On Sunday, regulators in New York state closed down Signature Bank, a major crypto industry lender, in an effort to prevent a banking crisis from spreading. The Treasury Department, Federal Reserve, and Federal Deposit Insurance Corp. released a joint statement indicating that depositors at Signature Bank would have full access to their deposits, similar to the response to the failed Silicon Valley Bank. Regulators ensured that depositors at both banks would be covered by the FDIC’s deposit insurance fund, despite many of them being uninsured due to the $250,000 cap on guaranteed deposits.
Signature Bank is a crucial player in the cryptocurrency industry, second only to Silvergate, which recently announced its impending liquidation. Signature Bank had a market value of $4.4 billion as of Friday after a 40% sell-off this year, according to FactSet, and had $110.4 billion in total assets and $88.6 billion in total deposits as of December 31, according to a securities filing.
To prevent further damage and prevent a larger crisis, the Fed and Treasury established an emergency program to backstop deposits at both Signature Bank and Silicon Valley Bank using the Fed’s emergency lending authority. However, equity and bondholders at both banks will be wiped out, according to a senior Treasury official.
Last Friday, Silicon Valley Bank was shuttered by banking regulators and its deposits were seized, marking the largest banking failure in the United States since the 2008 financial crisis and the second-largest ever. The bank’s deposits were seized after the tech-focused institution reported that it was struggling, triggering a run on its deposits.
The shutdown of Signature Bank is just one of several actions taken by regulators to prevent a banking crisis in the crypto industry. The crypto market has faced increased scrutiny from regulators in recent months, as concerns over money laundering, fraud, and investor protection have grown.
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