Signature Bank Failure and Its Impact on Business Lending – United Source of Capital

Why did Signature Bank fail?

The FDIC closed Signature Bank on Sunday, March 12, 2023, after a bank run in which multiple depositors withdraw their funds at the same time. Signature Bank had $110.36 billion in assets and $88.59 billion in deposits at the end of 2022, according to a New York regulatory filing.

The collapse of SVB on Friday, March 10, 2023, raised fears among Signature Bank customers, who withdrew a total of $10 billion on Friday alone. Customers moved their funds to more stable, larger banks like Citigroup and JPMorgan Chase.

Another major factor contributing to the bank run was the closure of the crypto-centric bank Silvergate. The Silvergate fallout was more expected, but concerns over the security of cryptocurrency holdings spilled over to Signature Bank customers.

As part of its expansion efforts, Signature Bank opened to cryptocurrency depositors in 2018. The bank created a 24/7 payment network for crypto customers. At the time of closing, $16.5 billion of the bank’s deposits were from digital asset clients.

Former US Representative Barney Frank served on the board of Signature Bank. He said that the bank managers were shocked by the sudden move to close the bank. The bank explored “all options” to secure liquidity, including courting potential buyers and seeking additional capital.

Bank activity slowed on Sunday, and executives believed the situation had stabilized. Instead, the FDIC removed the bank’s managers and closed the institution. The regulators are currently in the process of selling the bank while maintaining a bridge bank to serve the needs of its customers.

One possible reason for the bank’s sudden turmoil is the easing of banking regulations since the 2008 financial crisis. Signature Bank board member Barney Frank co-sponsored the 2010 Dodd-Frank Act, which established new banking regulations intended to prevent a similar financial crash.

As a board member of Signature Bank, Frank advocated for loosening Dodd-Frank Act regulations. One provision of the law applied regulations to “too big to fail” institutions, banks with assets of $50 billion or more. The bank’s board was part of a push to raise that threshold to $250 billion, allowing Signature Bank to avoid those added regulations.

Other financial experts point out that Signature Bank’s involvement in crypto is why the federal government is treating the financial institution so hard. Some industry experts speculate that the Fed wanted to make an example of Signature Bank.

What happens to Signature Bank customers?

The FDIC is committed to making Signature Bank’s depositors whole, even in excess of the $250,000 insured by the FDIC. According to 2022 regulatory filings, 90% of the bank’s $89 billion in deposits exceeded the FDIC’s maximum insured amount.

As part of the federal government’s plan to prevent financial panics and bank runs, it created Signature Bridge Bank, NA customers can access their funds and conduct normal banking operations on the bridge bank. The FDIC will update those customers on any changes and what will happen when it completes the sale of the bank.

Signature Bank customers can also visit the FDIC FAQ for answers on what they can do. Most of Signature Bank’s customers have been small and medium-sized businesses (SMEs). They should not have interruptions for salary or other basic cash needs.

Many New York-based law firms had bank accounts. It also served the commercial real estate market. Since launching in 2001 and going public in 2004, Signature Bank has been one of the fastest growing banks in the country. It expanded into other areas in 2007 with a multifamily lending unit. It also expanded into equipment financing in 2012 with its Signature Finance Unit.

Signature Bank Commercial Financing customers can still access their account details through Signature Bridge Bank. Anyone with a pending loan should contact their loan officer for more details.

Will a bank failure spread to other banks?

Speaking of the public’s loss of faith in banking institutions during the Great Depression, FDR famously said at his 1933 inauguration: “The only thing we have to fear is fear itself.” 90 years later, the current administration has its hands full suppressing those fears.

The FDIC moved to close Silicon Valley Bank on Friday, March 10, 2023, followed by the sudden closing of Signature Bank on Sunday, March 12, 2023. In both cases, the federal government took enormous steps to reassure bank customers that they would not lose their money due to insolvency.

In addition to expanding coverage for insured deposits above $250,000, the federal government announced the creation of a lending facility to help other banks generate liquidity in the event of a bank run. Instead of selling securities and other assets, banks can use those assets as collateral when borrowing from an emergency lending program. It has set aside $25 billion to cover any losses, but does not expect to use that money because the collateral has a low risk of default.

The Fed’s actions on this potential banking crisis are the most involved since the 2008 crisis. Unlike that crisis, which saw massive government bailouts, the Fed’s approach this time around aims to prevent a crisis without additional cost to US taxpayers. As required by law, the FDIC will cover any loss in support of uninsured depositors at a special assessment of the banks.

Does this affect business lending at UCS?

No, United Capital Source remains unaffected by the banking collapse. It’s business as usual. Small business owners can still access the UCS product suite, which includes:

What does a bank failure mean for the business finance industry?

The full impact on business lending and the financial sector as a whole remains unclear. The federal government is doing what it believes is best to avoid the closure of SVB and Signature Bank, which is turning into an economic crisis. Financial experts weigh what steps the government should take. Hopefully the current strategy will work and have zero or minimal impact on funding.

However, things could escalate or change in the coming months or years. The last wave of delayed regulations after 2008 (ie bank deregulation) may be over. New regulations may also emerge.

We’ll keep you posted on any significant changes, especially those that affect the world of small business financing.

Signature Bank Collapse – Final Thoughts

The closing of Signature Bank created a lot of controversy in the financial community. The collapse of SVB was the second largest bank failure in US history, with the third occurring just two days later. A bank closure is a $100 billion loss to the financial sector.

There will be many financial prognosticators making claims about the future of finance and banking. People have a lot of questions when numbers and statistics like these come out. Panic is the only thing that can turn a problem into an economic crisis. We recommend patience and caution.

This is still a developing story in the first few days of its aftermath. We’ll let you know about any major news as it comes out. Feel free to contact us if you still have concerns about financing options for your business.

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