Signature Bank Shut Down by US Regulators Over Systematic Risk Fears

The US banking regulators, including the Federal Reserve and the US Treasury Department, announced the shuttering of Signature Bank two days after the Silicon Valley Bank (SVB) was closed. The regulators said depositors of both banks would be “made whole,” and the taxpayer would bear no losses.

Signature Bank Depositors to Receive All Their Money Back

On Sunday, the Fed and the US Treasury announced that the state authorities closed the crypto-friendly lender Signature Bank, citing “systematic risk.” The move comes just two days after the US authorities shut down SVB in a collapse that sent shockwaves through the banking industry.

Just like with the SVB, the regulators said depositors at Signature Bank would receive all of their deposits back, adding that taxpayers would not bear the payment. Shareholders and some unsecured debenture holders would not be protected.

“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 US Treasury and the Fed said in a joint statement.

In addition, the Fed said it will provide “additional funding to eligible depository institutions to help assure banks can meet the needs of all their depositors.” Signature Bank was one of the pillars of the crypto banking ecosystem, the largest one along with Silvergate Bank, which announced its liquidation last week.

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SVB is the Largest US Banking Failure Since 2008

On Friday, the Federal Deposit Insurance Corp. (FDIC) announced financial regulators shuttered SVB and seized the bank’s deposits, marking the largest US banking failure since the global financial crisis 15 years ago. The regulators named the FDIC the receiver, after which the government insurance agency established the Deposit Insurance National Bank of Santa Clara, which now holds deposits from the collapsed SVB.

The regulators’ intervention comes after the SVB said it was under extreme duress, resulting in a major bank run. Numerous venture capital (VC) investors, including Peter Thiel’s Founders Fund, Coatue Management, and Union Square Ventures, instructed their portfolio businesses to withdraw cash from the SVB.

US Treasury Secretary Janet Yellen approved the FDIC to complete its resolution of the SVB and “fully protect all depositors.” According to the announcement, depositors of the SVB will gain access to their funds starting March 13.

Editorial Update (13th March 2023, 6:39 AM EST): The article was updated to provide more information. Title punctuation altered slightly for clarity.

Do you think closing down both banks was the only right move to prevent further turmoil? Let us know in the comments below.