In an effort to prevent the banking crisis from spreading, New York state regulators closed down Signature Bank, a major lender in the cryptocurrency industry, on Sunday, according to a report by CNBC.
“We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority,” noted the Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. in a joint statement late Sunday, the outlet noted.
Like the measures taken to ensure that depositors at the collapsed Silicon Valley Bank get their money back, banking regulators have announced that depositors at Signature Bank will have complete access to their deposits, said the report.
“All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer,” the federal regulators said.
In what has become the second-largest banking failure in US history -- the most since the 2008 crisis -- regulators closed down Silicon Valley Bank on Friday and took control of its deposits. This move was prompted by the bank's announcement that it was facing financial difficulties, leading to a run on its deposits, CNBC reported.
Signature Bank, which was shut down by regulators on Sunday, is a crucial bank for the cryptocurrency industry, second only to Silvergate. The bank had a market value of $4.4 billion as of Friday, following a 40 percent decline in value this year, according to FactSet, the outlet noted.
According to a securities filing, as of December 31st, Signature Bank had $110.4 billion in total assets and $88.6 billion in total deposits.
To prevent further damage and avert a more significant crisis, the Federal Reserve and Treasury Department established an emergency program, using the Fed's emergency lending authority, to provide support to depositors affected by the closure of both Signature Bank and Silicon Valley Bank, said CNBC.
The financial crisis of 2008 was a major economic downturn that affected the United States and the entire world. The crisis was caused by a combination of factors, including the housing bubble, risky mortgage lending practices, and the use of complex financial instruments such as derivatives.
The housing bubble began in the early 2000s, when low interest rates and lax lending standards led to a surge in demand for housing. This led to a rapid increase in home prices, with many people purchasing homes they could not afford. As interest rates began to rise and the housing market began to cool, many homeowners found themselves unable to make their mortgage payments.
At the same time, banks and other financial institutions were engaging in risky lending practices, such as offering subprime mortgages to borrowers with poor credit histories. These mortgages were often packaged together and sold as securities to investors, who assumed that the underlying mortgages were safe and would continue to generate income.
When the housing market began to decline and homeowners began defaulting on their mortgages, the value of these securities plummeted. This triggered a chain reaction throughout the financial system, as banks and other institutions that held these securities were forced to write down their losses and sell off assets to raise cash.
The crisis was also exacerbated by the use of complex financial instruments such as derivatives, which allowed investors to bet on the performance of these securities. When the underlying assets began to fail, these derivatives became worthless, causing further losses throughout the financial system.
The impact of the financial crisis was severe, with millions of people losing their homes and jobs. The crisis also had a ripple effect throughout the global economy, as banks and other institutions that had invested in these securities saw their own financial positions weakened.
In response to the crisis, the U.S. government implemented a series of measures aimed at stabilizing the financial system and preventing a complete economic collapse. These measures included the Troubled Asset Relief Program (TARP), which provided funds to banks and other institutions to help stabilize their finances. Despite these efforts, the impact of the crisis was felt for years afterward, with many people struggling to recover from the economic downturn.
Democrat-led legislation at the time was supposed to prevent future incidents of mass bank failures, but obviously, they failed.