Regulators shut down Signature to send the message that crypto is toxic - Barney Frank
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(Kitco News) - Barney Frank – the former congressman who coauthored the Dodd-Frank Act following the 2008 market collapse in an effort to overhaul US banking regulation to prevent another global financial crisis – spoke recently on the unfolding developments related to Signature Bank and suggested that regulators were trying to make a point that crypto is dangerous.
“Crypto panic generated that set of withdrawals,” said Frank, who sits on the board of Signature Bank. “By Sunday, we had stabilized the situation … But I believe the regulators, especially the New York state regulators, wanted to send the message that crypto is toxic.”
Frank made the comments during an interview on Bloomberg radio on Sunday. “I think that if we’d been allowed to open tomorrow, that we could’ve continued – we have a solid loan book, we’re the biggest lender in New York City under the low-income housing tax credit,” Frank said in the Sunday night interview. “I think the bank could’ve been a going concern.”
The New York Department of Financial Services (NYDFS) took control of Signature Bank on Sunday, just two days after the tech-friendly Silicon Valley Bank (SVB) experienced a bank run that resulted in regulators shutting the bank down to prevent further contagion.
“They closed us even though there was no good, compelling reason to do that because they wanted to show that banks shouldn't be involved in crypto,” said Frank. “We were the kind of poster child for having been involved in crypto."
The collapse of SVB and subsequent announcement about Signature Bank plunged the crypto market into chaos and threatened the stability of the second leading stablecoin, USD Coin (USDC), whose parent company Circle held some of the cash reserves backing USDC at SVB.
Prices began to reverse course late on Sunday, however, after President Biden announced that his administration was taking emergency actions to extend a federal backstop to all of Silicon Valley Bank’s deposits in order to ensure access to all of those funds on Monday.
Frank applauded the government’s response to create an emergency safety net for uninsured deposits but suggested that had the Federal Reserve and the Federal Deposit Insurance Corp. acted sooner, taking Signature Bank could have been avoided.
“If they had done that on Friday, by the way, we would still be a bank,” Frank said, adding that the bank had been in conversations with regulators since Friday. “They called the bank on Sunday and said, 'We're coming over.' And they came in and took over.”
Signature Bank was a major service provider for some of the biggest firms in crypto, including Circle, Coinbase and Coinshares, so it's possible that the government was moving preemptively to help prevent another major contagion event in the crypto ecosystem.
“We, like Silicon Valley, have a large number of uninsured deposits and are seen as a crypto bank, although our crypto involvement is very different than what people thought and is very carefully constructed so as not to put us at risk,” Frank said, adding that the U.S. needs more crypto regulation. “The banks should be strictly regulated with regard to, for instance, people have crypto that they say is 100% dollar-backed, they have to absolutely show that.”
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As it stands now, Signature Bank’s customers have automatically become customers of the FDIC-controlled Signature Bridge Bank. Regulators will proceed to sell the bank and its assets in the coming days, which will provide additional insight into how serious the problem actually was, according to Frank.
"What's the sale price?” Frank said. “If it's got to be sold at a very severe discount, well, maybe that shows there were problems with Signature. If it's sold at a better price, which I think it will be, that's proof of our argument that they shut down Signature as a general warning shot against crypto rather than anything that was Signature's fault."
According to the New York Department of Financial Services, Signature had $110.36 billion in total assets and $88.59 billion in deposits as of Dec. 31.