A Crisis Of Confidence Caused By Leaders Led To The Seizure Of Signature Bank

New York officials say the government seized Signature Bank after regulators lost faith in management and depositors fled.

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In an emailed statement Tuesday, the state's Department of Financial Services said the bank failed to provide reliable and consistent data, causing a crisis of confidence in its leadership. “Taking possession of the bank and transferring it to the FDIC was based on its current status and its ability to conduct business safely and soundly on Monday."

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Following the DFS's decision to place Signature into receivership, the Federal Deposit Insurance Corporation took control of the institution and established a bridge bank to cater to its client's needs. It is believed that a surge of customer withdrawals on Friday — which a person familiar with the matter said totaled about 20% of the company's deposits — led to the bank's collapse, which is the third-largest failure in US history.

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Neither Joseph DePaolo, former chief executive of the bridge bank, nor a representative of the bridge bank immediately responded to a request for comment.

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Signature's board of directors member Barney Frank had a different perspective on how events unfolded.

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During an interview, Frank said, "I'm surprised. That wasn't what I thought.” 

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As management dealt with outflows from the bank's balance sheet, Frank said data regarding the bank's balance sheet was volatile, but executives eventually managed to get a handle on the situation after all. As for his involvement in the discussions with regulators, he said he wasn't part of those directly, rather he was briefed by executives on behalf of him and other members of the board.

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Frank explained that the bank's executives believed that by Sunday morning, they had been able to satisfy the need for the data and had secured the capital from the discount window and elsewhere so that they could proceed with the deal. There is still a strong suspicion in his mind that the bank's willingness to engage with crypto companies led to the bank's closure, which is why he strongly believes that the bank would have been able to open on Monday.

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Frank said in a Trade Algo interview Monday that regulators wanted to steer people away from crypto. “Our message was singled out for posterity."

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Senate Leader Schumer and House Speaker Pelosi hold a ceremony to enroll the Respect For Marriage Act in the House

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The DFS explained that its decision had nothing to do with cryptocurrency, but added that it had been facilitating well-regulated crypto activity for several years and was a national model for regulating the space.”

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As of Sunday morning, the former congressman said that he believed it was his understanding that the outflow of deposits had stabilized. However, through the weekend, the DFS described a "significant number of withdrawal requests that are still pending and mounting."

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Clients who were frightened by the collapse of SVB Financial Group's banking unit fled to larger competitors on Friday, a source said.

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As part of the discussion about a private matter, the person, who asked not to be identified, was unable to provide exact figures for how much had left the bank. It has been reported that Signature held close to $89.2 billion in deposits as of March 8, according to a statement it released Thursday. Based on that figure, it is estimated that approximately $17.8 billion was withdrawn in a single day. SVB's Silicon Valley Bank, which is owned by SVB, reportedly demanded $42 billion in withdrawals on Thursday from investors and depositors, according to a regulatory filing filed by the bank.

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The company has $4.54 billion in cash on its balance sheet and $26.4 billion in marketable liquid securities, according to a statement last week.

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In the midst of federal authorities' efforts to find liquidity solutions and reassure depositors, regulators, and bank executives grappled with outflows - which had not been previously reported.

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“Given the volume of outflows that we saw on Friday, we knew that we had to take action over the weekend so that they could open on Monday,” New York Department of Financial Services Superintendent Adrienne Harris said at a press conference held on Monday afternoon.

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There are many depositors who withdrew money from New York-based Signature, including Ran Eliasaf who said he was one of them. Currently, he is the managing partner of Northwind Group, which is a private equity investment firm providing short-term and construction financing for multifamily residences, condos, senior housing facilities, and nursing homes in New York City. 

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Friday morning at 10:30 a.m. in New York time, when Eliasaf was watching the fallout from SVB's collapse when he sent this message to his team: "It is better to be safe than sorry." He instructed them to move the "tens of millions of dollars" he had deposited in Signature to JPMorgan Chase & Co., Bank of America Corp., and a few smaller banks.