New York Regulator Disagrees with SEC’s Crypto Link to Signature Bank’s Collapse
The recent collapse of Signature Bank in March has raised concerns over the relationship between cryptocurrencies and banking institutions. While SEC Chair Gary Gensler’s remarks on the matter have garnered criticism, the New York State Department of Financial Services (NYDFS) has stepped in to clarify the issue. According to the NYDFS, the bank’s failure was not caused by its exposure to cryptocurrencies, but rather by a bank run caused by a diverse group of depositors from different economic sectors.
NYDFS Debunks Crypto Exposure Theory
During a Financial Services Committee hearing on stablecoins, NYDFS superintendent Adrienne Harris confirmed that cryptocurrency clients were not the only depositors who withdrew their funds. Depositors such as wholesale food suppliers, fiduciaries, trust accounts, and legal firms also withdrew their funds, leading to the bank run. Harris stated that: “It is a misnomer that the failure of Signature Bank was related to crypto. The outflow of crypto deposits were in exact proportion to the representation in the depositor base overall.”
Adrienne Harris Clarifies Banking Collapse
Harris went on to clarify that only about twenty percent of Signature’s deposits were withdrawn on the same evening that Silicon Valley Bank failed. These transactions were solely tied to cryptocurrency, while the remaining customer withdrawals were from uninsured deposits of ordinary commercial businesses. Therefore, Harris explicitly refuted the claim that the failure was due to crypto deposits and the volatility which came with it. “So it’s of course unfortunate that there was a run on the bank, but it is not the case that the failure Signature was related to crypto,” Harris stated.
The NYDFS has made it clear that the collapse of Signature Bank was not caused by its engagement with the crypto industry. While the relationship between cryptocurrencies and traditional banking institutions continues to be a topic of discussion, it is essential to recognize the underlying issues that led to the bank’s failure. By understanding the diverse group of depositors and their reasons for withdrawal, it may be possible to avoid similar events in the future.