The collapses earlier this month of Silicon Valley Bank, Silvergate Bank, and Signature Bank—three institutions considered cryptocurrency-friendly—continue to reverberate in financial services. The latest bit of fallout concerns crypto clients of Signature Bank, who have been given an April 5 deadline to close their accounts and move their money.
Flagstar Bank, a unit of New York Community Bancorp, stepped in with a deal to rescue Signature Bank a week after the March 12 collapse, but its move did not cover the crypto deposits. Hence, the April 5 deadline.
“Those are the deposits we are encouraging customers to move before April 5,” an FDIC spokesperson told Reuters. “If they have not by that day, we will mail checks to the address on record.”
Fail. Fail. Fail.
The failures of Silvergate Bank, Silicon Valley Bank, and Signature Bank came in quick succession:
- Silvergate Bank, March 8: The California bank’s owner, Silvergate Capital Corp., announced that it would “wind down operations and voluntarily liquidate the bank in an orderly manner in accordance with applicable regulatory processes.” The bank, long a provider of financial services and lending to cryptocurrency developers and exchanges, had ridden high during the crypto bull market but saw its deposits fall precipitously during crypto winter.
- Silicon Valley Bank, March 10: The bank, based in Santa Clara, Calif., suffered an old-fashioned bank run, with depositors pulling money at a prodigious rate and forcing the bank to sell bonds at a loss of $1.8 billion. That spooked depositors, who subsequently pulled even more money. The bank’s stock price plummeted, trading was halted, and the state of California stepped in and put it into receivership under the FDIC.
- Signature Bank, March 12: The SVB shutdown rolled into New York-based Signature Bank, where customers withdrew billions of dollars. On March 10, the bank saw its stock decline 23%, the largest fall since it went public in 2004. Two days later, the bank failed.
The Particulars of Signature Bank
The Signature Bank failure, in particular, has drawn skepticism from some observers because the status of its balance sheet didn’t appear as perilous as the others. Former U.S. Rep. Barney Frank, a bank board member, suggested that regulators “wanted to send a very strong anti-crypto message.”
“The additional scrutiny that Signature is receiving is likely due to the Justice Department investigations claiming that (Signature) didn’t have sufficient processes and internal systems in place to monitor or detect money laundering,” said Joel Hugentobler, an analyst in Javelin Strategy & Research’s cryptocurrency practice. “Whether there actually was money laundering or not is yet to be determined.”
The Broader Impact on Crypto
What’s clear is that the upending of the three crypto-friendly banks has added to the tumult in the industry. Hugentobler indicated that the most reliable on-ramps and off-ramps between cryptocurrencies and fiat currencies have eroded as a result.
“I think other substitutes will emerge,” he said, “but they will need to implement stricter anti-money-laundering processes, among other areas of concern that banks have recently experienced.”