Signature Bank’s decline is fueled by crypto bets and runs on deposits

Signature Bank, a major real estate lending business that recently had a play to win cryptocurrency deposits, abruptly closed its doors on Sunday. .

In part, Signature was affected by the panic surrounding the Silicon Valley bank, which was seized by regulators on Friday. Its closure underscores the challenges facing small and medium-sized banks, which often focus on core lines of business and have a narrower base of customers than goliaths like JPMorgan Chase or Bank of America. It is particularly vulnerable to old-fashioned bank runs.

A Silicon Valley bank that lends to start-ups was imploded on Friday after some bad financing decisions left it unable to meet customer withdrawal requests — and prompted growing companies to further tap their accounts as venture capital funding slowed. Similarly, just before the overheated industry exploded last year, cryptocurrency became the signature of some banks welcoming deposits.

As news of the Silicon Valley bank’s troubles began to spread last week, Signature’s business customers began calling the bank to ask if their deposits were safe. Many worried that their deposits could be at risk, as most of Silicon Valley’s business customers had more than $250,000 in their accounts. The Federal Deposit Insurance Corporation, the Silicon Valley takeover company, only insures deposits up to $250,000.

In announcing the closure of Signature on Sunday, regulators said customers of the two banks would be made whole regardless of how much they had in their accounts.

“Many of the depositors in these banks are small businesses, including those driving the innovation economy, whose success is critical to New York’s strong economy,” New York Gov. Kathy Hochul said in a statement.

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But on Friday, Signature saw deposits leaving its coffers as customers panicked about their money, according to a person familiar with the matter. Its shares, along with those of some of its peers, continue to tank.

However, the bank’s leaders expect to weather the storm as outflows eased on Sunday morning, the person said. When regulators told bank executives they were effectively taking over the bank, which has 40 branches across the country, some were shocked. In closing the bank, New York bank regulators, working with the FDIC, also removed its management team.

The demise of Signature, which has less than $100 billion in assets, is a blow to many of the professional services firms that have relied on it. The bank has long specialized in providing banking services to legal entities, providing escrow accounts for holding client money and other services.

Scott Shay, Joseph DiPaolo and John Tamperlane founded Signature in 1999 with the backing of Bank HaPolim, Israel’s largest lender. On the personal biography page, Mr. Shay He described himself “As a thought leader and author of many widely read books on profound issues facing the Jewish community.” The bank went public in 2004.

One of Signature’s specialties is financing the purchase of taxi medallions, which authorize holders to operate taxis. It was known in New York for providing banking services to law firms and real estate companies, and catering to wealthy families in the area.

Among its clients are former President Donald J. There were some people associated with Trump’s company, the Trump Organization. Mr. Trump’s son-in-law Jared Kushner and Mr. The bank gave the loan to Kushner’s father, Charles. This is Mr. It also helped fund Trump’s Florida golf course.

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Over the past decade, Signature has begun to expand its business nationally and specifically to the West Coast.

But Signature grapples with some of the same problems that led to the demise of the Silicon Valley bank.

More than $79 billion, or nine-tenths of Signature Bank’s roughly $88 billion in deposits, were uninsured at the end of last year, regulatory filings show. As of last week, Signature said more than 80 percent of its deposits came from law firms, accounting firms, healthcare companies, manufacturers and real estate management companies.

The bank also said its digital asset-related customer deposits stood at $16.52 billion. Signature is one of the few financial institutions that opened its doors to take deposits of crypto assets, a business that entered 2018.

It ended up being a fortuitous end because of the fallout from crypto assets after FTX’s collapse and the ensuing criminal investigation. Another cryptocurrency-focused bank, Silvergate Bank, was forced to voluntarily close last week.

“The story is related to crypto, a huge error in judgment by senior bankers,” said Christopher Whalen of Whalen Global Advisors, which specializes in analyzing and advising financial institutions. “The result was the same in the deposit flow.”

Christine Zhang Contributed report.

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