The move has sparked controversy and raised concerns about the relationship between traditional financial institutions and the emerging world of cryptocurrency.
Signature Bank SBNY , one of the largest banks in the United States, has been forced to shut down by the New York Department of Financial Services (NYDFS). Regulators are now conducting a sales process for the bank, while guaranteeing that customers will have access to deposits and service will continue uninterrupted. The move has sparked controversy.
Silicon Valley Bank was shut down and then regulators came in to provide access to deposits. Much has been written about what caused this: the lack of risk management — and the duration mismatch of assets and liabilities in mortgage backed securities and bonds bought during zero interest rate environments to get yeied. In record high interest rate environments when those are called in early they have to be sold at a discount to meet depositor requests. This led to the run on the bank that was then avoided by the US government — but then Signature was then shut down right after that.
There has been ample criticism of Fed policy and interest rate hikes leading to instability in bank treasury management. There has also been a barrage of regulatory enforcement action against the crypto industry in 2023.
