FDIC Sells Signature Bank Assets to Flagstar but Freezes Out $4 Billion in Crypto Deposits

In a move that sent a clear signal about the U.S. regulatory stance toward cryptocurrency banking, the Federal Deposit Insurance Corporation (FDIC) completed the sale of Signature Bank’s assets to Flagstar Bank on March 24, 2023 — but deliberately excluded approximately $4 billion in deposits tied to the defunct institution’s digital assets business. The decision deepened an already tense relationship between the crypto industry and federal regulators in the midst of a broader banking crisis.

TL;DR

• FDIC sold Signature Bank’s deposits and loans to Flagstar Bank, a subsidiary of New York Community Bancorp
• Approximately $4 billion in crypto-related deposits were excluded from the deal
• Signature Bank was shut down by New York regulators on March 12, 2023, two days after Silicon Valley Bank’s collapse
• Crypto industry leaders accused regulators of deliberate “de-banking” of the digital asset sector
• The exclusion left crypto firms scrambling to find new banking partners amid a broader liquidity crunch

The Signature Bank Collapse

Signature Bank, one of the most crypto-friendly financial institutions in the United States, was shut down by the New York State Department of Financial Services on March 12, 2023. The closure came just two days after the dramatic collapse of Silicon Valley Bank (SVB), as panic spread through the regional banking sector and depositors rushed to withdraw funds.

At the time of its closure, Signature held approximately $110 billion in total assets and $88 billion in total deposits. The bank had built a significant business serving cryptocurrency companies, with its digital asset banking division representing a meaningful portion of its deposit base. Notable crypto clients included major exchanges, stablecoin issuers, and blockchain infrastructure companies.

The FDIC-Flagstar Deal

On March 24, the FDIC announced that Flagstar Bank, a subsidiary of New York Community Bancorp, had acquired Signature’s deposits and loans. The deal covered the vast majority of Signature’s traditional banking operations, protecting depositors and maintaining continuity of service for most customers.

However, the agreement specifically carved out roughly $4 billion in deposits associated with Signature’s digital assets business. These funds were not transferred to Flagstar and were instead returned directly to the crypto-related depositors by the FDIC. While the funds were not lost, the practical impact was significant: crypto companies that had relied on Signature for banking services suddenly found themselves without an institutional partner.

The exclusion was notable because it contradicted earlier statements from the FDIC. Reuters had previously reported, citing sources familiar with the sale process, that any buyer of Signature would refuse to take on its crypto assets. When asked about this, the FDIC told Reuters that “the agency would not require divestment of crypto activities as part of any sale.” The final deal, however, told a different story.

Crypto Industry Reacts

The exclusion of crypto deposits from the Flagstar deal was met with sharp criticism from industry leaders and advocates. Former U.S. Representative Barney Frank, who had served on Signature’s board, publicly stated his belief that the bank’s closure was motivated in part by regulators’ desire to send an anti-crypto message. While regulators denied any such motivation, the optics were difficult to ignore.

The timing compounded the problem. With Silicon Valley Bank already shuttered and Silvergate Bank having voluntarily wound down its operations earlier in March, the crypto industry had effectively lost three of its most important banking partners in the span of two weeks. The FDIC’s decision to exclude crypto deposits from the Signature sale made it even harder for affected companies to find replacement banking relationships.

Broader Banking Crisis Context

The Signature Bank sale occurred against the backdrop of the most significant banking crisis in the United States since 2008. Silicon Valley Bank’s collapse on March 10 was the second-largest bank failure in U.S. history, and Signature’s closure two days later ranked as the third-largest. The Federal Reserve, Treasury Department, and FDIC took extraordinary measures to guarantee all deposits at both institutions, including those exceeding the standard $250,000 FDIC insurance limit.

Amid this turmoil, Bitcoin had staged a remarkable rally, climbing from around $20,000 to above $27,000 in the weeks surrounding the banking crisis. Many market participants interpreted the flight to Bitcoin as a hedge against traditional banking system fragility. The crypto market cap stood at approximately $1.18 trillion on March 24, with Bitcoin trading near $27,500 and Ethereum around $1,752.

Regulatory Implications

The FDIC’s handling of Signature’s crypto deposits raised questions that would reverberate throughout 2023. Was the exclusion a pragmatic decision by a buyer uninterested in crypto risk, or was it evidence of a coordinated regulatory effort to isolate the cryptocurrency industry from the traditional financial system? Crypto advocacy groups argued for the latter, pointing to a pattern they dubbed “Operation Choke Point 2.0” — a reference to a controversial Obama-era program that pressured banks to drop certain industries.

Regardless of intent, the practical effect was clear: crypto companies in the United States faced an increasingly hostile banking environment in early 2023, with fewer on-ramps between digital assets and the traditional financial system than at any point in recent memory.

Why This Matters

The FDIC’s decision to exclude crypto deposits from the Signature Bank sale was more than a routine asset management choice — it was a defining moment in the relationship between cryptocurrency and the U.S. banking system. For an industry that relies on fiat on-ramps and institutional banking partnerships to function, the loss of Signature, SVB, and Silvergate in rapid succession created a genuine operational crisis.

The episode also highlighted a fundamental tension in U.S. financial regulation: while regulators publicly maintained that they were not targeting the crypto industry specifically, their actions told a different story. The gap between stated policy and actual practice would continue to widen throughout 2023, culminating in a series of enforcement actions that reshaped the landscape for cryptocurrency businesses operating in the United States.

For the crypto market, the banking crisis and its aftermath demonstrated both Bitcoin’s appeal as a crisis hedge and the industry’s continued vulnerability to traditional financial infrastructure. The tension between these two realities would define the regulatory conversation for months to come.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Cryptocurrency investments carry inherent risks. Always conduct your own research before making investment decisions.