Signature Bank facts for kids
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| Public company | |
| Traded as |
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| Industry |
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| Fate | Failed due to systemic risk and taken into receivership by the Federal Deposit Insurance Corporation |
| Founded | May 1, 2001 |
| Defunct | March 12, 2023 |
| Headquarters | New York City, New York, U.S. |
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Key people
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 US$918 million (2021) |
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| Total assets | US$118 billion (2021) |
| Total equity | US$6.84 billion (Q2 2021) |
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Number of employees
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1,854 (2021) |
| Parent | Federal Deposit Insurance Corporation |
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Signature Bank was a New York-based full-service commercial bank with 40 private client offices throughout New York, Connecticut, California, Nevada, and North Carolina. In addition to banking products, specialty national businesses provided services specific to industries such as commercial real estate, private equity, mortgage servicing, and venture banking; subsidiaries of the bank provided equipment financing and investment services. At the end of 2022, the bank had total assets of $110.4 billion and deposits of $82.6 billion; as of 2021, it had loans of $65.25 billion.
Signature Bank was founded in 2001 by former executives and employees of Republic National Bank of New York after its purchase by HSBC. It focused on wealthy clients and built personal relationships with them. For most of its history, it had offices only in the New York City area. In the late 2010s, it began to expand geographically and in terms of services, though it was most noted for its 2018 decision to open itself to the cryptocurrency industry. By 2021, cryptocurrency businesses had represented 30 percent of its deposits.
Banking officials in the state of New York closed the bank on March 12, 2023, two days after the failure of Silicon Valley Bank (SVB). After SVB failed and in light of the closure of the cryptocurrency-friendly Silvergate Bank earlier in the week, nervous customers withdrew more than $10 billion in deposits. It was the third-largest bank failure in U.S. history.
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Establishment and expansion
Signature Bank opened on May 1, 2001. It was founded by Joseph J. DePaolo, the bank's president and chief executive officer; Scott A. Shay, chairman of the board; and John Tamberlane, vice chairman and director. DePaolo and Tamberlane had left Republic National Bank of New York after it was purchased by HSBC the year prior. Six branches were opened simultaneously across the New York City area, with the goal to cater to wealthy clients and middle-market business managers with $250,000 in assets: DePaolo described the target audience as "the guy who started his business in Brooklyn and is now worth $20 million". The bank was a subsidiary of Bank Hapoalim of Israel, which provided over $60 million in initial capital. Among its first employees were 65 former Republic Bank employees, who left en masse on April 27, days before Signature opened its branches. The bank quickly grew to $950 million in assets by February 2003, ranking in the top five percent of US commercial banks just 20 months after being founded and beginning to turn a profit. It also made relatively few loans: adopting a strategy once used by Republic Bank, it put its assets in instruments with lower yields. This led to a net interest margin of 2.8 percent, lower than many comparable banks.
The bank completed its initial public offering in March 2004 and began trading on the NASDAQ under the symbol SBNY. While remaining solely focused on the New York metropolitan area, Signature continued to rapidly grow, becoming one of the fastest-growing public companies in New York and one of the fastest-growing public banks for loan growth. It made a practice of hiring bankers—and luring their clients—from recently merged banks; it emphasized personal relationships so thoroughly that it did not advertise and its bank branches did not have street signs. From 2004 to 2014, its stock price rose 650 percent, a return 10 times the S&P 500 and double Silicon Valley Bank's parent, SVB Financial Group, the next highest-performing institution; a 2014 article in Crain's New York Business hailed Signature as "New York's most successful bank".
Beginning in 2007, it expanded into other areas of business, starting with the launch of a multifamily lending unit. The bank expanded into equipment finance in 2012 through its Signature Financial unit. Additionally, Signature cultivated a major business in servicing the New York area's law firms. An increase in loan activity offset its traditional reliance on mortgage-backed securities; its large capital cushion helped it to protect the many depositors whose accounts were larger than the Federal Deposit Insurance Corporation (FDIC)-insured $250,000. Signature Financial's taxi medallion lending business was hurt by the rise of car sharing platforms such as Uber. Signature continued to post profits despite losses associated with medallion loans. The bank's assets approached $50 billion by 2017.
In 2018, the bank expanded its footprint and commenced operations on the West Coast with the opening of its first private client banking office in San Francisco. The move came the year after DePaolo, once reluctant to geographic expansion, opened the door to adding additional markets in comments made at an investors' conference. In 2020, the bank continued its expansion throughout southern California, opening new offices in Newport Beach, Woodland Hills, and Ontario. 2022 brought the opening of an office in Reno, Nevada, and a West Coast operations center in City of Industry, California.
In addition to the West Coast, Signature Bank also began a private client operation in North Carolina by luring a group of high-profile bankers from the former Square 1 Bank, a part of PacWest Bancorp, in 2019. By 2021, it was the fourth-largest bank by deposits in the Durham–Chapel Hill metropolitan area.
