Signature Bank New York was closed by the New York Department of Financial Services on Sunday March 12. Many attribute the failure to Signature’s association with cryptocurrency companies.
The Federal Deposit Insurance Corporation took control of Signature. It is estimated Signature had $110.36 billion in assets and $88.59 billion in deposits at the end of last year, according to New York state’s Department of Financial Services.
The move came after startup-focused SVB, was toppled by customer withdrawals over the weekend, which erased more than $100 billion in market value from U.S. banks.
The following statement was released by Secretary of the Treasury Janet L. Yellen, Federal Reserve Board Chair Jerome H. Powell, and FDIC Chairman Martin J. Gruenberg:
Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system. 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.
After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.
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.
Finally, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.
The U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry. Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe.
U.S. Secretary of the Treasury Janet L. Yellen convened a meeting of the Financial Stability Oversight Council (Council) in executive session by videoconference.
During the meeting, the Council heard updates from the Federal Deposit Insurance Corporation (FDIC), Board of Governors of the Federal Reserve System (Federal Reserve Board), and U.S. Treasury Department on actions they were taking to stabilize the financial system and protect depositors. The agencies described their actions to help ensure all of the depositors of Silicon Valley Bank and Signature Bank would be made whole. It was noted that no losses associated with the resolution of these banks would be borne by taxpayers and that shareholders and certain unsecured debtholders would not be protected.
The Council also discussed the funding the Federal Reserve Board was making available to eligible depository institutions to ensure that banks, saving associations, and credit unions have the ability to meet the needs of all of their depositors. The new facility will be a significant source of liquidity, collateralized by high-quality securities, to eliminate a banking institution’s need to quickly sell those securities in times of stress. This will bolster the capacity of the banking system to safeguard deposits.
Gov. Kathy Hochul (D-NY) spoke about Silicon Valley Bank and Signature Bank: “I’m very grateful to the Biden Administration for their swift action.”
“We want to make it clear again that Signature Bank is a well-diversified, full-service commercial bank with more than two decades of history and solid performance serving middle market businesses,” Joseph J. DePaolo, Signature Bank Co-founder and Chief Executive Officer said in a statement. “We have built a strong reputation serving commercial clients through nine business lines and reached in excess of $100 billion in assets by continually executing our single-point-of-contact, relationship-based model where banking teams are capable of meeting all client needs.”
President Biden, in his address, referenced the actions of the former administration to weaken banking regulations.
Sen. Bernie Sanders agreed, “Let’s be clear. The failure of Silicon Valley Bank is a direct result of an absurd 2018 bank deregulation bill signed by Donald Trump that I strongly opposed.” Sanders was referring to the Economic Growth, Regulatory Relief, and Consumer Protection Act, which former President Donald Trump signed into law in May 2018.
That bill was a rollback of The Dodd-Frank Act, which was crafted in the wake of the 2008 financial crash, to improve accountability and transparency in the financial system. Banks with assets in excess of $50 billion were deemed as being potentially ‘too big to fail,’ and were therefore subject to a host of rigorous testing and regulation.” Interestingly, Signature had former Democratic Congressman Barney Frank on its Board.