With the announcement of Silvergate Bank’s failure on March 8, 2023, the cryptocurrency markets had a turbulent week. The cryptocurrency-friendly bank made the public aware that it was closing down operations and selling off its assets.
Also struggling financially was Silicon Valley Bank (SVB), which was forced to sell a $21 billion bond at a $1.8 billion loss. SVB’s stock, SIVB, was suspended on March 10, 2023, following a drop of more than 60% the day before. The U.S. Federal Deposit Insurance Corporation (FDIC) assumed receivership of Silicon Valley Bank on Friday after authorities closed it down, establishing the “Deposit Insurance National Bank of Santa Clara.” SVB deposits are now held by the new organisation and are FDIC insured.
Trading losses for Signature Bank (Nasdaq: SBNY) on Friday were over 13%, but by 11:30 p.m. (ET), losses were down to 8.55%. The two banks were frequently discussed together because Signature Bank’s Signet platform also had many bitcoin clients, according to Mark Fitzgibbon and Gregory Zingone, analysts with Piper Sandler. So, we are sure that Signature’s stock will continue to experience some short-term pressure.
However, the Piper Sandler analysts noted that SBNY has “several additional deposit verticals to depend on” and that Signature’s balance sheet is substantially bigger than Silvergate’s.
In a piece regarding Signature Bank, Wells Fargo equity analyst Jared Shaw hypothesised that there might be a buying opportunity in the company. The final game in crypto-town is Signature, according to Shaw. “It is the only bigger bank that still offers institutional bitcoin investors a working on-ramp. Although SBNY has limited its exposure to this market, this may give them some extra pricing power.
Also, this might serve as a catalyst for SBNY to switch from in-kind service deposits to a fee-for-service model, which might be more capital- and regulatory-friendly.
According to Shaw’s investor communication, Silvergate’s strategy may not be as effective as SBNY’s, and the company’s financial troubles were not primarily caused by its provision of banking services to cryptocurrency companies. But, the Wells Fargo analyst also emphasised how little SBNY’s exposure to digital assets is.
Shaw’s investor report continues, “The challenge for SI was being a mono-line provider to bitcoin. In order to reduce the volatility of liquidity, which was evident in ’22, SBNY limited its exposure to cryptocurrencies to 15% of deposits at the conclusion of the year.