Why regulators seized Signature Bank in third-biggest bank failure in U.S. history

On Friday, Signature Bank customers spooked by the sudden collapse of Silicon Valley Bank withdrew much than $10 cardinal successful deposits, a committee subordinate told CNBC.

That tally connected deposits rapidly led to the third-largest bank failure successful U.S. history. Regulators announced precocious Sunday that Signature was being taken implicit to support its depositors and the stableness of the U.S. fiscal system.

The abrupt determination shocked executives of Signature Bank, a New York-based instauration with heavy ties to the existent property and ineligible industries, said committee subordinate and erstwhile congressman Barney Frank. Signature had 40 branches, assets of $110.36 cardinal and deposits of $88.59 cardinal astatine the extremity of 2022, according to a regulatory filing.

"We had nary denotation of problems until we got a deposit tally precocious Friday, which was purely contagion from SVB," Frank told CNBC successful a telephone interview.

Problems for U.S. banks with vulnerability to the frothiest plus classes of the pandemic — crypto and tech startups — boiled implicit past week with the upwind down of crypto-centric Silvergate Bank. While that firm's demise had been agelong expected, it helped ignite a panic astir banks with precocious levels of uninsured deposits. Venture superior investors and founders drained their Silicon Valley Bank accounts Thursday, starring to its seizure by midday Friday.

That led to unit connected Signature, First Republic and different names precocious past week connected fears that uninsured deposits could beryllium locked up oregon suffer value, either of which could beryllium fatal to startups.  

Signature Bank was founded successful 2001 as a much business-friendly alternate to the large banks. It expanded to the West Coast and past opened itself to the crypto manufacture successful 2018, which helped turbocharge deposit maturation successful caller years. The slope created a 24/7 payments web for crypto clients and had $16.5 cardinal successful deposits from digital-asset-related customers.

Shares of Signature Bank person been nether pressure.

But arsenic waves of panic dispersed precocious past week, Signature customers moved deposits to bigger banks including JPMorgan Chase and Citigroup, Frank said.

According to Frank, Signature executives explored "all avenues" to enactment up its situation, including uncovering much superior and gauging involvement from imaginable acquirers. The deposit exodus had slowed by Sunday, helium said, and executives believed they had stabilized the situation.

Instead, Signature's apical managers person been summarily removed and the slope was shuttered Sunday. Regulators are present conducting a income process for the bank, portion guaranteeing that customers volition person entree to deposits and service volition proceed uninterrupted.

The determination raised immoderate eyebrows among observers. In the aforesaid Sunday announcement that identified SVB and Signature Bank arsenic risks to fiscal stability, regulators announced caller facilities to enactment up assurance successful the country's different banks.

Another slope that had been nether unit successful caller days, First Republic declared that it had much than $70 cardinal successful untapped backing from the Federal Reserve and JPMorgan Chase.

For his part, Barney, who helped draught the landmark Dodd-Frank Act aft the 2008 fiscal crisis, said determination was "no existent nonsubjective reason" that Signature had to beryllium seized.

"I deliberation portion of what happened was that regulators wanted to nonstop a precise beardown anti-crypto message," Frank said. "We became the poster lad due to the fact that determination was nary insolvency based connected the fundamentals."