A takeover of a New York-based bank was created to send a warning to U.S. banks not to get involved in the cryptocurrency industry, according to former U.S. Congressman Barney Frank.
Frank, who was on the bank’s board, believes that the state officials responsible for the action were attempting to make an example of Signature Bank.
“This was just a way to tell people, ‘We don’t want you dealing with crypto,’” Frank told The Associated Press in a telephone interview Monday.
The Democrat, who served in Congress from 1981 to 2013, co-authored the Dodd-Frank Act that increased government oversight of banks after the 2008 financial crisis.
He attended as a director of Signature Bank until the New York Department of Financial Services gave control to the FDIC until the bank could be sold.
Two days after the regulators had taken over, the California-based Silicon Valley Bank also reported a rush of withdrawals from banks, which was a boon for tech companies.
New York Gov. Kathy Hochul described the takeover as a way of preventing a larger crisis that could have resulted in more bank losses.
“Our view was to make sure that the entire banking community here in New York was stable, that we could project calm,” Hochul said in a news conference Monday.
Signature Bank, established more than 20 years ago, has 40 offices in the United States, and specializes in providing banking services for privately-owned businesses, their owners, and their senior managers.
The bank claimed it was the first FDIC insured bank to launch a digital payment platform based on blockchain technology.
As worries about Silicon Valley Bank mounted last week, Signature Bank issued a statement to reassure clients and investors that it was stable. The statement reminded cryptocurrency holders that, despite all its efforts to accommodate them, it was still not ready to serve them. “does not invest in, does not trade, does not hold, does not custody and does not lend against or make loans collateralized by digital assets.”
By Friday, there were more withdrawals than usual. Frank believes they were “based solely on the contagion from SVB.”
It was reported that the situation had stabilized by Sunday, when New York regulators took control.
The Bank had assets of more than $110 trillion, making it the third largest banking failure in American history.
Unlike Frank, Hochul did not mention cryptocurrency in its weekend shuttering. She said withdrawals were still being made so that the necessary action could be taken.
The state regulator went one step further by announcing Signature Bank was not a cryptocurrency bank.
“This is not about a particular sector in the case of Signature Bank, but we moved quickly to make sure depositors were protected,” said New York Financial Services Superintendent Adrienne Harris.
The bank was reopened Monday under the operational control and supervision of FDIC Signature Bridge Bank after the top executives of its bank were fired.
Also Monday, the FDIC announced that those with deposits in both banks would have full access to them — even the amounts that exceed the regular $250,000 insurance limit.
Frank said that, if the FDIC had agreed to insure all deposits Friday instead of waiting until Monday, Signature Bank would have been impossible to take over. He said the insurance limit for businesses should be permanently increased, according to Congress, to an amount sufficient to cover the payroll of most firms for a few months.
Frank said there is no recourse according to the bank’s former operators.
