On Sunday, March 12, 2023, New York-based Signature Bank, one of the top U.S. banks popular with Web3 and cryptocurrency companies, was closed by the Department of Financial Services of New York.
Subsequently, the Federal Deposit Insurance Corporation (FDIC) was named Receiver. No advance notice is given to the public when a financial institution is closed.
To protect depositors, the FDIC transferred all the deposits and substantially all of the assets of Signature Bank to Signature Bridge Bank, N.A., a full-service bank that the FDIC will operate as it markets the institution to potential bidders.
This news has sent shockwaves throughout the Web3 and cryptocurrency industry, leaving the crypto community wondering which bank might be next on the SEC and FDIC chopping block.
Before this news, we just recently reviewed the Top 5 U.S.-based crypto-friendly banks following the wake of Silvergate and SVB crashes, with Signature Bank among the available banking options for Web3 and crypto companies.
Signature Bank's closure due to a possible investigation into cryptocurrency-related clients is not an isolated incident. In recent years, many banks have become increasingly wary of doing business with cryptocurrency companies due to concerns over fraud, money laundering, and other illegal activities. Some banks have even gone so far as to ban their customers from purchasing cryptocurrency with their credit cards.
This trend has been particularly pronounced in the United States, where regulators have been cracking down on cryptocurrency companies in recent years. The Securities and Exchange Commission (SEC) has been particularly active in pursuing companies that violate securities laws. The Department of Justice (DOJ) has been targeting companies that engage in money laundering and other illegal activities.
Signature Bank's closure and restrain from doing business with cryptocurrency companies likely reflects these broader trends. The bank likely decided that the risks associated with doing business with the crypto exchange activities outweighed the benefits. However, this decision has had a major impact on the cryptocurrency industry, as many companies rely on traditional banks for their banking needs.
The closure of Signature Bank's accounts has highlighted the need for the cryptocurrency industry to find alternative banking solutions. One option many companies are exploring is using decentralized finance (DeFi) platforms. These platforms are built on blockchain technology and allow users to access financial services without the need for traditional banks.
However, there are many challenges associated with using DeFi platforms. For one, they are still relatively new and untested, and there is a risk that they may be unable to handle the volume of transactions that traditional banks can. Additionally, DeFi platforms are still subject to regulatory scrutiny, and there is a risk that regulators may shut them down if they violate securities or other laws.
Another option many cryptocurrency companies are exploring is using offshore banks. Offshore banks are typically located in countries with more lenient banking regulations and may be more willing to work with cryptocurrency companies. However, using offshore banks comes with risks, including the potential for regulatory crackdowns and the risk of losing access to funds if the bank goes bankrupt or is seized by regulators.
While it's impossible to say, other banks will likely follow suit in the coming years as regulators continue to crack down on the industry.
One bank that has already taken a hardline stance against cryptocurrency companies is JPMorgan Chase. The bank's CEO, Jamie Dimon, has been a vocal critic of cryptocurrencies, calling them a "fraud" and "worse than tulip bulbs" in the past. It's possible that JPMorgan Chase could be the next bank to close the accounts of any major cryptocurrency company. However, the bank has not made any official statements on the matter.
Overall, the closure of Signature Bank has highlighted the challenges the cryptocurrency industry faces in finding reliable banking solutions. While several options are still available, each has risks and challenges. As the DeFi industry matures and evolves, it will be interesting to see how companies adapt to these challenges and find new ways to meet their banking needs.