Third largest financial institution failure in US historical past

The Signature Bank headquarters at 565 Fifth Avenue in New York, United States, on Sunday, March 12, 2023.

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On Friday, signature bank Customers, spooked by the sudden collapse of Silicon Valley Bank, withdrew more than $10 billion in deposits, a board member told CNBC.

This rush for deposits quickly led to the third largest bank failure in US history. Regulators announced late Sunday that Signature would be acquired 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 deep ties to the real estate and legal industries, said board member and former US Rep. Barney Frank. According to a regulatory filing, Signature had 40 stores, assets of $110.36 billion and deposits of $88.59 billion at the end of 2022.

“We didn’t have any sign of trouble until late Friday when we got a deposit run that was pure contagion from SVB,” Frank told CNBC in a phone interview.

Trouble for US banks with exposure to the Covid pandemic’s most bubbly asset classes — crypto and tech startups — boiled over last week with the resolution of crypto-centric Silvergate Bank. Although the company’s demise was long-awaited, it helped ignite panic over banks with high levels of uninsured deposits. Venture capital investors and founders drained theirs Silicon Valley Bank Accounts Thursday, leading to his seizure by Friday noon.

worries spread

This led to pressure on Signature, First Republic and other names late last week over fears that uninsured deposits could be frozen or fall in value, which could be fatal for startups.

Signature Bank was founded in 2001 as a more business-friendly alternative to the big banks. It expanded to the west coast and then opened up to the crypto industry in 2018, which helped spur deposit growth in recent years. The bank established a 24/7 payments network for crypto customers and had $16.5 billion in customer deposits related to digital assets.

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Signature Bank shares were under pressure.

But as waves of concern spread late last week, Signature customers shifted deposits to larger banks, including JPMorgan Chase And Citigroupsaid Frank.

According to Frank, Signature executives explored “all avenues” to shore up their situation, including seeking more capital and measuring interest from potential buyers. The exodus of deposits slowed through Sunday, he said, and executives believe the situation has stabilized.

Instead, Signature’s top managers were summarily dismissed and the bank closed on Sunday. Regulators are now conducting a sale process for the bank while guaranteeing customers access to deposits and uninterrupted service.

poster child

The move caused a stir among observers. In the same announcement on Sunday that identified SVB and Signature Bank as risks to financial stability, regulators announced new facilities to boost confidence in the country’s other banks.

Another bank that has been under pressure in recent days, First Republic, said it has more than $70 billion in unused funds from the Federal Reserve and JPMorgan Chase.

For his part, Frank, who helped draft the landmark Dodd-Frank Act after the 2008 financial crisis, said there was “no real objective reason” Signature needed 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 basically no bankruptcy.”

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