Signature Bank’s takeover could leave crypto companies scrambling

After the crypto-friendly Silvergate announced it voluntary liquidation amid a capitalization crisis, blockchain companies are rushing to one of the last US banks to offer financial services to the volatile industry – based in New York Signature Bank.

On Sunday, two days after the spectacular failure of Silicon Valley BankThe New York Department of Financial Services announced that it had acquired Signature, which has deposits worth $88.59 billion.

In a joint statement, the Treasury, Federal Reserve, and FDIC announced a system risk exception for Signature, which guarantees that all depositors in the institution will be fully, without losses of taxpayers.

“The U.S. banking system remains strong and on a solid foundation, in large part because of reforms enacted after the financial crisis that ensured better protections for the banking industry. bank,” the statement read. “Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe.”

A week of contagion

Friday’s failure of Silicon Valley Bank, the first of an FDIC-insured institution since 2020, has sparked fears of a meltdown in the financial system. Like Silvergate, SVB has a concentrated deposit base, mostly serving the technology industry, while Silvergate serves crypto companies.

Although SVB does not have many clients in the crypto space, its failure has an immediate impact on the sector, with Circle—the issuer of the stablecoin USDC—holding $3.3 billion in bank token support, representing 8 % of its reserves. USDC doubted against its peg throughout the weekend, dipping below 90 cents at times on major exchanges.

Still, Signature—which emerged as the new safe haven for crypto companies like Coinbase-remaining operational. Although its stock fell, trading in its shares was halted on Friday, banking experts said luck that Signature seems to have stronger grounds thanks to its more diverse deposit base. Unlike Silvergate and SVB, Signature—as well as other teetering banks, like First Republic—also serves everyday customers.

Sunday’s announcement from the NYDFS and the three federal banking regulators illustrates just how fast things are going. The weekend saw many in the tech industry, as well as financial luminaries such as former Treasury Secretary Larry Summers, calling for SVB depositors to be thorough to prevent further spread of panic.

Even Treasury Secretary Janet Yellen insisted without a government bailout of SVB, regulators are racing to find a solution, including starting an auction for the failed bank, which has bids as appropriate on Sunday afternoon.

The rare statement on Sunday night announced that the agencies have found a way to protect depositors and prevent the outflow of funds while trusting small banks—all without using taxpayer funds.

For crypto companies that cooperate with Signature, the announcement brings immediate relief that their deposits will be protected, but still leaves open the question of where they can find banking services. Signature is not only one of the last banks to offer services to crypto companies, but also runs the popular real-time payment processor SigNet. Circle CEO Jeremy Allaire Office has partnered that it will be able to use the network for the creation and redemption of USDC, instead relying on settlements through BNY Mellon.

Coinbase SAYS it will continue to operate as usual and that the client’s cash transactions will be facilitated by other bank partners. A Paxos spokesman said luck that the crypto firm currently holds $250 million in Signature as well as private deposit insurance, adding that it is always looking to expand its network of banks.

Currently, it is not clear which types of financial institutions will cooperate with crypto companies. Regulators have repeatedly warned of liquidity risks created by crypto clients to the banking sector after the collapse of FTX, and the failure of Silvergate and Signature will likely keep other companies at arm’s length. With Signature now at NYDFS, the industry is running out of options.

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