Signature Bank Shuts Down After Billion-Dollar Bank Run

This is the second large bank failure in less than a week.

learn more about Gabrielle Bienasz

By Gabrielle Bienasz

Courtesy copmany
Joseph J. DePaolo, right, former leader of Signature Bank.

After the furor set off by the collapse of Silicon Valley Bank, (SVB) another bank has shut down.

In a statement on Sunday, regulators said they would cover depositors of SVB and take control of another entity: Signature Bank.

The bank "was closed today by its state chartering authority," the Department of the Treasury, the Federal Reserve, and the Federal Deposit Insurance Corporation (FDIC) said in the joint release.

"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," it added.

Related: 'Everyone Is Freaking Out.' What's Going On With Silicon Valley Bank? Federal Government Takes Control.

U.S. Treasury Secretary Janet Yellen also promised on CBS on Sunday that banks would not be "bailed out" as they were in the wake of the 2008 recession.

"The reforms that have been put in place mean that we're not going to do that again," she said. "We are concerned about depositors and are focused on trying to meet their needs," she added.

Signature opened in 2001 and is focused on "serving the financial needs of privately owned businesses, their owners and senior managers," its site says, adding its structure prioritizes relationship building with clients.

In the wake of the SVB crisis, and because it had participated in banking with cryptocurrency (a major crypto bank shut down last week, Silvergate Capital), Signature said it faced a bank run in the billions, according to the Wall Street Journal.

This led to the authorities stepping in. "I think the reaction was excessive," said Barney Frank, a member of Signature's board, per the WSJ, referring to regulators' actions.

Last week, investors and founders alike were shocked when a bank focused on startups and venture capital, Silicon Valley Bank, said it had lost $1.8 billion and planned to raise billions more.

Then, people like Ashley Tyrner, founder and CEO of FarmboxRx, a food and medicine delivery company that helps reach underserved communities, rushed to pull cash out of the bank. Tyrner told Entrepreneur on Friday that she tried and failed to withdraw her money from the bank on Thursday.

A spokesperson for the company told Entrepreneur on Monday morning the company had just gotten access to the "eight figures" in FarmboxRx's SVB account.

"They are moving it all to Bank of America," the representative added.

Related: 'It's Not the Wealthy Taking the Hit': Mark Cuban's 'Baby' Among Companies With Millions In Silicon Valley Bank

The panic presents a risk to the larger financial system. If everyone withdraws deposits at once, it creates what is called a "bank run," which can cause a bank to collapse. Banks are required to hold just 10% of a "bank's demand and checking deposits," per the Federal Reserve.

Contagion is a phenomenon by which struggles in the financial system can easily spread (think the crypto collapses of 2022 of Celsius and Genesis Trading).

One expert, Paul Ashworth, chief North America economist at London-based Capital Economics, said in a note to the research firm's clients that the plan to save the banks' deposits should work, per the New York Times.

"Rationally, this should be enough to stop any contagion from spreading and taking down more banks, which can happen in the blink of an eye in the digital age," he wrote.

Gabrielle Bienasz

Entrepreneur Staff

Gabrielle Bienasz is a staff writer at Entrepreneur. She previously worked at Insider and Inc. Magazine. 

Related Topics

Editor's Pick

The Dark Side of Pay Transparency — And What to Do If You Find Out You're Being Underpaid
Thinking of a Career Change? Here Are 4 Steps You Can Take to Get There.
A Founder Who Bootstrapped Her Jewelry Business With Just $1,000 Now Sees 7-Figure Revenue Because She Knew Something About Her Customers Nobody Else Did
Everything You Need to Know About Franchise Law
Starting a Business

90% of Online Businesses Fail in Just 4 Months. You Can Avoid the Same Fate By Using These Strategies.

It's not catastrophizing when we think about potential failure; it's in fact a chance for any business to precisely see any outcome and prepare in advance.


How to Bring Your Franchise to the Next Level With Marketing Automation

With the impacts of inflation and associated costs of running a business, automation is a powerful solution for streamlining a positive guest experience and overall marketing.

Business Ideas

55 Small Business Ideas To Start Right Now

To start one of these home-based businesses, you don't need a lot of funding -- just energy, passion and the drive to succeed.

Business News

You Can Now Book Unlimited Cruises With the New 'Ultimate Paradise Pass'

Guests will be able to take an unlimited amount of two-night cruises to the Bahamas out of Florida.