If it seems like only last week that we were lamenting the state of the post-FTX crypto banking sector in the US, and wondering how things would pan out for its two biggest players, Silvergate Bank and Signature Bank… well it was.
Turns out we didn’t have to wait long to find out, as just four days later both banks have announced their closure, with the not-hugely-crypto-affiliated Silicon Valley Bank’s demise sandwiched neatly in between the two.
Unlike Silvergate’s voluntary liquidation, Signature was forcibly closed down by regulators on Sunday, citing a systemic risk to the wider US banking sector. This is the same reasoning behind SVB’s closure just two days earlier.
Also in common with SVB, depositors with Signature Bank have received guarantees that their funds will be 100% protected, above and beyond the standard $250,000 limit covered by the Federal Deposit Insurance Corporation (FDIC).
This flexibility to guarantee uninsured deposits has been made possible due to the ‘systemic risk’ designation, and both the US Federal Reserve and the Treasury have indicated that emergency-lending authorities will be used in a bid to prevent further runs on other banks.
The FDIC established a ‘bridge’ successor bank, of which borrowers and depositors will automatically become customers, enabling them to maintain access to their funds.
Authorities stressed that the move was not a bailout and that none of the burden for any losses would fall on US taxpayers. Stock and bondholders in both Signature and SVB will not be protected.
Last December, in the wake of the FTX collapse, Signature Bank announced that it would significantly reduce its exposure to crypto. Prior to that, almost a quarter of its deposits came from the crypto sector, although as of last week, over 80% were reportedly from law firms, accounting firms, health care, manufacturing and real estate management companies.
This latest development in the current US banking crisis have led several industry figures to suggest that the closure of the three institutions has in the space of one week left US crypto companies essentially ‘unbanked’. The crypto market didn’t seem particularly fazed by the prospect however, with both Bitcoin and Ethereum prices rising over 7.5% in the past 24 hours.
This morning Coinbase CEO Brian Armstrong took to Twitter in response to a suggestion that the exchange could start to offer neobanking services to high-net-worth individuals and businesses:
“Definitely something we've thought about. Need a few more features like outbound wires, multi-user support etc. Non-fractional reserve "banking" is definitely looking more attractive right now.”
Meanwhile, global banking giant HSBC announced that its UK subsidiary had stepped in to rescue SVB’s UK arm for a symbolic sum of £1 ($1.21). Chief executive Noel Quinn said the acquisition made “excellent strategic sense” and would complete immediately.
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