The New York Department of Financial Services seized crypto-friendly Signature Bank in order "to protect depositors," the state banking regulator said in a Sunday night announcement.
In an action similar to what California's banking regulator performed on Friday in reaction to an extraordinary run on deposits at Silicon Valley Bank, the Federal Deposit Insurance Corp. was also appointed receiver of the New York-based bank.
In a separate statement, U.S. federal bank regulators guaranteed full return of Silicon Valley and Signature Bank customer deposits.
"All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer," the Federal Reserve Board, Treasury Department, FDIC said in a joint statement, while guaranteeing that, “No losses will be borne by the taxpayer.”
The Federal Reserve has made available an emergency lending backstop for banks in the event of deposit runs similar to what happened with Silicon Valley Bank. The Fed would lend money against high quality assets held by banks.
A senior Treasury official told press that regulators were concerned about more runs on deposits spreading to other banks.
“The actions that we took today were designed to limit the consequences of the depositor outflows from Silicon Valley and from Signature and to reduce any spillover effects,” the official said. “Depositors were getting concerned about other institutions.”
But the official also stressed that the federal government’s action to make whole all depositors is not a bailout.
“The firms are not being bailed out. The depositors are being protected,” said the official. “The operations, the ability to keep payrolls working is really important,” for companies that keep uninsured deposits at those two banks.
Both banks intersect with the digital asset industry, Signature more directly as a bank that’s worked with stablecoin companies. Silicon Valley’s geography and expertise meant that it banked a disproportionately large number of tech startups and venture capital firms.
Signature and now defunct Silvergate, which decided to wind down operations this week, were top banks used by crypto companies, raising the question of where they’ll be able to turn to next.
Signature had taken steps at the end of last year to bring down the concentration of crypto deposits it held by string a 20% cap.
“Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system,” the regulators said. “This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth.
Signature’s senior management has also been removed and shareholders and certain unsecured debtholders will not be protected, the statement said.
UPDATE: With details from Treasury official comments.
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