On Sunday, the New York State Department of Financial Services (NYDFS) took possession of Signature Bank, leading to speculation that the regulatory action was linked to cryptocurrency. However, the NYDFS insisted that its decision to put Signature Bank in receivership “was based on the current status of the bank and its ability to do business in a safe and sound manner.” The NYDFS further stated that the closure of Signature Bank had “nothing to do with crypto.” This comes after the sector accounted for nearly 25% of the bank’s total deposits in September 2022, but it announced plans to reduce its crypto-related deposits by $8 billion in December.
Former U.S. Representative Barney Frank, who was involved in the drafting of the Dodd-Frank Act and had been a member of Signature Bank’s board since 2015, believed that the regulator’s move was related to cryptocurrency. He told CNBC: “I think part of what happened was that regulators wanted to send a very strong anti-crypto message. We became the poster boy because there was no insolvency based on the fundamentals.”
However, the NYDFS spokesperson denied these claims and shared that there was no connection between Signature Bank’s closure and crypto. The spokesperson added that the NYDFS “has been facilitating well-regulated crypto activities for several years, and is a national model for regulating the space.”
Frank expressed surprise at the NYDFS’s statement that its decision to take possession of Signature Bank was unrelated to cryptocurrency. He claimed that to his knowledge, the bank’s executives were working to provide data to regulators and suggested that crypto was a factor in the closure. “What we heard from our executives is that the deposit situation had stabilized and they would be getting the capital from the discount window and I continue to be convinced that if we had opened on Monday given the announcements of those two policies, we would have been in a reasonably good shape and certainly functional,” he said.
It is unclear whether or not cryptocurrency had any role in Signature Bank’s closure, but it is worth noting that the cryptocurrency industry has faced increased scrutiny from regulators in recent years. In the U.S., the SEC and CFTC have both taken enforcement action against cryptocurrency-related companies for violating securities laws, while the IRS has issued guidance on how to handle crypto-related tax issues.
Despite this, there are efforts to provide clarity and regulation for the industry. In December 2021, the U.S. Office of the Comptroller of the Currency (OCC) granted national banks and federal savings associations the ability to participate in stablecoin activities. The OCC also issued a letter allowing banks to use stablecoins for payment activities and clarified that banks can provide custody services for customers’ digital assets. Similarly, the U.S. Securities and Exchange Commission (SEC) has delayed its decision on a Bitcoin ETF multiple times, but many believe that approval is imminent.
In the long run, it is likely that clear regulation will benefit the cryptocurrency industry as it will provide certainty for investors and businesses. However, in the short run, there may be bumps in the road as regulators and companies navigate this relatively new industry.
In conclusion, while the closure of Signature Bank had “nothing to do with crypto,” the speculation surrounding its connection to the cryptocurrency industry highlights the increased scrutiny that this industry faces. It is important for regulators and companies to work together to provide clear and fair regulation for the industry to ensure its long-term success.