The FDIC Wants The Purchaser Of Signature Bank To Discontinue Its Cryptocurrency Activity

Even after New York regulators took control of the bank and put it into Federal Deposit Insurance Corporation receivership over the weekend, Signature Bank remained one of the industry's few remaining financial choices in the United States.

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According to a Wednesday story from Trade Algo, the FDIC is now requiring potential owners of the bankrupt institution to agree to give up the bank's cryptocurrency operations.

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The circumstances behind the demise of the New York-based bank have sparked debate in the US crypto community. One of the few American banks, Signature, would provide financial services to blockchain startups. Its real-time processing company Signet, used by companies like USDC issuer Circle to handle transactions after business hours, helped make Signature even more well-known.

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Despite its prominence in the cryptocurrency sector, Signature's deposit base only made up around 25% of that market; instead, the bank mostly caters to middle-market companies like real estate and legal firms.

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The CEO of Signature announced in December that it will cut its crypto assets by $2 billion because its share price fell in an effort to lessen its exposure as the bear market in cryptocurrencies gathered momentum.

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According to a Trade Algo, several crypto enterprises fled to Signature when the symmetric encryption Silvergate Bank failed last week. This departure pushed some of Signature's more traditional clients to seek out safer alternatives.

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Then, after the New York Department of Financial Services seized control of Signature on Sunday, bank board chairman Barney Frank—a former lawmaker who contributed to the creation of the Dodd-Frank banking reform legislation—gave a number of interviews in which he attributed the takeover to Signature's exposure to cryptocurrencies. The bank failed to deliver trustworthy and consistent data, causing a "major crisis of confidence in the bank's leadership," according to a DFS spokeswoman who refuted the claims.

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Despite the denial from DFS, rumors in the crypto community persisted that the takedown of Signature was motivated by its pro-crypto stance, and that the forced failure was a component of a larger regulatory "Operation Chokepoint 2.0" to undermine crypto in the United States. This was done in reference to a previous Department of Justice action plan to target banks that worked with specific sectors.

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The FDIC continued to run the Signet platform for Signature despite the ambiguity. Circle stopped utilizing the processor, although Coinbase declared it was still in service.

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A Coinbase representative said in a statement to Fortune on Wednesday that "Signet continues to operate and all previous and present customer deposits continue to be FDIC-insured.

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According to the Trade Algo, Signature's status as a bank that supports cryptocurrencies is in jeopardy. Unnamed sources claim that the FDIC intends to sell the whole Signature portfolio using an auction conducted by the investment bank Piper Sandler. Trade Algo reported on Tuesday that U.S. authorities were looking into Signature's activity with crypto clients prior to the DFS takeover, in addition to any acquirer of Signature having to give up its cryptocurrency business.

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Requests for comments were not immediately answered by the FDIC.

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The ruling would probably prevent crypto firms from accessing the vital Signet platform, forcing them to look for alternatives. The Coinbase representative told Fortune on Wednesday that if Signet went out of business, there would be other competitors in the market to fill the hole.

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The representative stated, "Crypto is resilient and we'll absorb it and move on just as we did in prior incidents. As we witnessed over the weekend."