Signature Bank Collapse: A Comprehensive Guide

The Signature Bank collapse was a significant event in the financial world. It was a US-based bank that failed on March 12, 2023, due to a bank run.

The bank's demise was linked to the failure of Silicon Valley Bank (SVB), another US-based bank that collapsed earlier that month. This created a ripple effect in the financial market.

Signature Bank had over $110 billion in assets and more than $88 billion in deposits. Its collapse was one of the largest bank failures in US history.

The bank's collapse raised concerns about the stability of the US financial system.

Signature Bank's collapse was a result of a combination of poor management, risky business practices, and inadequate oversight. The bank's concentration in the crypto sector was a major risk factor, as it had $79.5 billion in estimated uninsured deposits as of December 2022, with about 90% of all its deposits being uninsured.

The bank's liquidity risk was another major issue, as it had only about 5% of its assets in cash, compared to an industry average of 13%. This made it difficult for the bank to manage its liquidity during times of stress. The FDIC's own report acknowledged the bank's poor governance and risk management as key factors in its failure.

The bank's lack of adequate FDIC oversight was also a contributing factor, as the FDIC admitted to its own shortcomings in conducting timely reviews of Signature Bank. The bank's failure had significant consequences, including the loss of billions of dollars in deposits and the shuttering of the bank, which marked the third-largest bank failure in U.S. history.

Signature Bank's collapse was a result of a combination of factors. The bank's high concentration in the crypto sector led to a run on deposits after the failure of Silicon Valley Bank.

Signature Bank had a significant share of uninsured deposits, with an estimated $79.5 billion in December 2022, which is about 90% of all its deposits. This made it vulnerable to bank runs.

The bank's poor governance and risk management also played a role in its demise. It had only about 5% of its assets in cash, compared to an industry average of 13%. This lack of liquidity put the bank in a precarious position.

Regulators were also criticized for not conducting timely reviews of the bank, citing a staffing shortage. However, the bank's failure to respond quickly to concerns and recommendations from regulators also contributed to its downfall.

The FDIC's own shortcomings in oversight were also highlighted as a factor in the bank's collapse. Despite this, the FDIC was appointed as receiver of the bank to protect depositors and ensure continuity of service.

The bank's failure had significant consequences, including a loss of confidence in the banking system and a potential impact on the economy. The FDIC's plan to make sure all depositors were protected, including those with uninsured deposits, helped to mitigate the damage.

Here are the key causes of Signature Bank's failure:

The Bank Term Funding Program (BTFP) was created in response to the collapses of Silicon Valley Bank and Signature Bank.

This program makes more funding available to banks, credit unions, and other depository institutions, ensuring plentiful cash is on hand if a bank rush occurs.

The BTFP gives financial institutions loans of up to one year to bolster the banking system's capacity.

The program went into effect on March 12, 2023, and will be in effect until at least March 11, 2024.

Signature Bank's troubles began in December 2022, when it announced plans to shed $8 billion to $10 billion of its deposits from the crypto sector due to "issues" in the space.

This decision was made at a Goldman Sachs conference, where the bank's leadership expressed optimism about its financial position, stating that it had remained "significantly above FDIC 'well capitalized' standards" in its year-end report.

On January 31, 2023, Signature Bank's credit ratings were affirmed by three credit agencies, Fitch, Kroll, and Moody's, based on reviews of its financial stability and business practices.

However, the bank's stock price plummeted on March 10, 2023, closing at $70 on heavy trading, a drop of 79% from February 10, 2022, after Silicon Valley Bank was closed by the California Department of Financial Protection and Innovation.

Here's a timeline of the key events leading up to the bank's collapse:

The bank that was seized, Signature, had been under pressure in recent days, but regulators claimed there was no insolvency based on the fundamentals.

Regulators announced new facilities to shore up confidence in the country's other banks, which suggests they were trying to send a message.

First Republic declared it had more than $70 billion in untapped funding from the Federal Reserve and JPMorgan Chase, which might have contributed to the decision to focus on Signature.

Frank, who helped draft the Dodd-Frank Act, thinks regulators wanted to send a strong anti-crypto message, which might have played a role in Signature's seizure.

Signature Bank announced at a Goldman Sachs conference that it intended to shed $8 billion to $10 billion of its deposits from the crypto sector because of “issues” in the space.

The bank had remained “significantly above FDIC ‘well capitalized’ standards,” according to its year-end report, yet noted that the past year “resulted in the most difficult deposit environment we have seen in our 22-year history.”

Three credit agencies, Fitch, Kroll, and Moody’s, had affirmed Signature Bank's credit ratings, based on reviews “of its financial stability as well as its business and risk management practices.”

Signature Bank sent out a press release noting solid investment ratings, strong liquidity, a high level of capital, and a diversified deposit mix.

Silicon Valley Bank was closed by the California Department of Financial Protection and Innovation on March 10, 2023, causing Signature Bank's stock price to drop 79% from February 10, 2022.

Here's a brief summary of the key events leading up to Signature Bank's collapse:

Signature Bank was an FDIC-insured, New York state-chartered commercial bank.

It primarily worked with privately owned businesses, especially catering to law offices, real estate buyers, and cryptocurrency companies.

The bank had 40 private client offices across metropolitan New York, Connecticut, California, Nevada, and North Carolina.

Signature Bank was listed as the 19th largest bank in the United States by S&P Global.

It had assets worth $110.36 billion and $88.59 billion in deposits in December 2022.

The bank was a powerhouse in New York real estate lending, as the third-largest commercial real estate bank in New York City.

Its primary focus was on multifamily housing loans.

Signature Bank was also the first FDIC-insured bank to create a blockchain-based digital payments platform approved by the New York State Department of Financial Services (DFS).

The platform, Signet, required a minimum account balance of $250,000.

Signature Bank's collapse was a significant event in the banking sector, with far-reaching consequences. The bank's decision to shed $8 billion to $10 billion of its deposits from the crypto sector in December 2022 was a warning sign that something was amiss.

The bank's leadership was optimistic about its prospects, but the numbers told a different story. Signature Bank's year-end report noted that the past year had been the most difficult deposit environment in its 22-year history.

The bank's credit ratings were affirmed by three major credit agencies, Fitch, Kroll, and Moody's, in January 2023. This was seen as a positive sign, but it ultimately proved to be a false sense of security.

The bank's stock price plummeted by 79% in a single day, from $70 to $14.90, after Silicon Valley Bank was closed by regulators. This was a clear indication that the bank was in trouble.

The FDIC invoked a systemic risk exception to least-cost resolution, meaning that the risk of contagion to the banking sector and the economy as a whole was deemed too great to ignore. This decision allowed the FDIC to guarantee most of the uninsured deposits.

Here's a summary of the key events leading up to Signature Bank's collapse:

Signature Bank started small, with $50 million in assets when it began in 2001. It was a long way from being the 29th largest U.S.-based commercial bank it would eventually become.

The bank's founders, including Chairman of the Board Scott Shay, had a clear vision for its growth. Shay co-founded the bank alongside Joseph J. DePaolo and John Tamberlane.

Signature Bank's model relied on a network of private client banking teams, where veteran bankers acted as a single point of contact for all client needs.