Signature Bank, one of the few federally regulated US banks that has actively courted digital assets, is said to be one of the few banks left standing with news that its competitor, Silvergate, is facing significant stress due to its exposure to FTX and accusations it was responsible for the co-mingling of exchange and Alameda investment funds.
In Dec. 2022, the Financial Times wrote that Signature planned to offload up to $10 billion in deposits related to the cryptocurrency industry. The move marked a U-turn for a bank that achieved rapid growth by aggressively pursuing digital asset clients amidst broader turmoil in the crypto industry following falling token prices and the bankruptcy of the FTX exchange, a client of Signature’s. The New York-based bank’s shares have fallen more than 50% since the start of 2021, that after being the best-performing stock in last year’s KBW Bank index.
Signature Bank’s Chief Operating Officer, Eric Howell, explained to the FT last Dec. that the bank wanted to reduce the share of crypto-related deposits to less than 15% of total deposits from the current 23%,”we’re not just a crypto bank and we want that to come across loud and clear.”
Silvergate’s woes lead to clients at Signature
That was more than three months ago. Signature is now, as a result of Silvergate’s woes, one of the few remaining banks still able to process transactions for a host of crypto companies that need it.
On Mar. 2., Yahoo Finance reported that LedgerX started diverting clients to Signature. In a bid to distance itself from Silvergate Bank, LedgerX has opted to switch to Signature Bank as its new domestic wire transfers receiver, rumors that were reported by both Yahoo and Bloomberg but verified by neither Signature or LedgerX.
In a statement, Signature Bank said, “while we can’t comment on specific clients, we are still in the business of holding some US dollar deposits of digital asset clients.”
Additionally, Coinbase announced via tweets that it would discontinue its use of Silvergate as a banking partner for Coinbase Prime clients. The cryptocurrency exchange clarified that it has minimal corporate exposure to Silvergate and that it will be transitioning to Signature Bank on Mar. 2. In a memo sent to clients, Coinbase wrote:
“Coinbase Prime has elected to make changes to our USD banking partners. We are facilitating fiat withdrawals and deposits using Signature Bank, effective immediately. We are asking you to update your Coinbase Payment instructions to Signature Bank.”
The decision to accept crypto exchanges, stablecoin issuers, and bitcoin miners as customers helped Signature’s deposits triple from $33.4 billion in 2017. The bank started its crypto business four years ago and is one of the only federally regulated US banks known to have taken large-scale deposits from crypto clients.
Signature faces challenges of its own
In a class-action lawsuit filed last month, Signature is accused of “substantially facilitating” the commingling of funds between FTX and its private trading firm Alameda Research, prompting increased regulatory scrutiny for the bank.
Separately, Kraken reported to some users recently that Signature would be phased out of transactions less than $100,000. Per Bloomberg, the exchange informed some users that it would no longer be able to make dollar deposits or withdrawals using Signature in amounts of less than that amount.
On November 1, 2022, Signature’s share price was $160.01. By Mar. 3, SBNY was trading at $109.61.
Signature’s other businesses include wealth management and fund lending, through which it bankrolls capital calls to investment funds on behalf of clients.
In contrast, Silvergate, the distressed US bank owned by Silvergate Capital that has taken deposits from crypto clients, has defended its role in accepting deposits from FTX and Alameda Research. FTX was one of the world’s largest crypto exchanges before its failure in November. Signature Bank has stated that its deposit relationship with FTX and its related companies amounted to less than 0.1% of its overall deposits.