3 - 4 minute read
In the wake of the recent closure of Signature Bank, mainstream media has been quick to attribute the downfall to the bank’s crypto-focused business. However, the New York State Department of Financial Services (NYDFS) has spoken out about the role of crypto in the closure, confirming that it was not the cause.
The NYDFS Superintendent, Adrienne Harris, spoke at a crypto industry conference on March 5, where she clarified that the action against Signature Bank was due to the bank’s liquidity, not because it had digital asset clients. Harris went on to describe the events leading up to the failure as “a new-fashioned bank run,” revealing that Signature Bank had a high percentage of uninsured deposits and lacked liquidity management protocols to meet withdrawal requests.
Signature Bank had around $4 billion of deposits related to its crypto asset banking business, according to the Federal Deposit Insurance Corp (FDIC). However, the closure was not due to the bank’s involvement in crypto, as some media outlets have suggested.
U.S. regulators have been heavily targeting crypto this year following the collapse of FTX in November. However, Harris is one of the few that does not see crypto as the root of all evil. According to the Wall Street Journal, she said: “The idea that the taking possession of Signature was about crypto and this is ‘Choke Point 2.0’ is really ludicrous.”
“Operation Choke Point 2.0” refers to the notion that regulators are plotting to kill crypto and cut it off from the banking system. However, Harris had a more positive outlook towards crypto than other regulatory agency chiefs. She did, however, note that the sector lacks maturity, particularly when it comes to Bank Secrecy Act-anti-money-laundering compliance and cybersecurity.
What This Means for Traders
For traders, this news confirms that crypto is not the root cause of all banking failures. While regulators are still targeting the crypto industry, it is important to note that not all regulatory agencies see crypto as a threat. However, the lack of maturity in the sector remains a concern, particularly when it comes to compliance and cybersecurity.
In terms of the current market outlook, markets have declined slightly, with a 1.3% slide in total market capitalization. Bitcoin has dropped 1.5% in a fall to $28,132, while Ethereum is down marginally at just under $1,900. However, the weekly outlook remains range-bound.
While the closure of Signature Bank has caused concern among traders, it is important to note that crypto was not the cause of the downfall. Rather, it was due to the bank’s liquidity issues and lack of management protocols. Traders should remain vigilant and continue to monitor regulatory developments, particularly when it comes to compliance and cybersecurity.