Contagion or a problem with business?

Signature Bank’s collapse came stunningly quickly, leaving behind the question of whether there was a fundamental flaw in the way it did business — or whether it was simply a victim. That panic spread After the failure of Silicon Valley Bank.

Signature Bank had few outward signs of collapse before the New York Department of Financial Services on Sunday seized the bank’s assets and asked the Federal Deposit Insurance Corp. to take over its operations. The FDIC will operate it as Signature Bridge Bank until it is sold.

But in the run-up to the takeover, there were calls on social media to warn depositors to pull their funds out of the bank – and they were followed by real-life frenzy. There is still no public accounting of exactly how much was withdrawn from the bank with a history For being friendlier than most In the cryptocurrency industry in the United States.

“It’s not about a specific sector when it comes to Signature Bank,” Financial Services Superintendent Adrienne Harris said at a media briefing this week. But we have taken swift action to protect depositors.”

The department describes the New York-based financial institution as a “traditional commercial bank,” but its two-decade history has certainly been unconventional.

Signatures are provided for privately held businesses and their owners and officers. It has become one of the 20 largest banks in the country by deposits By the same measure, it was the third largest U.S. bank to fail, after the collapse of Washington Mutual in 2008. The death of Silicon Valley Bank last week.

Founded in 2001, it was a major lender to New York City apartment building owners. Customers included the family of former President Donald Trump and his son-in-law and former White House adviser Jared Kushner. Trump’s daughter, Ivanka, who also became a key adviser to the Trump administration, was on the bank’s board of directors from 2011-13 before her father’s presidential run.

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He was not the only high-profile member of the board. Over the years, two former members of Congress have also worked on it: Sen. Alphonse D’Amato, Republican of New York, and Rep. Bernie Frank, a Massachusetts Democrat who co-authored landmark 2010 legislation on the financial industry.

Signature also loaned New York taxi drivers medallions, A part of the business that has struggled As ride-sharing services like Uber and Lyft shut down, the medallion’s value has plummeted.

Unlike most US banks, it has also been friendly to cryptocurrency businesses, becoming the first FDIC-insured bank to offer a blockchain-based digital payment platform in 2019.

Bank deposits are expected to grow by 67% in 2021, partly due to crypto. But last year, As crypto exchange FTX crashes And declared bankruptcy, pulled back the signature. Its deposits fell by $17 billion, or about 17%, year over year. Most of that was what the bank called a “planned reduction” in crypto-related assets

In a January earnings release, Joseph DiPaolo, then CEO of Signature, said the bank planned to expand geographically.

“We see growth on the horizon,” DiPaolo said.

Even as he predicted, the bank’s stock fell amid crypto struggles and a broader stock market slump. After reaching a high of $365 in early 2022, the bank’s stock fell to less than a third of that value in late February of this year. The freefall began this month until the stock closed trading on March 10 sitting at $70.

Until it closed, it was a go-to bank for the crypto industry. Konstantin Shulga, co-founder and CEO of Cyprus-based Finery Markets, which connects cryptocurrency businesses with banks and other businesses, said many of his firm’s clients banked with Signature or Silvergate Capital, which voluntarily closed its bank last week, warning that did May end with “less than good capital.”

Shulga says having so few banks is a problem for the cryptocurrency industry.

“Because of this concentration, both sides have failed,” he said. “Clients failed because they were forced to work only between these two banks, and banks failed because they weren’t able to take more business from other areas to diversify.”

Another problem, he said: accelerate the run of social media signature deposits.

Twice in March, Signature took the unusual step of issuing financial updates as depositors fled the Silicon Valley bank, which was taken over by regulators two days before the signing.

It said that as of March 8, 80% of its deposits came from “middle market” businesses that include law and accounting firms, healthcare firms, manufacturers and real estate management firms.

But it also shares a key characteristic with Silicon Valley Bank, which has been a major player in financing the tech industry: a high share of uninsured domestic deposits. Signature Bank was fourth in the category by the end of 2021, with nearly 90% uninsured. Silicon Valley Bank is in second place. Uninsured deposits Amount above FDIC insurance limit $250,000 in each individual account. The FDIC did just after the bank took over Waiver of insurance cap for depositors Both it and Silicon Valley Bank.

Meanwhile, bank assurances did not slow withdrawals, which were extended on Friday and then continued over the weekend, until regular action was taken.

Frank, a former congressman, called it “an absurd total shutdown” and said he believed it happened because New York banking officials Wanted to send a message to banks Stay away from crypto trading. He said things were stable.

The state regulatory agency that shut it down rejected the claim and pointed to what bank executives did as the withdrawals extended.

“The bank has failed to provide reliable and consistent information, creating a significant crisis of confidence in the bank’s leadership,” an agency spokesperson said in an email.

A spokeswoman for the bank’s former leaders declined to comment, but Frank said the numbers are changing because circumstances are changing.

The Bank’s post mortem may be held in court.

This week, a shareholder filed a lawsuit in U.S. District Court in Brooklyn, claiming the bank and its executives misrepresented facts after giving two assurances this month that the business was healthy.

“We intentionally maintain a high level of capital, a strong liquidity profile and solid earnings,” Eric Howell, Signature Bank’s then-president and chief operating officer, said in a statement March 9, three days before the bank ceased to exist in its old form, “which our competitors continues to differentiate, especially in challenging times.”