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Crypto’s Crumble: the Collapse of Signature Bank

Last updated on March 18, 2023

From lending to cab owners and financing many of former President Trump’s projects. Signature Bank prided itself on investing and lending in areas where other Wall Street firms wouldn’t even dare. However, with a seismic shift to Crypto in the last year, Signature Bank may have flown too close to the sun. 

Since 2001, Signature Bank had built a reputation as a rapidly ascending bank full of young, ambitious, and scrappy bankers. Up until this year, Signature Bank seemed poised to become a Wall Street giant. This made it all the more puzzling when Signature Bank suddenly failed this past Sunday, and New York regulators seized control of it, in order to stop a continued flurry of panicked withdrawals. This became the third largest bank failure in US history, right behind Washington Mutual in 2008 and Silicon Valley Bank 2 days earlier.

Unlike Silicon Valley Bank, Signature was a more traditional lender. Signature had never had a lending or depository relationship with any tech or crypto businesses until the late 2010s. In 2018, Signature began to hire crypto insiders and get involved with Coinbase and FTX. This initial crypto investment seemed to be paying off as it reported assets totaling over 102 billion dollars in September of 2022. However things quickly unraveled for Signature Bank as Crypto prices began to sag and FTX imploded. This didn’t bode well for Signature as more than a fifth of their assets came from the crypto industry, and they soon had to push out 1.5 billion dollars in crypto funds while only taking in $682 million in regular deposits. Running at a net loss, share prices began to slide to its current valuation at $70 dollars; down considerably from its peak a year prior at $365 dollars. 

Things wouldn’t improve for Signature Bank, and they came crashing back down to Earth when Silicon Valley Bank failed. With 90% of Signature Banks’ deposits being uninsured, creditors feared an SVB-esque collapse. Soon enough, panicked depostiers began to rapidly withdraw about 10 billion dollars in assets from Signature Bank. This run on deposits quickly led to US regulators taking control of Signature in order to protect depositors and contain the financial fallout. 

The Treasury Department has issued a statement outlining that Signature Bank’s remaining assets will be liquidated and money is being placed into the pockets of its clients. None of Signature Bank’s losses will be offset by taxpayer dollars, and funds are being set aside by the Federal Reserve Board in order to insure that other banks will be able to meet the demands of depositors. 

The collapse of Signature Bank will likely not directly harm the average American, but will continue to harm the confidence in financial sector investments. Incidents like these continue to call for harsher management of private banks and remind American investors that there is always a risk in investing. 

Complex Terms:

Crypto: Digital currency

Regulators: US Government officials that step in to enforce financial policy.

Depository Relationship: When a company or person puts money in a bank.

Assets: Monetary resources controlled by a company or financial institution.

Lending: The act of lending money by a financial institution.

Liquidated: When assets or property of a company is redistributed.

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