Signature Bank’s involvement in the digital asset industry was the reason that ultimately caused its demise, according to FDIC’s Martin Gruenberg.
The chair also acknowledged FDIC’s shortcomings in not acting sooner to prevent the crisis from spreading throughout Signature’s operations. Gruenberg further added that the agency’s supervision could have been stronger.
Crypto Culpable in Signature’s Collapse: FDIC Chair
In a speech before the House Committee on Financial Services, the Federal Deposit Insurance Corporation (FDIC) chairman explicitly blamed Signature’s reliance on crypto industry deposits or its vulnerability to contagion from digital asset industry turmoil in late 2022 and into 2023.
He said that Signature Bank’s poor governance and inadequate risk management practices dragged the institution into a position where it could not effectively manage its liquidity in a time of stress, thereby making it unable to meet very large withdrawal requests.
Signature Bank was not exclusively a crypto bank, but its efforts toward the industry became more pronounced during the pandemic-era bull run. During this time, the New York-based bank became one of the major legacy institutions to embrace crypto.
However, the fall of FTX was a major turning point. In a bid to reduce its exposure to the industry in a turbulent time, Signature Bank distance itself. The claim was backed by the chairman and co-founder of the now-defunct bank, Scott Shay, during a prepared testimony on Monday.
The former exec revealed that the bank made significant reductions in digital asset deposits as a result of heightened market volatility as well as regulatory apprehensions towards the end of the previous year.
Over the past several weeks, reports exploring the collapse of Signature Bank in March included exposure to the crypto industry alongside potential reasons. The premise that the bank’s ties to crypto-related businesses were behind its closure was also speculated by many.
But the New York State Department of Financial Services (NYDFS) Superintendent dismissed the assumption in an interview and assured that the bank was facing severe operational difficulties leading up to its shutdown.
The crypto industry reacted strongly to Signature’s seizure deeming the move as unnecessary, and blamed the regulators for specifically targeting them. Industry trade group the Blockchain Association submitted Freedom of Information Act (FOIA) requests to the FDIC and other agencies and pointed that the government actions might have “improperly contributed” to the failures.
PrimeXBT Special Offer: Use this link to register & enter CRYPTOPOTATO50 code to receive up to $7,000 on your deposits.