companies and provided customers with key services, such as round-the-clock transactions.
As institutions of choice fall, crypto firms may be forced to rethink their financial holdings, leading them to alternative, often riskier banking options, experts added.
“These are very dark days right now for crypto,” said Yesha Yadav, who studies digital financial regulation and is associate dean at Vanderbilt University School of Law. “The big danger here is people deciding to go overseas… (where) regulators find it much harder to monitor.”
Greg D. Carmichael, the new chief executive of Signature Bank, said in a press release this morning that banking operations are stable following the bank’s takeover by regulators. “Our customers’ deposits are not at risk,” he said.
The Federal Deposit Insurance Corporation took over Signature Bank, ensuring that customer deposits over the federal limit of $250,000 became available Monday morning. But it’s unclear how the bailout affects other parts of the bank’s operations, including a transaction system, Signet, used to process cryptocurrency transactions.
Many of Signature Bank’s customers are heavily involved in cryptocurrency, the value of which has fallen sharply in 2022. But it also had law firms and real estate companies as depositors – many with more than the limit of $250,000 federally insured in their accounts.
As SVB collapsed and venture capitalists began a run for filings there, a similar movement began at Signature. “It didn’t happen in a vacuum,” Hochul said.
State officials wanted to step in to stabilize Signature on Friday, the governor said, fearing an unchecked run could have ripple effects on other New York regional banks and drag down other parts of the national economy. .
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“When you start to see a huge number of deposits withdrawn on a Friday, due to people’s ability to bank online, that trend continued over the weekend as well,” Hochul said.
On Sunday, the governor’s office mounted a campaign to push Treasury Department, Federal Reserve and FDIC officials to give the state authority to take over Signature and turn it over to federal regulators, officials said. .
“The train had already left the track to be able to assist SVB Bank, and we wanted to make sure we included Signature,” Hochul said. “We were literally counting the votes to make sure they would be enough to cross the finish line.”
In a flurry of tweets and statements late Sunday, crypto firms sought to reassure customers that business was business as usual.
Jeremy Allaire, managing director of Circle, which runs a US dollar coin (USDC), a coin that many consider a particularly stable crypto denomination, tweeted Sunday night that his company will not be able to mint or authorize USDC redemptions through Signet, the primary payment network operated by Signature Bank.
Coinbase, which held approximately $240 million in corporate cash with Signature Bank as of March 10, “continues to operate as usual” and its customer funds are “safe and accessible,” according to Natasha LaBranche, a security guard. company word.
On Monday morning, LaBranche noted that “unfortunately” his customers who relied on Signet for deposits and withdrawals “out of hours” will have to rely on more traditional banking methods. “Although it’s not ideal,” she said. “It’s a reminder of why we need to update the financial system.”
Shortly after, a Coinbase official said the system “seems to be working at the moment…but we maintain contingency plans for all scenarios.”
Silicon Valley Bank customers breathe a sigh of relief as they access their accounts
Yadav said Signature Bank plays an important role in the crypto ecosystem, as a New York-based company regulated by comprehensive state financial laws. “It gave credibility to the crypto sector,” she said, allowing crypto companies to say, “Here is a well-regulated, large … highly credible New York bank that provides services to us.
Federal regulators are likely to review other banks offering cryptocurrency services, while traditional financial institutions may walk away from such services, given the cost of maintaining compliance and market volatility. she added.
“Crypto companies need to figure out what to do next,” Yadav said. “It doesn’t look like many banks will be happy to offer crypto businesses banking in the future.”