Why Signature Bank Fell So Fast

The collapse of crypto-friendly Signature Bank happened so fast that it qualifies to become a textbook case of a classic bank run. Together with Silvergate and Silicon Valley Bank (SVB), the trio that have been the go-to financial institutions involved in crypto banking suffered massive operational blows within less than a week.

Startled by the sudden collapse of SVB, customers had a run on Signature Bank last Friday, March 10. They withdrew more than $10 billion in deposits, leading to the third-largest bank failure in the history of the US. Regulator Federal Deposit Insurance Corporation (FDIC) announced last Sunday that it was taking over Signature to protect depositors and help stabilize the US financial system.

Customers had a run on Signature Bank

The sudden move has shocked the New York-based institution, which has deep ties with not only the crypto but also the legal and real estate industries and boasts more than 40 branches, deposits of $88.59 billion, and assets worth $110.36 billion by the end of 2022.

Trouble for US banks associated with crypto and tech startups reached a crescendo last week with the announcement of the winding down of the crypto-friendly Silvergate Bank.

While Silvergate’s demise was imminent, it ignited panic about uninsured customer deposits in institutions. That led to Venture capital investors and founders draining their accounts at SVB Thursday last week and its subsequent seizure by midday Friday. The ensuing worries must have spread to Signature, First Republic, and others that now risk a similar fate out of fears that uninsured deposits could be locked up or lose value. Both situations could be fatal to startups.

Decision not directly related to crypto

According to New York’s financial regulator, the decision to seize Signature Bank wasn’t directly related to crypto but rather a “crisis of confidence” in the institution’s leadership following the SVB crisis.

Signature has been an integral institution for the crypto industry and hosts tools that facilitate digital transactions for mainstream crypto companies. The bank is part of a small group of mainstream banks serving the crypto industry.

Federal regulators will now most likely shine their spotlight on other banks offering crypto services, while traditional banks could think twice before dipping their toes. Considering the volatility of the crypto market and the cost of maintaining compliance, there may be a need for players within the crypto space to work harder to retain the growing interest in banks experimenting with crypto and related blockchain technology.