New York-based Signature Bank abruptly closed down its operations on Sunday due to regulatory concerns. As per the reports, the shuttering of Signature Bank emphasizes the difficulties that small and mid-sized banks encounter, especially those that concentrate on specialized areas of business with a narrower client base than larger banks. This highlights the particular vulnerability of such banks to bank-runs and other challenges in the financial industry. Smaller banks like Signature Bank are more susceptible to bank-runs, which can lead to severe financial repercussions.
The recent closure of SVB, a lender to start-ups, due to untimely economic decisions further exacerbated the problem. As soon as the news of the bank’s difficulties spread past week, many business customers of Signature Bank began contacting the bank to inquire about the security of their entire deposits. Most of these customers had above $250,000 in bank accounts, meaning the Federal Corporation’s insurance policy did not cover their deposits. (FDIC), the entity that seized Silicon Valley Bank. However, regulators have announced that customers will be returned regardless of the money in their respective accounts.
Signature Bank’s closure will affect many professional services firms that relied on its specialized banking services. The bank had under $100 billion assets and had long specialized in providing all escrow accounts known for holding client money, among other services. The bank also served wealthy families and clients like the Trump Organization. Signature Bank went public in 2004 and has expanded its business nationally, particularly on the West Coast, over the past decade.
One of the factors that led to Signature Bank’s closure was its significant real estate lending business. The bank had been experiencing financial difficulties due to its exposure to the real estate market and the overheated crypto industry, from which it had welcomed deposits. As the cryptocurrency industry collapsed last year, Signature Bank was among the banks that suffered significant losses.
Regulatory filings show that 90% of Signature Bank’s deposits of approximately $88 billion at the end of past year were uninsured. The sudden closure of the bank highlights the risks that both banks and customers face in the absence of adequate deposit insurance coverage.
