FDIC forces Signature bank to sign away crypto customers
Signature Bank, a New York-based full-service commercial bank known for being crypto-friendly, was recently shut down by US regulators. Reports indicated that when the bank was listed for sale, any potential buyer was required to agree to a major caveat – no crypto business.
The closure of Signature Bank came just days after two other major US banks, Silicon Valley Bank and Silvergate Bank, both based in California, were also placed into receivership. While Silvergate was known to be a crypto-friendly bank, Silicon Valley Bank was not known to have a significant crypto business.
According to reports, Signature Bank's closure was officially due to a failure to provide data to regulators, something which has not been cited before as a reason to place an otherwise solvent bank into receivership. The New York Department of Financial Services however has denied that crypto had any role in its decision to close the bank, instead citing a "crisis of confidence" in the bank's leadership.
The bank's crypto clients reportedly accounted for 25% of its deposits, and the institution was reportedly under investigation by the Department of Justice and the Securities and Exchange Commission. In January 2022, the Federal Reserve Board of Governors, Federal Deposit Insurance Corp., and the Office of the Comptroller of the Currency issued a general statement expressing "significant safety and soundness concerns" about bank crypto exposure and warning banks about potential liquidity risks from stablecoins, without providing any data indicating that banks had been taking exposure to crypto via their capital.
Some in the blockchain ecosystem have speculated that the closures of the three banks are indicative of a co-ordinated effort by regulators to choke off crypto from the banking system. Former acting Comptroller of the Currency and one-time Binance US CEO Brian Brooks has suggested that the closures are part of an anti-crypto motive. Barney Frank, a Signature Bank board member and former Democratic U.S. congressman who co-authored the Dodd-Frank Act, has also suggested that regulators shut down the bank to send an anti-crypto message.
The closures of these banks also reflect the growing trend of regulatory crackdowns on crypto. As governments around the world grapple with how to regulate blockchain, financial institutions that deal with tokens may face increasing regulatory pressure. The blockchain ecosystem continues to grow and innovate, it is likely there will be more opportunities for financial institutions to serve the particular needs of crypto investors and businesses. Governments will be coming under increasing pressure to make fit for purpose regulation or be accused of supporting 'regulation by enforcement' with all the adverse consequences that entails.