Signature Bank Shut Down by Regulators in Third Major Bank Failure of 2023

In a dramatic weekend for the U.S. banking system, New York state regulators shut down Signature Bank on Sunday, March 12, 2023, marking the third major bank failure in less than a week and sending shockwaves through the cryptocurrency industry.

TL;DR

• New York regulators closed Signature Bank, citing systemic risk to the financial system
• Signature held $110.4 billion in assets and $88.6 billion in deposits as of December 31, 2022
• The Treasury, Federal Reserve, and FDIC invoked a “systemic risk exception” ensuring all depositors are made whole
• Signature was one of the largest crypto-friendly banks, with $16.5 billion in crypto-related client deposits
• The closure followed the failures of Silvergate Bank and Silicon Valley Bank earlier in the week

The Shutdown That Stunned Wall Street

The New York State Department of Financial Services took possession of Signature Bank on Sunday evening, with the FDIC appointed as receiver. The decision came just two days after the seizure of Silicon Valley Bank—the largest U.S. banking failure since the 2008 financial crisis—and days after Silvergate Capital announced its liquidation.

Federal regulators moved swiftly to contain the fallout. In a joint statement, the Treasury Department, Federal Reserve, and FDIC announced that all Signature Bank depositors would have full access to their funds starting Monday. “All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer,” the agencies stated.

The FDIC transferred all deposits and substantially all assets to Signature Bridge Bank NA, a newly created full-service bank that will be operated by the regulator while it markets the institution to potential buyers.

A Crypto Industry Lifeline Severed

Signature Bank was one of the most important financial institutions serving the cryptocurrency sector. Its Signet payment network—a proprietary blockchain-based system—allowed commercial crypto clients to make real-time dollar payments 24 hours a day, seven days a week. With the earlier shutdown of Silvergate’s competing SEN network, Signet had become the only game in town for many crypto businesses seeking rapid settlement.

Major crypto companies had significant exposure to Signature. Coinbase disclosed a $240 million balance at the bank as of Friday night, while Paxos Global reported $250 million in deposits. Despite the large balances, both companies stated they held private deposit insurance exceeding their cash positions.

The loss of Signet is particularly damaging for the crypto industry’s operational infrastructure. Haseeb Qureshi, managing partner at Dragonfly Ventures, noted that Silvergate and Signature “were the only two banks that really had the global 24/7 settlement systems” for crypto firms.

Contagion Fears and Emergency Response

Signature Bank’s closure appeared to catch its own management off guard. Former Congressman Barney Frank, a Signature board member, said the bank’s leadership learned about the shutdown shortly before the public announcement. Frank argued the bank was “illiquid but not insolvent,” pointing to its solid loan book and its status as the biggest lender in New York City under the low-income housing tax credit program.

The bank’s vulnerability stemmed in part from its concentrated deposit base. Approximately 90% of Signature’s deposits were uninsured—above the $250,000 FDIC cap—making it susceptible to the same kind of rapid deposit flight that doomed Silicon Valley Bank. By March 8, Signature still held $16.5 billion in crypto-related client deposits, even as it had begun pulling back from digital assets following the FTX collapse.

To prevent broader contagion, the Federal Reserve created a new emergency lending program for banks, while the FDIC’s deposit insurance fund was tapped to cover depositors at both Signature and SVB. Equity and bondholders at both institutions were wiped out.

The Bigger Picture

The rapid succession of three bank failures in a single week—Silvergate, SVB, and Signature—represented an unprecedented stress test for both the traditional banking system and the cryptocurrency industry. Binance CEO Changpeng Zhao described the events as a “coordinated effort to shut down crypto-friendly banks,” reflecting a growing sense within the crypto community that regulators were targeting financial institutions serving digital asset companies.

Nisa Amoils, managing partner at A100x Ventures, offered a blunt assessment: “Crypto is almost completely shut out of U.S. banking now.”

Why This Matters

The closure of Signature Bank exposed the fragile interdependence between the cryptocurrency industry and traditional banking infrastructure. For years, a handful of crypto-friendly banks provided the essential plumbing that allowed digital asset companies to move between fiat and crypto efficiently. With Silvergate and Signature both gone, the industry faces a critical infrastructure gap that could increase operational costs, slow settlement times, and push crypto businesses toward offshore banking relationships. The speed of the government’s response—guaranteeing all deposits within 48 hours—suggests regulators recognized the systemic risk but also raises questions about which crypto businesses will be able to secure U.S. banking partnerships going forward.

Disclaimer: This article is for informational purposes only and does not constitute financial or investment advice. Always do your own research before making investment decisions.