Signature Bank headquarters at 565 Fifth Avenue in New York, U.S. on Sunday, March 12, 2023.
Lokman Vural Elibol | Anadolu Agency | Getty Images
Friday, Signature Bank customers frightened by the sudden collapse Silicon Valley Bank withdrew more than $10 billion in deposits, a board member told CNBC.
This run on deposits quickly led to the third largest bank failure in the history of the United States. Regulators announcement late Sunday that Signature was supported to protect its depositors and the stability of the US financial system.
The sudden move shocked executives at Signature Bank, a New York-based institution with strong ties to the real estate and legal industries, said a board member and former congressman. Barney Frank. Signature had 40 branches, assets of $110.36 billion and deposits of $88.59 billion at the end of 2022, according to a regulatory filing.
“We had no indication of any issues until we received a late filing on Friday, which was purely contagious from SVB,” Frank told CNBC in a phone interview.
The problems of American banks exposed to the the most frothy asset classes of the covid pandemic – crypto and tech startups – boiled over last week with the end of Crypto-centric Silvergate Bank. While the demise of this firm was long overdue, it helped spark a panic about banks with high levels of uninsured deposits. Venture capitalists and founders drained their Silicon Valley Bank accounts on Thursday, leading to its seizure Friday noon.
The panic spreads
This put pressure on Signature, First Republic and other names at the end of last week, fearing that uninsured deposits could be blocked or lose value, which could be fatal for startups.
Signature Bank was founded in 2001 as a more business-friendly alternative to big banks. It expanded to the West Coast and then opened up to the crypto industry in 2018, which has helped boost deposit growth in recent years. The bank created a 24/7 payment network for crypto customers and had $16.5 billion in customer deposits tied to digital assets.
Signature Bank shares have been under pressure.
But as waves of panic spread late last week, Signature customers shifted their deposits to bigger banks, including JPMorgan Chase And Citigroupsays Frank.
According to Frank, Signature’s executives have explored “all avenues” to consolidate its situation, including finding more capital and assessing the interest of potential buyers. The exodus from deposits had slowed on Sunday, he said, and leaders believed they had stabilized the situation.
Instead, senior executives at Signature were summarily fired and the bank was closed on Sunday. Regulators are now driving a sales process for the bank, while ensuring customers will have access to deposits and service will continue uninterrupted.
This decision raised some eyebrows among observers. In the same Sunday announcement that identified SVB and Signature Bank as financial stability risks, regulators announced new facilities to bolster confidence in the country’s other banks.
Another bank that had been under pressure in recent days, First Republic declared that he had over $70 billion in untapped funding from the Federal Reserve and JPMorgan Chase.
For his part, Barney, who helped draft the landmark Dodd-Frank law after the 2008 financial crisis, said there was “no real objective reason” for Signature to be seized.
“I think part of what happened was that regulators wanted to send a very strong anti-crypto message,” Frank said. “We became the poster child because there was no fundamentals-based insolvency.”