The U.S. Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) announced in a joint statement on 12th March 2023 to shut down New York-based Signature Bank in a bid to prevent the spreading banking crisis. It will be taken over by the New York Financial Services Department, and depositors at Signature Bank will be able to access their funds on 13th March 2023.
Signature Bank depositors will be made whole
Signature Bank is the largest crypto-friendly bank in the United States, ranking 29th among large U.S. commercial banks. The bank has offices in several states, including New York and Connecticut, and offers up to 9 types of businesses, including commercial real estate and digital asset banking.
Nearly a quarter of the Signature Bank’s deposits derived from the crypto industry as of September 2022 and the bank announced in December that it would scale back USD 8 billion in deposits related to cryptocurrencies. As of the end of last year, Signature Bank had total deposits of USD 88.6 billion and total assets of USD 110.4 billion.
In the wake of this bank’s collapse, U.S. regulators are struggling to contain the damage to avoid the impact of the incident spreading to other financial institutions, which could trigger a more serious chain reaction.
As to the joint statement, “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.” However, shareholders and certain unsecured debtholders will not be protected.
FDIC establishes bridge bank; U.S. officials move to protect all deposits
Meanwhile, the FDIC has announced that it has established a “bridge bank” to handle the accounts of recently closed Signature Bank customers. The government-run institution will ensure that the accounts’ operations will remain uninterrupted while regulators find buyers for the closing bank’s assets.
It is worth noting that the FDIC’s deposit insurance fund is over USD 100 billion, this will be more than sufficient to cover all of Silicon Valley Bank and Signature Bank’s deposits.
The Federal Reserve said, ” The U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry. Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe.”
Faced with two major bank failures in just 48 hours, the U.S. government agencies have actively stepped in to “underwrite” the situation, which will somewhat alleviate market concerns about the spread of the banking crisis. If the impact of the banking crisis can gradually subside in the short term, it will also help in restoring public confidence in the banking system.
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