REAL CLEAR CRYPTO: US Crypto Banking Embargo Brewing?


By John Sarson | Sarson Funds, Inc.

With the FDIC’s March 12th seizure of Signature Bank, what started as a bank run on Silvergate Bank has become a coordinated attempt by the FDIC to remove crypto related firms from banks in the United States.

According to the FDIC, Signature Bank was seized due to the “Systemic Risk Exception” it presented to the US banking system.  Did Signature bank really present a “Systemic Risk”? Or as former congressman and Banking committee member Barney Frank suggests did Signature Bank “get taken down because if its association with the crypto industry”?

Here is what we know about Signature Bank’s Financial Position:

At the start of 2023 Signature had $110 Billion in assets, ranking 29th largest among U.S. banks.  This positioned Signature Bank far below the $250 Billion dollars in size that regulators suggested with their 2018 update of the Dodd-Frank act that would be necessary for a bank to be large enough to be able to present “Systemic Risk”.

At the start of the year Signature Bank had $88 billion in deposits, suggesting posited equity to liabilities of $22 Billion dollars.  At that that time approximately 5% of deposits or ($5.5 Billion) were from firms doing business in digital assets (such as Coinbase and Circle, both clients).

In its mid-quarter update (since removed from its website but still available here), Signature showed its spot deposit balances through January and February were $826 million lower. However, the bank said the decrease was “driven by the deliberate decline in digital asset client related deposits of $1.51 billion.” Excluding digital asset related deposits, Signature’s increased by $682 million for the same period.   So in summary the bank had reduced its crypto deposits to $4 Billion and saw positive deposits in other parts of its healthy and diversified business.

After this report on its business, JP Morgan, both a competitor of Signature Bank and a “too big to fail bank” with little incentive to whitewash any problems at Signature Bank, reiterated its analyst’s Buy rating on Signature’s stock just 6 days before the seizure of the Bank and one day after the failure of Silvergate put all crypto friendly banks under the microscope.

In the note JP Morgan reiterated an Overweight rating on Signature shares, writing: “On an overall basis, the mid-quarter update provided by Signature ‘threads the needle’ as the company continues to reduce exposure to digital asset related deposits…”  Others agreed. The bank had short interest of only 5%, very low for its category and  at least one person with both intimate knowledge of the bank itself and what Systemic Risk in our banking system looks like, former congressman and current member of th  board of directors Barney Frank, saw no solvency issues at the bank.  He told CNBCPolitico and other news organizations that he believed regulators shuttered Signature due to its servicing crypto clients.

Frank tells CNBC on March 16th, “I think part of what happened was that regulators wanted to send a very strong anti-crypto message. (Signature Bank) became the poster boy because there was no insolvency based on the fundamentals…”.

This claim was refuted the next day on March 14th by the New York Department of Financial Services, (of which the speed of the official denial should have immediately raised suspicions)  in a press release by the regulator’s head, Superintendent Adrienne Harris, who said Monday the bank closure was not due to its role with crypto companies, but instead, because, “The bank failed to provide reliable and consistent data, creating a significant crisis of confidence in the bank’s leadership…”.

So NOT Systemic Risk? Reporting issues? And no issues with crypto?  This wasn’t what the industry was hearing, however.

Reuters reported on Wednesday March 14thh citing two sources close to the matter that as the FDIC shopped for a buyer of Signature Bank they were requiring the purchasing bank to divest any of Signature’s crypto related deposits. On Thursday, March 16th the  FDIC responded to this report saying that “the agency would not require divestment of crypto activities as part of any sale”.

But here is what actually  happened Sunday:

The FDIC announced , that only the non crypto-related deposits held by former Signature Bank (now Signature Bridge Bank) will be assumed by Flagstar Bank, N.A., a subsidiary of New York Community Bancorp, as of Monday under a purchase and assumption agreement.

Statement: “Signature Bridge Bank depositors – other than depositors related to the digital banking business – will automatically become depositors of Flagstar, and will continue to be insured by the FDIC up the insurance limit. Not included in the sale are $4 billion of deposits related to the former Signature Bank’s digital banking business. The FDIC will provide these deposits directly to customers whose accounts are associated with the digital banking business.”  (emphasis added)

Essentially the FDIC is cashing out crypto companies. And they are doing so without advice as to where they should go.  It’s my belief that with this action, the FDIC has revealed the true motivation behind the seizure and that the official crypto banking embargo on US companies has begun. 

The thoughts expressed herein are the sole opinion of the author, John Sarson, who holds Bitcoin (BTC) and is not necessarily reflective of Sarson Funds or any other media outlets.

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