Perhaps you were unplugged this weekend, enjoying a much deserved break from the world. If so, I regret to inform you of an impending banking crisis. On Friday, regulators seized Silicon Valley Bank due to insolvency concerns. The bank specialized in providing financial support to tech and startup companies, and the quick fall of the bank is particularly concerning for the venture capital and private equity industries.
There’s also been widespread worry and speculation about the impact of SVB’s collapse and how far that might spread. Regulators have been working to stem the turmoil, but not before another bank was forced to close. On Sunday, regulators shut down New York-based Signature Bank, making it the third largest bank failure in U.S. history.
Obviously, this will have a tremendous impact on Signature’s customers. According to the New York Times, most had assets in the bank in excess of the $250,000 limit insured by the FDIC — which helped to fuel the run which ultimately led to the bank’s collapse.
So, which industries are impacted by Signature’s collapse?
The demise of Signature, with assets of under $100 billion, is a blow to many of the professional services firms that have come to rely on it. The bank long specialized in providing banking services to law firms, providing escrow accounts for holding client money and other services.
One of Signature’s specialties was financing the purchase of taxi medallions, which authorize holders to operate cabs. It was known in New York for providing banking services to law firms and real estate companies, and for catering to wealthy families in the area.
Hmm, that’s a rather… staid portfolio to experience such an epic collapse. Perhaps something else was going on?
The bank also said its digital asset-related client deposits stood at $16.52 billion. Signature was one of the few financial institutions that had opened its doors to taking deposits of crypto assets, a business it entered into in 2018.
That ended up being a fateful decision because the bottom fell out of crypto assets after the collapse of FTX and an ensuing criminal investigation. Another cryptocurrency-focused bank, Silvergate Bank, was forced to voluntarily close last week.
“This story has more to do with crypto, huge error in judgment by veteran bankers,” said Christopher Whalen of Whalen Global Advisors, which specializes in analyzing and consulting on financial institutions. “Result was the same in a deposit run.”
Ahhhh, there it is, that’s the ticket.
But law firm partners don’t have to worry about their deposits — even those in excess of $250,000. Regulators said all customers of Signature (and SVB) will be made whole.
Kathryn Rubino is a Senior Editor at Above the Law, host of The Jabot podcast, and co-host of Thinking Like A Lawyer. AtL tipsters are the best, so please connect with her. Feel free to email her with any tips, questions, or comments and follow her on Twitter @Kathryn1 or Mastodon @Kathryn1@mastodon.social.