Signature Bank didn't fail because of crypto, New York regulator says

New York’s head banking regulator used an appearance before a congressional committee on Wednesday to push back against the narrative that Signature Bank failed because of its exposure to the crypto industry.

“It is a misnomer that the failure of Signature Bank was related to crypto,” said  Superintendent Adrienne Harris. In her testimony before the House Financial Services Committee’s panel on digital assets, financial technology and inclusion, Harris noted that Signature customers including fiduciary trusts and wholesale food vendors pulled their money from the bank during a panic last month following the collapse of Silicon Valley Bank.

“So it’s of course unfortunate that there was a run on the bank,” Harris said. “But it is not the case that the failure Signature was related to crypto.” 

Maxine Waters, the top Democrat on the House Financial Services Committee, pressed Harris as to how she could say that cryptocurrency didn’t play a part in the large regional bank’s sudden collapse. 

Harris replied that about 20% of Signature’s deposits left the bank the evening that Silicon Valley Bank failed, but that only “20% of that 20%” were crypto-related deposits. “The rest were normal commercial customers with uninsured deposits that were leaving the bank, and so we did not see the collapse as a result of crypto deposits and their instability,” Harris said. 

Harris' comments came during a hearing on legislation to create a U.S. regulatory framework tailored to stablecoins. 

Signature Bank closure

The New York regulator announced its closure of the bank two days after Silicon Valley Bank’s failure in order to prompt continuation of operations by the Federal Deposit Insurance Corp., a federal bank regulator. 

The New York regulator’s testimony came before the same committee that former Rep. Barney Frank, a Signature Bank board member, used to chair. Frank has criticized the NYDFS for what he alleged was premature action in closing the bank because of its involvement with the digital asset industry.

In addition to holding deposits from digital asset-related companies, Signature also ran a crypto-oriented payments network called Signet, which Martin Gruenberg, the chair of the FDIC, said last month that the agency was trying to sell as part of its wind down of the bank. The regulator also has tried to offload all deposits to other banks to avoid disruption to customers, though Gruenberg indicated in testimony last month that the FDIC had yet to find a buyer for the crypto parts of the business. 

“They closed us even though there was no good, compelling reason to do that because they wanted to show that banks shouldn't be involved in crypto,” Frank told The Block last month.