State regulators shut down New York-based commercial bank Signature Bank on Sunday, which alarmed its clients, particularly those who work in the cryptocurrency industry. This is the third bank failure in less than a week, following the voluntary liquidation of Silvergate Bank on Wednesday and the closure of Silicon Valley Bank on Friday.
The measure was taken “to protect depositors,” according to a statement by New York Department of Financial Services Commissioner Adrianne Harris. According to a joint statement from the Federal Reserve, FDIC, and U.S. Treasury Department, the bank has been placed under the control of the Federal Depository Insurance Corporation (FDIC), and all depositors who used Signature will be compensated. The announcement also describes the steps that the federal regulators will take to safeguard Silicon Valley Bank depositors (SVB).
“Signature Bank is a New York state-chartered commercial bank and is FDIC-insured, with total assets of approximately $110.36 billion and total deposits of approximately $88.59 billion as of December 31, 2022,” Harris’ statement said. “DFS is close contact with all regulated entities in light of market events, monitoring market trends, and collaborating closely with other state and federal regulators to protect consumers, ensure the health of the entities we regulate, and preserve the stability of the global financial system.”
Despite the recent bank collapses, experts say that these events are nothing like the 2008 financial crisis. “These bank failures are not at all similar to what happened in 2008,” said Andrew Ackerman, a banking reporter for The Wall Street Journal. “There is no underlying systemic problem. Rather, these are isolated incidents that are more reflective of the risks and volatility associated with certain sectors, such as the crypto market.”
For instance, the failure of Silicon Valley Bank was linked to the bank’s significant exposure to the turbulent tech industry in recent months. Similar to how Signature Bank’s recent decision to lessen its exposure to the cryptocurrency market probably contributed to its demise.
Despite the recent bank failures, experts believe that the overall health of the banking sector is strong. “The banks are in much better shape now than they were in 2008,” said Karen Petrou, managing partner at Federal Financial Analytics. “They have more capital, more liquidity, and more stringent risk management protocols in place. While these bank collapses are certainly concerning, they do not pose a threat to the overall stability of the financial system.”
While the recent bank collapses may cause concern among investors, experts say that they should not be seen as a sign of an impending financial crisis. “These events are isolated incidents, and investors should not panic,” said Ackerman.
Regulators are likely to enhance their supervision of the banking industry in the aftermath of the recent bank failures, particularly in relation to exposure to risky industries like cryptocurrency. The stability of the financial system and consumer protection, according to experts, depend on these measures.