Collapse
On Sunday, March 12, 2023, Signature Bank was closed by the New York State Department of Financial Services (DFS); New York state officials had wanted to take over the institution since Friday and began lobbying the Treasury Department, Federal Reserve, and FDIC to let it assume control of the bank.[54] The bank proved unable to close a sale or otherwise bolster its finances before Monday morning, when it would have faced an avalanche of withdrawal requests placed over the weekend by nervous customers, in order to protect its assets after customers began withdrawing their deposits in favor of bigger institutions; it was losing deposits so fast that it was forced to ask the Federal Home Loan Bank of New York for money twice within 90 minutes. The bank's failure[55][56] was designated as a systemic risk to the financial system, allowing for extraordinary measures to be taken to ensure the availability of funds beyond the Federal Deposit Insurance Corporation (FDIC)-insured $250,000.[57] The DFS report later noted that Signature was dilatory in producing information to regulators in the crisis period and that the data regulators received was "inconsistent and ... continuously changed in material ways".
The FDIC was appointed as the bank's receiver and immediately established a bridge bank, which the FDIC would operate as it marketed its assets to bidders. The FDIC appointed Greg D. Carmichael, former president and CEO of Fifth Third Bancorp, as the bridge bank's CEO.[58] As of December 2022, 90 percent of $89 billion in bank deposits exceeded the maximum insured by the FDIC.[59] The FDIC, Federal Reserve, and Treasury Department issued a press release stating their expectation that all depositors would be made whole,[60] while holders of Signature Bank equity and bonds lost their investment.
The closure came amid an ongoing string of United States bank failures,[57][61] days after the collapse of Silicon Valley Bank and the failure of Silvergate Bank, the other major bank for the cryptocurrency industry.[62][63] At the time of closure, the bank had $110 billion in assets.[64] The bank failure was the third-largest in U.S. history, behind the Silicon Valley Bank collapse and Washington Mutual's closure in 2008.[65]
The collapse was rapid in nature and surprised insiders. Even though the bank had experienced significant outflows of deposits on Friday, executives with the bank believed they were well-capitalized and could absorb the losses.[16] Former U.S. congressman Barney Frank, who was a member of the bank's board, noted that in the wake of the SVB collapse, clients became concerned over the bank's exposure to crypto and withdrew their funds, resulting in an "SVB-generated panic" that only set in late on Friday.[57] That day, according to Frank, customers withdrew more than $10 billion in deposits; a person familiar with the matter told Bloomberg said the bank had lost 20 percent of its deposits, or $16.5 billion based on its end-of-2022 total. Frank also was worried that regulators were specifically going after the cryptocurrency sector, stating, "I think part of what happened was that regulators wanted to send a very strong anti-crypto message."[66] This sentiment was echoed by House Majority Whip Tom Emmer, who sent a letter to FDIC Chairman Martin J. Gruenberg inquiring about the possible purging of legal cryptocurrency activity in the U.S. under the guise of stabilizing the banking system.[67] Analyst Christopher Whalen attributed the bank's failure to its cryptocurrency involvement, which he called a "huge error in judgment by veteran bankers".[68]
Signature's collapse had a significant effect on several industries. Circle informed customers that it could not mint or allow redemption of its USDC stablecoin through Signet after the bank closed. Coinbase, which held $240 million with Signature, noted that its customers' use of Signet would need to be confined to banking hours only. Crain's New York Business noted that Signature was one of the "most dependable" sources of funding for real estate transactions and renovation projects in the New York area alongside much larger banks, representing the majority of its $33 billion in outstanding mortgage-backed loans.[69] It also was a major player in lending for rent regulated properties.[70] One general manager on Broadway told The Hollywood Reporter that the seizure of the bank merited a "thank you note" to the federal government, as it was one of two major banks used by theater productions alongside City National Bank and some shows may not have been able to make payroll.[71]
On April 28, the FDIC released its internal review, FDIC's Supervision of Signature Bank, and the Department of Financial Services released its internal review into Signature Bank's failure. The DFS report stated that "[Signature's] growth outpaced the development of its risk control framework", with regulators downgrading the bank's liquidity score in 2019. It also noted that withdrawals from the digital asset banking represented a proportionate share to their share of Signature's deposit base, downplaying the direct role of cryptocurrency clients and emphasizing that its high share of uninsured deposits and "crypto bank" reputation had been instrumental in its failure, as was a corporate governance structure inadequate in the face of rapid growth. The report stated, "The informal decision-making processes and organizational structure that previously supported the Bank were no longer adequate for the Bank's increasing size, complexity, and risk profile." The FDIC report noted similar concerns, stating that the Signature board and management "pursued rapid, unrestrained growth without developing and maintaining adequate risk management practices and controls appropriate for the size, complexity and risk profile of the institution". Both regulators also said that their internal staffing shortages resulted in insufficient oversight of the bank.
The FDIC estimated an impact to its Deposit Insurance Fund of $2.5 billion from the failure of Signature.
Disposition of assets
On March 19, 2023, the FDIC announced that certain deposits and loans of Signature Bridge Bank would be assumed by New York Community Bancorp, the parent of New York Community Bank, with the 40 branches to be absorbed by its Flagstar Bank subsidiary effective Monday, March 20.[1][72]
The sale did not include approximately $60 billion in loans, which would remain in receivership.[72] This included $11 billion in loans on rent-regulated apartment buildings, which had lost value since a 2019 law change that limited rent increases.[73] Also not included were some $4 billion in deposits from the digital asset business, which would be repaid to depositors.[72] The FDIC announced on March 28 that these customers would need to withdraw their funds and close accounts by April 5; those who did not would get their checks in the mail.
