by A regulatory takeover of a New York-based bank should send a message to US banks to stay away from the cryptocurrency business, says a former member of Congress who served on the bank’s board.
Former US Rep. Barney Frank said Monday he believes state officials behind the move were trying to make an example of the Signature bank takeover, which he says was the wrong move. Despite a spate of withdrawals, the bank’s situation was under control before regulators intervened, he said.
“This was just a way of saying to people, ‘We don’t want you involved with crypto,'” Frank said in an interview.
Frank, a Democrat who served in Congress from 1981 to 2013, was a co-author of the Dodd-Frank Act, which increased government oversight of banks after the 2008 financial crisis.
He was a director at Signature Bank until the New York City Department of Financial Services took it over Sunday, handing control over to the FDIC, the federal agency that insures bank deposits until the bank can be sold.
Frank said the bank’s former operators had no recourse. But he said he expects justification when Signature eventually sells.
“I think they’ll fetch a very good price,” Frank said, “proof that it wasn’t a bank problem.”
Signature’s acquisition came two days after regulators seized California-based Silicon Valley Bank. Both followed a rush of bank withdrawals targeting tech companies.
New York Gov. Kathy Hochul described the takeover as a way to stave off a bigger crisis that could have hit more banks.
“We wanted to make sure that the entire banking community here in New York is stable, that we can project calm,” Hochul said in a news conference on Monday.
Founded more than two decades ago, Signature has about 40 offices across the United States and says it focuses on banking for private companies, their owners and officers.
The bank said it was the first FDIC-insured bank to launch a blockchain-based digital payments platform.
As concerns mounted over Silicon Valley Bank last week, Signature released a statement to reassure customers and investors that it was stable. The statement included a reminder that despite its efforts to accommodate cryptocurrency holders, it “does not invest in, trade, hold, custodian, or make credit against digital assets or provide loans made through digital assets, despite its efforts to accommodate cryptocurrency holders assets are secured”.
But there were more withdrawals up until Friday, which Frank says were “based solely on contagion from the SVB.”
He said the situation stabilized by Sunday, when New York regulators took over.
The bank had more than $110 billion in assets, making it the third largest bank failure in US history.
Unlike Frank, Hochul did not point to cryptocurrency as a factor in the bank’s closure over the weekend. She said withdrawals would continue, necessitating the measures.
And the state regulator went even further, saying Signature is not a crypto bank.
“The Signature Bank case is not about a specific sector, but we acted quickly to ensure depositors were protected,” said Adrienne Harris, head of New York Financial Services.
The bank’s top executives were ousted and it reopened Monday under the operational control of the FDIC as the Signature Bridge Bank.
Also Monday, the FDIC announced that those with deposits at both banks would have full access to them — even for amounts exceeding the regular $250,000 insurance limit.
Frank said that if the FDIC had agreed to insure all deposits Friday instead of waiting until Monday, Signature would not have been acquired. He said the insurance limit for businesses should also be permanently raised by Congress to an amount high enough to cover a few months’ payroll costs for most businesses.
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Mulvihill reported from Cherry Hill, New Jersey. Associated Press/Report for America Statehouse News Initiative reporter Maysoon Khan from Albany, New York. Report for America is a nonprofit national service program that places journalists in local newsrooms to cover undercover topics.
