A regulatory takeover of a New York-based bank was intended to send a message to U.S. banks to stay away from the cryptocurrency business, a former member of Congress who was on the bank’s board says.
Former U.S. Rep. Barney Frank said Monday that he believes the state officials behind the action were trying to make an example of Signature Bank in takeover that he said was the wrong move. Despite a wave of withdrawals, the bank's situation was under control before regulators swooped in, he said.
“This was just a way to tell people, ‘We don’t want you dealing with crypto,’” Frank said in an interview.
Frank, a Democrat who served in Congress from 1981 until 2013, coauthored the Dodd-Frank act that boosted government oversight of banks following the 2008 financial crisis.
He was a director at Signature Bank until the New York Division of Financial Services took it over Sunday and gave control of it to the FDIC, the federal agency that insures bank deposits, until the bank can be sold.
Frank said the bank's former operators have no recourse. But he said he expects some vindication when Signature is sold eventually.
“I believe they’re going to get a very good price,” Frank said, “proof that it was not a bank problem.”
Signature's takeover came two days after regulators seized California-based Silicon Valley Bank. Both followed a rush of withdrawals from the banks, which catered to technology businesses.
New York Gov. Kathy Hochul described the takeover as a way to avert a bigger crisis that could have affected more banks.
“Our view was to make sure that the entire banking community here in New York was stable, that we can project calm,” Hochul said in a news conference Monday.
Signature, which was founded more than two decades ago, has about 40 offices across the U.S. and says it focuses on banking for privately owned businesses, their owners and senior managers.
The bank said it was the first FDIC-insured bank to launch a blockchain-based digital payments platform.
As worries mounted about Silicon Valley Bank last week, Signature put out a statement seeking to reassure clients and investors that it was stable. The statement included a reminder that despite its efforts to cater to cryptocurrency holders, it “does not invest in, does not trade, does not hold, does not custody and does not lend against or make loans collateralized by digital assets.”
But by Friday, there were more withdrawals, which Frank said were “based solely on the contagion from SVB.”
He said the situation had stabilized by the time Sunday that New York regulators took it over.
The bank had more than $110 billion in assets, making it the third-largest banking failure in U.S. history.
Unlike Frank, Hochul did not point to cryptocurrency as a factor in the bank's shuttering over the weekend. She said withdrawals were continuing, making the action necessary.
And the state regulator went even further, saying Signature wasn't a crypto bank.
“This is not about a particular sector in the case of Signature Bank, but we moved quickly to make sure depositors were protected,” said New York Financial Services Superintendent Adrienne Harris.
The bank's top executives were ousted and it reopened Monday under operational control of the FDIC as Signature Bridge Bank.
Also Monday, the FDIC announced that those with deposits in both banks would have full access to them — even the amounts that exceed the regular $250,000 insurance limit.
Frank said that if the FDIC had agreed to insure the entire deposits on Friday rather than waiting until Monday, Signature would not have been taken over. He said the insurance limit for businesses should also be raised permanently by Congress to an amount high enough to cover a few months' worth of payroll for most firms.
Mulvihill reported from Cherry Hill, New Jersey. Associated Press/Report for America Statehouse News Initiative reporter Maysoon Khan contributed from Albany, New York. Report for America is a nonprofit national service program that places journalists in local newsrooms to report on undercovered issues.