Sunday, March 12, 2023

Signature Bank Possessed, Depositors Saved


On Sunday, two days after the stunning failure of Silicon Valley Bank, the New York Department of Financial Services announced it had taken possession of Signature, which has deposits totaling $88.59 billion.

In a joint statement, the Treasury, Federal Reserve, and FDIC announced a systemic risk exception for Signature, guaranteeing that all depositors to the institution would be made whole, with no losses incurred by taxpayers.

Was Paxos' systemic risk designation aided by former FDIC Chair Sheila Bair (Paxos board member).  Add that Carlyle Group co-founder David Rubenstein's family office participated in several Paxos fundraising rounds.

A Paxos spokesperson told Fortune that the crypto firm currently holds $250 million at Signature as well as private deposit insurance, adding that it was always looking to expand its network of banks. 

 Flashback to 2021 when Barron's ran a piece on crypto co-authored by Sheila Bair.

If investors lose confidence in a stablecoin’s ability to redeem funds at par, as they have before, they could run, causing the token’s value to drop meaningfully below $1. Were a large stablecoin to “break the buck,” it could induce additional runs in other stablecoins. And if stablecoins continue to grow at their current pace, a panic could precipitate instability in the broader financial system.

Paxos is the only issuer to publicly support regulations making such limits mandatory. It also believes stablecoin issuers should be subject to comprehensive prudential regulation. It has always been subject to oversight by the New York Department of Financial Services and has received conditional approval for a national trust charter overseen by the Office of the Comptroller of the Currency. 
Barron's disclosed Bair's board slot at Paxos.

Back to bank failure weekend.  It helps when other powerful insiders call for action

The weekend saw many in the tech industry, as well as financial luminaries such as former Treasury Secretary Larry Summers, calling for depositors at SVB to be made whole to avoid further spreading panic.

Will Mrs. Bair or Mr. Rubenstein be on CNBC in the morning?  If so, I doubt Rubenstein will reiterate his "titillating" view of crypto.

Update 3-13-23:  Paxos put out a statement:

Statement from Paxos: The protection and safety of customer assets is Paxos’ top priority, which is why we always take active measures to safeguard customers’ funds.

 In other words Paxos Trust is ready to take your money.

Update 3-14-23:  Rubenstein spoke at the New Orleans book festival.  He compared cryptocurrency to Las Vegas casinos.  He told Tulane students:

“I want everybody to think about what they can do to give back to society by giving time or energy to ideas in a way that will make the country better.” 

That does not include paying his fair share of taxes.