Inside The Government Seizure Of Signature Bank

Scott Shea called the government’s seizure of Signature Bank the most traumatic period of his life. He said the bank had announced $34 billion in cash and liquidity, faced an $18 billion deposit run on the Friday after Silicon Valley Bank ran out of money, and raised $20 billion over the weekend. In Shea’s view, Signature still had plenty of capital when the government took it; his account does not establish what officials relied on in making that decision.

Signature opened on May 1, 2001, to serve New York’s middle market, which its founders believed large banks underserved. It grew organically to $110 billion in assets without making acquisitions, a strategy the guest described as successful. That growth and the bank’s specialized services formed the business context for its eventual seizure, though the synopsis does not detail the government’s stated rationale.

Signature also became friendly to crypto businesses and built SIGNET, a blockchain-enabled system for making money transfers around the clock. The guest said about $1 trillion had passed through SIGNET by the end of 2022. The scale of activity highlights how important the platform had become to the bank’s offering, but the synopsis does not say that crypto exposure caused the failure.

The host connected Signature’s collapse to the broader banking crisis and asset-liability mismatches after interest-rate hikes. The guest rejected that explanation, saying Federal Reserve rate hikes had nothing to do with the bank’s failure. He pointed to Signature’s March 1, 2023 filing as evidence that its mark-to-market position was positive and criticized journalists for reporting otherwise without checking the filing. The episode therefore presents a sharp disagreement over whether interest-rate effects explain Signature’s condition.

Shea said he testified before both the House and Senate and argued that the banks should not have been taken, but he declined to identify who made the decision to seize Signature. A rumor circulated that Signature was shut down because it banked the mafia. Shea said he had not heard the rumor, and the transcript excerpt ends before he answers the host’s question about it; the claim is therefore left unresolved, not substantiated.

Shea argued that fractional banking depends on government-backed deposit insurance and a lender of last resort, and that the government can withdraw insurance and shut a bank without notice or recourse. He noted that deposits are insured up to $250,000 and recommended Nick Carter’s writing on “Chokepoint 2.0,” saying Carter was among the few writers to cover Signature. These are Shea’s arguments about the government’s power and the protections depositors can rely on, rather than findings established in the synopsis.

Shea said he and co-founders Jeffrey Wallace, Aurel Bonnell, and Kylo Donnell started n3xt, a business-to-business bank that holds deposits in short-term Treasuries rather than lending them out. It uses a blockchain core ledger, aims to provide 24/7 payments and direct government backing for all deposits, and had soft-launched with accounts available to businesses. Those design choices reflect the founders’ stated approach to liquidity and payments, but the synopsis does not establish how n3xt’s model will perform or what form its promised deposit backing will take.