On Friday, Signature Bank customers withdrew more than $10 billion in deposits from the sudden collapse of the Silicon Valley bank, a board member told CNBC.
The run on deposits resulted in the third largest bank failure in US history. The regulators announced late Sunday that Signature was being acquired to protect its depositors and the stability of the US financial system.
Board member and former US Representative Barney Frank said the sudden move shocked executives at Signature Bank, a New York-based institution with deep ties to the real estate and legal industries. According to a regulatory filing, by the end of 2022, Signature will have 40 branches, assets of $110.36 billion and deposits of $88.59 billion.
“We had no indication of problems until the submission late Friday night, which was completely infected with SVB,” Frank told CNBC in a phone interview.
With the closure of crypto-focused Silvergate Bank last week, problems for US banks exposed to the Covid pandemic – crypto and tech startups at risk. While that firm’s demise was long expected, it helped ignite a panic about banks with high levels of uninsured deposits. Venture capital investors and founders emptied their Silicon Valley bank accounts on Thursday, leading to forfeitures by Friday afternoon.
That put Signature, First Republic and other names under pressure late last week over concerns that uninsured deposits could be closed or lose value, either of which could be fatal for a startup.
Signature Bank was founded in 2001 as a more business-friendly alternative to the big banks. It expanded to the West Coast and then opened itself to the crypto industry in 2018, which has helped turbocharge deposit growth in recent years. The bank built a 24/7 payment network for crypto customers and collected $16.5 billion in deposits from digital-asset-related customers.
But as a wave of anxiety spread late last week, Signature customers moved deposits to larger banks, including JPMorgan Chase and Citigroup, Frank said.
According to Frank, Signature executives have explored “all avenues” to strengthen their position, including obtaining more capital and garnering interest from potential acquirers. The deposit exodus had slowed by Sunday, he said, and officials believed they had stabilized the situation.
Instead, Signature’s top managers were summarily removed and the bank was closed on Sunday. Regulators are now conducting a sale process for the bank, while guaranteeing that customers will have access to deposits and service will continue uninterrupted.
The move raised some eyebrows among observers. In the same Sunday announcement that identified SVB and Signature Bank as risks to financial stability, regulators announced new features to boost confidence in the country’s other banks.
Another bank that has been under pressure in recent days, First Republic, announced that it had more than $70 billion in unused funds from the Federal Reserve and JPMorgan Chase.
For his part, Frank, who helped draft the landmark Dodd-Frank Act after the 2008 financial crisis, said there was “no real purpose” that the signatures were to be forfeited.
“I think part of what happened was that regulators wanted to send a very strong anti-crypto message,” Frank said. “We became the poster boy because there was no bankruptcy based on fundamentals.”