The Washington PostDemocracy Dies in Darkness

Signature Bank’s collapse spells trouble for cryptocurrency industry

As choice institutions fall, crypto companies may be driven to alternative, often riskier, banking options

People walk by a Manhattan branch of Signature Bank which was closed by bank regulators on Sunday. (Spencer Platt/Getty Images)
5 min

Signature Bank, a New York based financial institution with deep ties to the cryptocurrency industry, collapsed over the weekend after depositors made a run on the bank, further roiling the digital assets industry, which has suffered a string of major blows in recent months.

The bank has long been an integral financial institution for the industry, hosting tools for facilitating digital transactions and counting notable crypto companies, such as the cryptocurrency exchange Coinbase, as its clients. It’s part of a slim group of mainstream banks catering to the needs of cryptocurrency firms and their clients, an area that was upended after the closing of another crypto-friendly bank, Silvergate Capital, last Wednesday.

Signature Bank’s collapse was triggered in part by the fall of Silicon Valley Bank, another financial institution interwoven into fabric of the technology industry, New York Gov. Kathy Hochul (D) told reporters in a news conference on Monday.

Skip to end of carousel
What is Silicon Valley Bank?
SVB is a publicly traded bank based in Santa Clara, Calif. and is considered one of Silicon Valley’s most important banks. According to its website, SVB works with “nearly half" of all venture-capital backed U.S. start-ups, including companies big and small, from Roku to D.C. based Compass Coffee. At the end of December, Silicon Valley Bank held around $209 billion in total assets.
Why did SVB collapse?
On March 8, SVB disclosed that it sold $21 billion in assets and needed to raise money. This sparked panic among tech investors, who encouraged start-ups to withdraw their money, prompting a bank run. After SVB’s stock plummeted, trading was halted and regulators closed the bank. SVB became the 2nd largest bank failure in U.S. history, the first being Washington Mutual in 2008.
Will people get their money back?
SVB is covered by the Federal Deposit Insurance Corporation (FDIC), a government agency that supplies deposits insurance, but over 90% of deposits exceeded the $250,000 limit for federal insurance on bank accounts. Many companies faced losing large amounts of cash. The Biden administration approved an extraordinary intervention, stating all depositors at the failed Silicon Valley Bank would have access to all their money.
Is this a bailout?
Depends on who you ask. Both Biden and Treasury Secretary Janet L. Yellen released statements underscoring that taxpayers will not pay in this rescue because the money used to reimburse depositors would come from a fund paid into by U.S. banks. But other economists — even those who defended the move as necessary — still say the measures amount to a bailout.


End of carousel

Few banks were as deeply embedded within the cryptocurrency firms as Signature Bank and Silvergate, and their downfall is a symbolic and practical blow to the embattled industry, legal experts said. The institutions offered an air of legitimacy to crypto companies and provided clients key services, such as around-the-clock transactions.

As choice institutions fall, crypto companies may be forced to rethink their financial holdings, driving them to alternative, often riskier, banking options, experts added.

“It’s very dark days at present for crypto,” said Yesha Yadav, who studies digital financial regulation and is an associate dean at Vanderbilt University Law School. “The big danger here is that the folks decide to go offshore … [where] regulators are having a much harder time monitoring.”

Greg D. Carmichael, the new chief executive of Signature Bank, said in a press release this morning that bank operations are stable after the regulators’ took over the bank. “Our clients’ deposits are not at risk,” he said.

The Federal Deposit Insurance Corporation took over Signature Bank, guaranteeing that clients’ deposits over the $250,000 federal limit became available Monday morning. But it is unclear how the bailout impacts other parts of the bank’s operations, notably a transaction system, Signet, used to process cryptocurrency transactions.

Many of the Signature Bank’s clients are heavily involved in cryptocurrency, whose value fell sharply in 2022. But it also counted law firms and real estate companies as depositors — many with more than the federally insured $250,000 limit in their accounts.

As SVB crumbled and venture capital firms began a run on deposits there, a similar movement began at Signature. “This didn’t happen in a vacuum,” Hochul said.

State officials wanted to move in to stabilize Signature on Friday, the governor said, wary that an unchecked run could have spillover effects on New York’s other regional banks and could drag down other parts of the national economy.

Is this a bailout and 6 other questions about the SVB collapse

“When you start seeing a tremendous number of deposits being withdrawn on a Friday, because of people’s ability to do online banking, that trend continued over the weekend, as well,” Hochul said.

On Sunday, the governor’s office mounted a campaign to push officials from the Treasury Department, Federal Reserve and FDIC to give the state authority to take over Signature and hand it to federal regulators, officials said.

“The train had already left the track to be able to give assistance to SVB Bank, and we wanted to make sure that we included Signature,” Hochul said. “We were literally counting votes to make sure they’d be enough to put this over the finish line.”

In a flurry of tweets and statements Sunday night, crypto companies sought to reassure customers that business is operating as usual.

Jeremy Allaire, chief executive of Circle, which manages a U.S. Dollar Coin (USDC), a coin many argue is a particularly stable crypto denomination, tweeted on Sunday night that his company won’t be able to mint or allow redemptions of USDC through Signet, the back-end payment network run by Signature Bank.

Coinbase, which held roughly $240 million in corporate cash with Signature Bank as of March 10, “continues to operate as usual,” and its clients’ funds are “safe and accessible,” according to Natasha LaBranche, a spokeswoman for the company.

On Monday morning, LaBranche noted that “unfortunately” its customers who relied on Signet for deposits and withdrawals “outside of banking hours” will need to rely on more traditional banking methods. “While not ideal,” she said. “This is a reminder of why we need to update the financial system.”

Shortly after, the company said Signet “seems to be working for now … but we’re maintaining contingency plans for all scenarios.”

Silicon Valley Bank customers breathe sigh of relief as they access accounts

Yadav said Signature Bank played an important role in the crypto ecosystem, as a New York-based company regulated under the state’s comprehensive financial laws. “It gave credibility to the crypto sector,” she said, allowing crypto companies to say: “Here is a well regulated, important … highly credible New York bank that is giving us services.”

Federal regulators are likely to scrutinize other banks offering cryptocurrency services, while traditional financial institutions may back away from such services, given the cost of maintaining compliance and volatility in the market, she added.

“Crypto firms have to figure out what to do next,” Yadav said. “It does not look like many banks are going to be excited to offer crypto firms banking business going forward.”