What Killed Signature Bank? - by Joseph Politano
On Sunday, March 12th, US regulators stepped in to prevent a nascent crisis in America’s banking system. They decided to make depositors at then-defunct Silicon Valley Bank (SVB) whole and, at the same time, announced they’d be closing down New York-based Signature Bank and making its depositors whole. The simultaneous initiation and resolution of the crisis for Signature’s depositors, alongside Signature’s much smaller size compared to Silicon Valley Bank and its relatively quick sale to Flagstar Bank, meant the institution’s failure didn’t garner as much press. But Signature’s collapse is worth analyzing in its own right—were it not for SVB, it would have been the second-largest bank failure in American history, even larger than the 1984 collapse of Continental Illinois.
Plus, Signature did not have precisely the same underlying problems as SVB—although both banks had concentrated depositor bases, a large share of uninsured deposits, and had sustained significant losses and deposit outflows in recent quarters, Signature did not make the same kind of large unhedged bets on long-term assets that crushed SVB when interest rates rose. Instead, it had a more concentrated exposure to New York commercial real estate and private equity lending markets and was a key player in the crypto industry, all of which made it weaker than most but stronger than SVB in the current market environment. That meant Signature entered the crisis on better footing than SVB—but that still wasn’t enough to save it. Both institutions met their demise in largely the same way—rapid withdrawals from uninsured depositors that eventually simply became too much for the banks to survive.
