After the New York Department of Financial Services took possession of Signature Bank on Sunday, speculation mounted that regulators had seized the bank because of its crypto-friendly stance and Signet payment platform, a popular tool for the blockchain industry.
The narrative was boosted by former Rep. Barney Frank, a board member for Signature Bank, who gave a series of interviews on Monday alleging that Signature’s business was sound and New York regulators only stepped in because they “wanted to send the message that crypto is toxic” and single out Signature as a “poster child.”
DFS is pushing back. “The decisions made over the weekend had nothing to do with crypto,” a spokesperson told Fortune. “The decision to take possession of the bank and hand it over to the FDIC was based on the current status of the bank and its ability to do business in a safe and sound manner on Monday.”
As the volatile crypto sector searched for financial services options in the United States, two banks established themselves as friendly partners to the industry: Silvergate and Signature. Although both benefited crypto companies by offering real-time payment platforms—SEN and Signet, respectively—Silvergate catered almost exclusively to the crypto industry, with 90% of its deposit base composed of digital asset firms.
Signature, in contrast, had a more diverse deposit base, with 80% from “middle market businesses” such as law firms and accounting practices. Until Silvergate’s collapse on March 8, Signature was also working to reduce its crypto exposure.
After Silicon Valley Bank’s failure on Friday, Signature’s share price plummeted to the point that trading was halted, although financial experts still believed that its diverse deposit base made it more resilient than Silvergate or SVB. When DFS took possession of Signature on Sunday and appointed the FDIC as receiver, many crypto industry participants argued that regulators’ motive was to target Signature’s digital assets business and Signet platform—especially with the sector’s banking options dwindling.
The theory was exacerbated by reported confusion from Signature itself. A person familiar with the matter told Fortune that executives were taken by surprise by the DFS decision, believing that Signature did not have undue solvency risks going into Monday.
A representative for Signature did not respond to requests for comment.
The DFS spokesperson pushed back further, telling Fortune: “Throughout the weekend, with significant withdrawal requests still pending and mounting, DFS worked with bank executives to fully evaluate their financial position and their ability to meet withdrawal requests and continue operations on Monday. The bank failed to provide reliable and consistent data, creating a significant crisis of confidence in the bank’s leadership.”
They declined to provide specific deposit withdrawal figures for Signature.
DFS has established itself as one of the top crypto regulators in the country, creating the groundbreaking BitLicense virtual currency system in 2015. Even if the Signature takeover was not informed by the bank’s crypto activity, DFS’s actions will hurt its reputation with the crypto industry, warned Austin Campbell, the former chief risk officer at Paxos and an adjunct professor at Columbia Business School.
“Regardless of what DFS’s intentions were, it was taken extremely negatively by the crypto community, and it will negatively impact trust in the DFS longterm,” he told Fortune.
For now, the future of Signature is uncertain, with the FDIC deciding on the next steps after establishing a bridge bank and reportedly keeping its Signet platform operational, even as crypto companies look for other options.