After the spectacular, multi-billion collapse of Silicon Valley Bank (SVB) on March 10, 2023, federal regulators wasted no time taking action with other banks in distress.
Less than 48 hours after SVB failed, after witnessing a large run on customer deposits, Signature Bank was closed by the New York State Department of Financial Services and placed under the receivership of the Federal Deposit Insurance Corporation (FDIC).
Did Signature Bank Contribute to Financial Contagion?
The implosions of Silicon Valley Bank and Signature Bank marked the largest bank failures since Washington Mutual collapsed during the Financial Crisis of 2007–2008. In a joint statement released on Sunday, March 12, 2023, the U.S. Treasury Department, Federal Reserve, and FDIC said that keeping Signature Bank open would have threatened the stability of the entire banking system, and through their actions, they sought to reassure Americans that any financial contagion was firmly contained.
"The U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry. Those reforms combined with today's actions demonstrate our commitment to take the necessary steps to ensure that depositors' savings remain safe."
—Joint statement from the U.S. Treasury Department, Federal Reserve, and FDIC, March 12, 2023
Since SVB and Signature Bank had a number of wealthy clients who kept large sums in their checking accounts, the Feds also made an unprecedented guarantee: Depositors of both banks would be made whole, even those with accounts above the FDIC’s $250,000 insurance limit. In addition, U.S. taxpayers would not be responsible for the bailout.
In order to restore confidence in the banking system, The Fed also announced a new program called the Bank Term Funding Program that would help troubled banks from reaching a similar fate. Through this program, eligible financial institutions could apply to receive one-year funding at very attractive lending rates.
By doing so, the federal regulators hoped to reduce the threat of interest-rate risk that some banks have experienced since their reserves had been invested in long-term Treasury securities. The Fed has acknowledged that these investments lose value when interest rates increase while also reaffirming their commitment to combat inflationary pressures and thus keep prices stable for the American people.
What Did Signature Bank Do?
Signature Bank was a mid-sized regional bank headquartered in New York City. It had a niche business catering to a few wealthy clients with private offices in New England, California, North Carolina, and Nevada. According to the FDIC, as of December 31, 2022, Signature Bank had assets of $110.4 billion and deposits of $88.6 billion.
The bank dealt largely in matters of private real estate, venture banking, private equity, and cryptocurrency—and was itself subject to controversy:
Signature Bank & Trump
Signature Bank had been a long-time lender to former President Donald Trump and his family; for example, it had helped to finance the Trump International Golf Course in Florida. It also provided loans to the real estate development business owned by Ivanka Trump’s husband, Jared Kushner, and his father, Charles, which had often come under fire for unethical rental practices.
Ivanka Trump even sat on Signature’s board of directors from 2011–2013. However, after the wake of the January 6th Capitol riots, Signature Bank released a statement calling Trump’s actions “appalling and an insult to the Republic,” and closed his accounts, thus ending all ties with the Trump family.
Signature Bank & Crypto
Signature Bank was also one of the few banks that allowed cryptocurrency deposits. It began accepting these deposits in 2018, and by 2021, cryptocurrency made up for 30% of Signature Bank’s deposits—nearly $10 billion by January 2021. At the time of its takeover, however, Signature Bank had been the subject of an investigation by the U.S. Justice Department over the bank’s failure to recognize unlawful client activities.
In particular, there were growing allegations concerning Sam Bankman Fried’s failed crypto exchange, FTX, and potential acts of money laundering through some of FTX’s accounts. In February 2023, Signature Bank had received a class action lawsuit from the state of New York. According to filings, the suit claimed that Signature Bank "had actual knowledge of and substantially facilitated the now-infamous FTX fraud."
What Caused Signature Bank to Fail?
Signature Bank was taken over by federal authorities after experiencing a bank run amounting to $10 billion, but trouble had been brewing for some time: In December 2022, Signature announced it would be reducing its crypto-backed deposits by $8 billion. In February, 2023, the bank announced a change in executive leadership, replacing Joseph DePaolo, who had served as CEO since its inception in 2001, with chief operating officer Eric Howell. Shares of the bank, which had traded around $115 at the end of 2023 lost nearly half of their value by March 2023—just prior to its closure.
Will Signature Bank Be Saved?
After its takeover, the FDIC transferred Signature Bank’s deposits and assets to a temporary entity known as Signature Bridge Bank. On March 20, 2023, New York Community Bancorp agreed to purchase $38.3 billion of Signature Bank’s assets, while $60 billion remained in receivership with the FDIC. Signature Bank’s branches currently operate under a subsidiary of New York Community Bank known as Flagstar Bank.
In a statement on the bank’s website, Thomas Cangemi, CEO of New York Community Bancorp, and Eric Howell of Signature Bank state: “With this transaction, Flagstar will be one of the largest commercial banks in the country, with a fortress-like balance sheet, strong liquidity, and excellent asset quality metrics. The regulatory approval of the acquisition clearly reflects the strength of the combined institution.”
Are Signature Bank Checks Valid?
According to the FDIC, all of Signature Bank’s deposits are safe. Checks remain valid and customers can continue using their ATM/debit cards. Depositors can continue to use their same banking branch until they receive further notice from Flagstar Bank.