Operations in the final years
General services
Signature Bank offered business and personal banking products and services with a focus on lending and deposits. The bank utilized a team model, paying its bankers on an "eat-what-you-kill" basis reminiscent of brokerage firms. In 2015, nearly 150 senior bankers reported directly to DePaolo; some made more than the CEO. It cultivated a reputation of being loyal to its clients, which in turn incentivized them to conduct further banking business with Signature. Irv Gotti became a loyal Signature customer after it allowed him to use its services while on trial for federal money laundering charges in 2005; even though he had not been found guilty, other banks refused to let him maintain accounts. Among the company's nine national businesses in 2022 were commercial real estate lending, fund banking for private equity investors, venture banking for the technology industry, specialized mortgage banking, and corporate mortgage finance.
In addition to banking products, two Signature subsidiaries provided additional services: Signature Securities Group Corporation, an investment advisory firm, and Signature Financial LLC, an equipment financing and leasing division.
Cryptocurrency
Cryptocurrency became a focus of the bank's activities in its final years after deciding to accept customers from the industry in 2018, and the ability of cryptocurrency companies to utilize the services of banks like Signature gave the sector legitimacy and credibility. In 2021, more than 16 percent of its deposits came from the sector, a figure that had risen to 30 percent by February 2023, and it also held reserve monies from the Circle-managed USDC. While cryptocurrency enthusiasts boosted the bank's stock from $75 to $375 a share in little over a year, this strategy proved risky and gave the bank an image of being a "crypto bank", a label founder DePaolo tried to shed in an interview with the Financial Times in July 2022. After consistently growing deposits, it began to experience outflows of deposits from the bank evenly split between crypto clients—as part of a strategy to actively reduce its deposits from digital asset lending—and its New York private banking customers. Some investors privately raised concern about liquidity: per the Financial Times, "as Signature banks eight of the 12 largest crypto brokers, for instance, an implosion of the industry in a credit crunch could see their deposits rapidly evaporate". The bank in response reduced its involvement in the sector. On February 20, 2023, DePaolo, the bank's only CEO in its nearly 22-year history, announced his departure effective March 1—unrelated to the crash of the cryptocurrency bubble—to become a senior adviser; chief operating officer Eric Howell was to replace DePaolo as CEO at a later date.
The core of its cryptocurrency business was Signet, a payment network opened in 2019 for approved clients that allowed the real-time gross settlement of fund transfers through the blockchain without third parties or transaction fees, similar to Ripple. By the conclusion of 2020, Signature Bank had 740 clients using Signet. In its 2022 annual report, the bank cited the use of Signet by payroll processing and logistics clients in addition to digital asset banking.
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On March 12, 2023—a Sunday—Signature Bank was closed by the New York State Department of Financial Services after New York state officials began lobbying two days prior for a takeover of the institution. The bank proved unable to close a sale or otherwise bolster its finances before Monday morning in order to protect its assets after customers began withdrawing their deposits in favor of bigger institutions. The bank's failure was designated as a systemic risk to the financial system, allowing for extraordinary measures to be taken to ensure the availability of funds beyond the Federal Deposit Insurance Corporation (FDIC)-insured $250,000.
The FDIC was appointed as the bank's receiver and immediately established Signature Bridge Bank, N.A. , which the FDIC would operate as it marketed its assets to bidders. The FDIC appointed Greg D. Carmichael, former president and CEO of Fifth Third Bancorp, as the bridge bank's CEO. As of December 2022[update], 90 percent of $89 billion in bank deposits exceeded the maximum insured by the FDIC. All depositors are expected to be made whole. Holders of Signature Bank equity and bonds may face losses.
The closure came amid an ongoing string of United States bank failures, days after the collapse of Silicon Valley Bank and the failure of Silvergate Bank, the other major bank for the cryptocurrency industry. At the time of closure, the bank had $110 billion in assets. The bank failure was the third-largest in U.S. history, behind the Silicon Valley Bank collapse and Washington Mutual's closure in 2008.
The collapse was rapid in nature and surprised insiders. Even though the bank had experienced significant outflows of deposits on Friday, executives with the bank believed they were well-capitalized and could absorb the losses. Former U.S. congressman Barney Frank, who was a member of the bank's board, noted that in the wake of the SVB collapse, clients became concerned over the bank's exposure to crypto and withdrew their funds, resulting in an "SVB-generated panic" that only set in late on Friday. That day, according to Frank, customers withdrew more than $10 billion in deposits. Analyst Christopher Whalen attributed the bank's failure to its cryptocurrency involvement, which he called a "huge error in judgment by veteran bankers".
Signature's collapse had a significant impact on several industries. Circle informed customers that it could not mint or allow redemption of its USDC stablecoin through Signet after the bank closed. Coinbase, which held $240 million with Signature, noted that its customers' use of Signet would need to be confined to banking hours only. Crain's New York Business noted that Signature was one of the "most dependable" sources of funding for real estate transactions and renovation projects in the New York area alongside much larger banks, representing the majority of its $33 billion in outstanding mortgage-backed loans. It also was a major player in lending for rent regulated properties. One general manager on Broadway told The Hollywood Reporter that the seizure of the bank merited a "thank you note" to the federal government, as it was one of two major banks used by theatre productions alongside City National Bank and some shows may not have been able to make payroll.
See also
In Spanish: Signature Bank para niños
