Crypto panic sparked a deposit run on Signature Bank, former Rep. Barney Frank said, but he argues that the bank had already stabilized before New York state regulators stepped in to close the crypto-friendly institution.
“Crypto panic generated that set of withdrawals,” said Frank, a member of the Signature Bank board and an architect of the Dodd-Frank financial regulatory law. “By Sunday, we had stabilized the situation … But I believe the regulators, especially the New York state regulators, wanted to send the message that crypto is toxic.”
The New York Department of Financial Services took control of Signature Bank on Sunday, days after a bank run prompted California regulators to close the tech-friendly Silicon Valley Bank. News of the second-largest bank failure in American history launched Signature Bank into a deposit frenzy on Friday. Frank insists things had calmed by the end of the weekend.
“They closed us even though there was no good, compelling reason to do that because they wanted to show that banks shouldn’t be involved in crypto,” Frank, a Democrat, said in a telephone interview. “We were the kind of poster child for having been involved in crypto.”
The banking debacle sent the crypto markets into chaos, left tech founders scrambling and prompted an all-hands-on-deck response from President Joe Biden and the Treasury Department.
Frank lauded the government’s response to create an emergency safety net for uninsured deposits, announced on Sunday, but suggested Signature Bank would have fared better if the Federal Reserve and the Federal Deposit Insurance Corp. had acted earlier.
“If they had done that on Friday, by the way, we would still be a bank,” Frank said.
Signature Bank had been in conversations with regulators since Friday, Frank said. Signature Bank counted major crypto firms including Circle, Coinbase and Coinshares as customers, though Signature recently signaled it planned to unwind some of its ties to the industry after the bank’s wobble and ultimate failure. According to the New York Department of Financial Services, Signature had $110.36 billion in total assets and $88.59 billion in deposits as of Dec. 31.
“They called the bank on Sunday and said, ‘We’re coming over.’ And they came in and took over,” Frank said.
Frank supports new crypto regulations in the U.S. and emphasized that Signature Bank handled crypto “very carefully.”
“We, like Silicon Valley, have a large number of uninsured deposits and are seen as a crypto bank, although our crypto involvement is very different than what people thought and is very carefully constructed so as not to put us at risk,” Frank said, adding that the U.S. needs more crypto regulation.
“The banks should be strictly regulated with regard to, for instance, people have crypto that they say is 100% dollar-backed, they have to absolutely show that,” he added.
As regulators rush to sell Signature Bank, Frank said the sale price could indicate how serious the problem at the now-failed institution actually was. For now, Signature Bank’s customers have automatically been made customers at the FDIC-controlled Signature Bridge Bank.
“What’s the sale price?” Frank said. “If it’s got to be sold at a very severe discount, well, maybe that shows there were problems with Signature. If it’s sold at a better price, which I think it will be, that’s proof of our argument that they shut down Signature as a general warning shot against crypto rather than anything that was Signature’s fault.”
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