By Chris Matthews
Signature Bank sought "rapid and unbridled growth" in part by courting deposits from the volatile cryptocurrency industry, and its partnership with digital asset firms was a major factor in its failure, the Federal Deposit Insurance Corporation said in a published review. on Friday.
The bank "did not understand the risks of its association with the crypto industry or its vulnerability to contagion from the crypto industry that occurred in late 2022 and into 2023," Marshall Gentry, the FDIC's chief risk officer, said at a virtual press conference. Friday.
The FDIC placed Signature Bank in receivership last month after a run on its deposits left it insolvent in the eyes of regulators, and most of the run was in "cash deposits related to digital assets" that they were "concentrated in very few, very large". depositors," Gentry said.
Signature was popular with cryptocurrency businesses in part because of its in-house blockchain-based digital payment platform called Signet, which the bank launched in 2019 and allowed clients to settle US dollar payments globally 24 hours a day, 7 days a week, according to the FDIC report. .
When prices of cryptocurrencies, including bitcoin and ether, plummeted in the wake of the collapse of cryptocurrency exchange FTX, Signature's reliance on clients in the digital asset space put it in a precarious position, and bank investors began to realize.
"Due to his reputation as a banker to many in the cryptocurrency industry, [Signature's] the share price closely followed these tumultuous events in the crypto industry space and fell significantly during 2022,โ the report reads.
However, the bank's management was not quick to understand how its association with the crypto industry posed reputational risks. After a flurry of negative press coverage, the bank pledged in January to limit digital asset industry deposits to less than 20% of total deposits and withdraw between $8 billion and $12 billion in industry deposits. over a period of months. below 23.5% last September.
Gentry said that FDIC examiners tried to warn bank management about the reputational risks of being associated with cryptocurrency and the risks associated with having such a large portion of their deposits concentrated in one industry, but those warnings went unheeded. .
-Chris Matthews
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04-29-23 1259ET
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