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Regulators closed Signature Bank on Sunday, March 12 due to "systemic risk," marking the third-largest bank failure in U.S. history within days of the second-largest – the collapse of Silicon Valley Bank.
Former congressman Barney Frank, a board member at Signature, told CNBC in an interview that regulators shuttered the bank in order “to send a very strong anti-crypto message” to the rest of the industry.
Crypto expert Scott Melker, host of "The Wolf of All Streets" podcast, agreed, saying crypto-friendly Signature Bank was closed as part of an effort by the U.S. government to cripple the digital asset industry.
"Banking crisis has nothing to do with crypto. It was a result of Fed policy and bank mismanagement. But government took the opportunity to close Signature Bank on a weekend to help crush the crypto industry. Absolute insanity," Melker said.
This comes as Decrypt reported several prominent crypto companies had done business with Signature, including digital asset exchange Coinbase and stablecoin issuer Paxos.
One influential crypto trader with Wash Wealth Group told their 446,000 Twitter followers that the closures of Signature, Silicon Valley Bank and Silvergate within the last two weeks feel like a coordinated attack on the digital asset industry.
"This seems more like a war against crypto than actual flaws in the banking system," the tweet said.
Jon West, a founding member of the Texas Blockchain Council, told the Lone Star Standard that heavy-handed regulation of the crypto sector will stifle innovation and should not be viewed as a solution, even though it might be simpler than ironing out nuanced regulation.
"Just like the early internet, crypto is currently the Wild West but that's where innovation comes from," West said. "Things are continuously moving faster and are bigger due to technology….We don't want Congress or regulators making hasty decisions without information. The loud call for immediate regulation is likely not the answer.”
Silvergate had been one of the leading lenders to the crypto industry, along with Signature Bank, before it announced it was entering voluntary liquidation earlier this month. Adam Cochran, founder of the venture capital firm Cinneamhain Ventures (CEHV), said Silvergate Bank's liquidation is not due to its involvement in the crypto industry, but rather was caused by problems stemming from traditional finance.
"Silvergate didn't fail because of crypto risk, or because of illegal actions (that we know of), it failed because it followed the OCC rules for bank partial reserves, bought low liquidity Muni Bonds and then had a bank run. This was a failure of banking, not crypto," Cochran wrote in a tweet. Melker further called Silvergate's liquidation "exactly the ammo the government needs to try to cut the crypto industry off from the banking system."
John Reed Stark, former head of the U.S. Securities and Exchange Commission (SEC) said in a tweet that other banks might be scared away from the crypto industry now, which could lead to reduced crypto adoption in the U.S.
"Given Signature/Silvergate failures, any bank doing any crypto-related work poses a systemic threat and faces a 24/7 U.S. regulatory colonoscopy," Stark wrote in his tweet. "If there is no way to cash-in casino chips after gambling, people will stop going to casinos. Bye crypto."
In a joint statement, Treasury Secretary Janet Yellen, Federal Reserve Board Chair Jerome Powell and Federal Deposit Insurance Corporation (FDIC) Chairman Martin Gruenberg said the FDIC is going to ensure that all Silicon Valley Bank and Signature Bank depositors are made whole, according to a release. The statement said that both insured and uninsured depositors , as well as shareholders, are not guaranteed to be "protected," andbut that the U.S. banking system is "resilient and on a solid foundation."
Texas is home to the largest Bitcoin mining operation on the continent, and the Texas Work Group on Block Chain Matters has been exploring the potential benefits of increased use of blockchain technology in the state, according to the Office of the Texas Comptroller.