Key takeaways
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Crypto-friendly bank Signature Bank has been shut down by New York Banking authorities.
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The Federal Reserve said the decision was made to protect the US economy and strengthen public confidence in the banking system.
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Signature Bank’s closure comes days after the collapse of the Silvergate Bank and the Silicon Valley Bank.
Another crypto-friendly bank has been closed down
The Federal Reserve announced on Sunday that the New York-based Signature Bank had been closed down by its state charter authority.
This latest cryptocurrency news means that Signature Bank is the third major bank to shut down operations within the space of a week.
In a statement issued on March 12, the Federal Reserve said the decision to shut down Signature Bank was made with the United States Federal Deposit Insurance Corporation (FDIC) to protect the U.S. economy and strengthen public confidence in the banking system.
The United States apex bank added that they would backstop all depositors of Signature Bank. The Federal Reserve wrote;
“We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. 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.
Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.”
The Federal Reserve pointed out that the move is designed to ensure that the United States 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.
The crypto market remains resilient
The Fed said shareholders and certain unsecured debtholders would not be protected.
Signature Bank’s shutdown makes it the third major bank to close operations within the space of a week. On March 9th, crypto-friendly bank Silvergate shut down its operations and voluntarily liquidated its assets. The bank said it made the decision in light of recent industry and regulatory developments.
Silicon Valley Bank, a major bank for some crypto and tech startups, also collapsed last week. However, the crypto market has remained resilient.
Bitcoin rose by nearly 10% on Sunday to trade above $22k after dropping below the $19k level last week. The total cryptocurrency market cap also stands above the $1 trillion level despite the ongoing FUD in the market.
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On Friday, New York banking authorities forced Signature Bank, one of the few U.S. banks that had embraced cryptocurrencies, to shut down. The New York State Department of Financial Services (NYDFS) announced that the bank had failed to comply with “applicable legal and regulatory requirements”.
Signature Bank had been one of the first financial institutions in the U.S. to embrace cryptocurrencies. The bank had started offering crypto-related services to its customers in 2018. It had also partnered with some crypto businesses, including Paxos Trust Company, which is a crypto custodian. The bank had also acquired a crypto-focused banking license.
However, the NYDFS alleged that Signature Bank had failed to comply with applicable legal and regulatory requirements. It cited the bank’s inadequate anti-money laundering due diligence and its lack of supervision over its customers’ activities.
The NYDFS also noted that the bank had failed to inform the department about a number of issues that it was aware of. It cited the bank’s “failure to adequately investigate several customer activities and police the ensuing activity”.
The NYDFS has now imposed restrictions on the bank’s activities. It has ordered the bank to stop offering crypto-related services, and to put in place an independent monitor. It will also review the bank’s anti-money laundering policies and its customer monitoring processes.
This news highlights the challenge that U.S. financial institutions face in providing crypto-related services. Many U.S. financial institutions have been reluctant to enter the crypto space, due to the legal and regulatory uncertainty surrounding digital assets. With this news, it remains to be seen how many other financial institutions will follow suit and shut down their crypto services.
