Signature Bank Shut Down by State Regulators, USDC Recovers

New York-based Signature Bank was shut down on Sunday by the New York Department of Financial Services (NYDFS) in order to “protect depositors”, the state regulator said in a press release on 12 March.

According to the announcement, the NYDFS took possession of Signature Bank through Section 606 of the New York Banking Law, and appointed the U.S. Federal Deposit Insurance Corporation (FDIC) as receiver of the crypto-friendly bank. A joint statement from the FDIC, Treasury Department, and Federal Reserve noted that the move was made to protect the U.S. economy and strengthen the “public confidence in our banking system”, and assured customers that all their deposits in Signature will be returned. The statement reads:

“We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. 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.”

Shortly after the news broke out that Signature Bank — which services many firms in the crypto industry — was shutting down, Tether and Crypto.com revealed they had zero exposure to the bank. Crypto exchange Coinbase, said it had around $240 million in corporate funds that it expected to recover, while stablecoin issuer Paxos noted it held $250 million at the bank, and that it had private insurance for the amount not covered by the standard FDIC insurance.

The closure of Signature Bank marks the third crypto-friendly bank to collapse in the last week, following Silvergate Bank’s voluntary liquidation of assets on Wednesday, and the closure of Silicon Valley Bank (SVB) on Friday by California’s financial watchdog. The collapse of SVB also affected the crypto market, with the USDC stablecoin loosing its peg to the U.S. dollar after Circle disclosed that $3.3 billion of the $40 billion in USDC reserves were held at SVB.

The popular stablecoin, however, started to recover its U.S. dollar peg after Circle CEO Jeremy Allaire said that its reserves were safe, and that the firm has new banking partners lined up at “banking open tomorrow morning”. The Federal Reserve also established a funding program for banks that provide $25 billion aimed at backstopping banks and other depository firms.