The FDIC has asked Signature buyers to halt all cryptocurrency-related activity

Signature Bank, one of two major US destinations for cryptocurrency firms, was shut down by New York regulators on March 12, 2023. The Federal Deposit Insurance Corporation (FDIC), the Treasury Department, and the Federal Reserve have cited “systemic risks” deriving from the bank's exposures to cryptocurrencies.

Signature Bank was known for being one of the few banks in the US to offer banking services to crypto businesses, including checking accounts, international wire transfers, and digital custody. The bank had also launched its own blockchain platform called Signet, which allowed its customers to trade US dollars over a private Ethereum-based network.

However, the bank was also exposed to large fluctuations in cryptocurrency prices and potential losses from fraud, hacking or regulatory violations. According to regulators, the bank had not implemented adequate measures to mitigate these risks and ensure the safety of its depositors' funds.

The FDIC said all Signature Bank depositors will be refunded in full, and non-cryptocurrency-related deposits will be taken by a branch of New York Community Bancorp. However, cryptocurrency-related deposits will be frozen until further investigation and may be subject to loss or seizure.

The FDIC denied that it required buyers of Signature to give up all crypto assets

The FDIC denied an earlier report by Reuters that claimed “any buyer of Signature must agree to abandon all of the bank's crypto assets,” citing two unnamed sources. An FDIC spokesman said the agency had not placed any conditions on potential buyers and was working with other authorities to find a resolution to the case.

However, the spokesperson also added that the FDIC expected the buyers to comply with applicable anti-money laundering and consumer protection regulations and demonstrate their financial and operational capacity to handle the crypto assets.

Some analysts have speculated that buyers may be interested in acquiring only certain parts of Signature Bank, such as its traditional checking accounts or its Signet blockchain platform. Others have suggested that buyers may be deterred from the bank's involvement in cryptocurrencies due to the associated legal and reputational risks.

Conclusions

The closure of Signature Bank was a major blow to the cryptocurrency industry in the US, which was already facing regulatory hurdles and public mistrust. The regulators' decision also raised questions about the safety and stability of other banks involved in cryptocurrencies or their decentralized alternatives. The future of relations between the traditional banking world and the crypto one will depend on the ability of both sectors to cooperate and innovate in compliance with the rules.