- Signature Bank, a crypto-friendly bank, was shut down by New York regulators due to posing a “systemic risk”.
- Several crypto companies, including Coinbase, Paxos, and Celsius, reported that their funds were held by Signature Bank, causing concerns about the safety of crypto funds.
- Regulators have taken actions to protect depositors and ensure ample liquidity for banks during times of turbulence following the forced closure of Signature Bank.
On March 12th, 2023, Signature Bank was shut down by U.S. regulators, citing that the bank posed a “systemic risk” to the economy. The closure of this crypto-friendly institution has left several crypto companies with funds tied up, causing concerns about the safety of crypto funds.
Crypto exchange Coinbase, crypto lender Celsius, and stablecoin issuer Paxos are among the crypto firms that have reported their exposure to Signature Bank. Coinbase tweeted that it had around $240 million in corporate funds at Signature Bank that it expects to be fully recovered. Similarly, Paxos tweeted that it has $250 million held at the bank but holds private insurance to cover the amount not covered by the standard FDIC insurance of $250,000 per depositor.
The Celsius Official Committee of Unsecured Creditors, a body representing the interests of account holders at the bankrupt crypto lender Celsius, stated that Signature Bank “held some of its funds” but did not disclose the amount. However, it did add that “all depositors will be made whole.”
As Signature Bank serviced so many firms in the crypto industry, those firms with no exposure equally came forward to quell fears about their related vulnerabilities. Several crypto companies, including Immutable X and Theta Network, reported no exposure to Signature Bank. Crypto exchange Crypto.com also reported in a tweet by CEO Kris Marszalek that it had no funds in the bank.
What Does Signature Bank’s Collapse Mean for the Future of the Crypto Industry?
The forced closure of Signature Bank aligned with other banking-related announcements by U.S. regulators. The Federal Reserve announced that the FDIC was approved to take action to protect depositors at Silicon Valley Bank. This tech-startup-focused bank experienced liquidity issues due to a bank run that spread contagion to the crypto sector. The Fed also announced a $25 billion program to ensure ample liquidity for banks to cover the needs of their customers during times of turbulence.
The closure of Signature Bank raises questions about the safety and stability of the crypto industry in an ever-changing financial landscape. With the growing popularity of cryptocurrencies and the increasing number of crypto companies, it is essential to ensure that funds are safe and secure.
One way to address these concerns is by adopting decentralized finance (DeFi) protocols, which aim to create a financial system that is open, transparent, and accessible to everyone. DeFi protocols run on blockchain technology, eliminating the need for intermediaries such as banks, thereby reducing the risk of systemic failures.
Another approach to securing and safeguarding funds is through adopting insurance policies. Many crypto companies, including Paxos, hold private insurance to cover amounts not covered by standard FDIC insurance.
The closure of Signature Bank highlights the importance of transparency and accountability in the financial sector. Crypto companies need to ensure that they are transparent about their exposure to banks and financial institutions to prevent panic among investors and depositors.