A Silicon Valley Bank worker talks with people lining up...

A Silicon Valley Bank worker talks with people lining up outside of the bank office on Monday in Santa Clara, California.  Credit: Getty Images/Justin Sullivan

A run on deposits by business clients — fearful after the implosion of California's Silicon Valley Bank — triggered the collapse of Manhattan-based Signature Bank, whose operations resumed Monday under the control of regulators.

Despite the intervention of state and federal banking agencies, jittery investors sent shares of regional banks on Long Island and elsewhere down sharply Monday.

The S&P Regional Banking ETF fell 12.3% in Monday trading, with First Republic Bank, based in San Francisco, cratering 61.8% to $31.21. 

Two Long Island regional banks also closed sharply lower, with Dime Community Bancshares Inc., based in Hauppauge, falling 19.6% to $23.08 and New York Community Bancorp Inc., headquartered in Hicksville, declining 13.2% to $6.40.

What to Know

  • Signature Bank's collapse was triggered by jittery customers;
  • Shares of regional banks, including some on Long Island, tumbled;
  • Long Island banks said their operations differ markedly from those that failed.

Former Massachusetts congressman Barney Frank, a board member of Signature Bank, said anxious business depositors withdrew more than $12 billion following the failure of Silicon Valley Bank.

"It started Friday afternoon," he said. "People made clear they were worried and they were going to JPMorgan or other big banks" which they deemed to be safer.

Until recently, Signature, like Silicon Valley, did substantial business with crypto currency companies.

Though the withdrawals were significant for Signature, whose deposits totaled $88.6 billion as of Dec. 31, Frank contended that by Sunday morning the board had a grip on the crisis and there was little basis for regulators to take over the bank.

"By Sunday morning we stabilized deposits and brought in more capital," he said. "We thought we had stabilized the situation."

Signature Bank, founded in 2001, has a variety of business lines, including a commercial lending business on Long Island.

It was the first bank insured by the Federal Deposit Insurance Corporation to launch a payment platform based on the blockchain technology behind digital currency.

Frank said Signature did not have "substantial" losses directly related to cryptocurrency.

But Anoop Rai, a professor of finance at Hofstra University, said cryptocurrency companies were among Signature's loan customers, and that perception may have helped to trigger the run on the bank.

"The markets know which companies lend to crypto companies," he said.

Long Island-based banks sought to put distance between their operations and those of the two failed enterprises.

New York Community Bank said the problems with Silicon Valley Bank and Signature Bank were "idiosyncratic, related to their specific business models.

"Specifically they had concentration in high tech and cryptocurrency business,"a statement from the company said.

NYCB said it no longer has exposure to cryptocurrency and its uninsured deposits amount to 20% of the total versus more than 90% for Signature and Silicon Valley Bank.

A statement by Dime sought to differentiate its business from the banks that were seized by regulators.

"Our customer base is business owners and consumers who are embedded in our communities, not venture capital-funded startups," the company said. Our deposit base is diverse and remains highly stable."

John A. Rizzo, a Stony Brook University economist and professor said the risk of contagion is low for the regional banking sector.

"Most well-diversified regional banks are just fine," he said. "This is just a panic on the part of the investor. I think it's a really bad idea for people to panic." Rizzo speculated: "I'm sure Warren Buffett is buying up regional bank stocks."

Buffett, chairman and chief executive of Berkshire Hathaway, is a legendary investor known for saying: "Be fearful when others are greedy, and be greedy when others are fearful.”

State and federal officials said that they will be vigilant to avert any spillover after the bank collapses.

"The Department of Financial Services is engaged with all banks that are viewed as vulnerable," Gov. Kathy Hochul said in a Monday press conference. "We want to make sure there is not a ripple effect."

 Manhattan-based Signature Bank, with 40 branches in New York (including Long Island), California, Connecticut, North Carolina and Nevada, was closed by New York state regulators on Sunday.

The Federal Deposit Insurance Corporation took over operations, which resumed on Monday. The failure of Signature, with assets of about $110 billion as of Dec. 31, followed Friday's collapse of Silicon Valley Bank, whose operations also were assumed by the FDIC.

Signature Bank once served as a lender to businesses affiliated with former President Donald Trump, but severed those ties after the Capitol insurrection on Jan. 6, 2021.

Ivanka Trump, the daughter of the former president, served on Signature Bank's board of directors for two years, stepping down in April 2013.

"The era of Trump influence has waned," said Frank, who became a Signature Bank board member in 2015.

Signature Bank also served as a lender for the purchase of New York City taxi medallions, required to operate yellow cabs. Frank said the bank wrote off that business about two years ago, taking a "major hit." 

Rai said that despite stronger regulatory legislation, such as the Dodd-Frank Act, co-authored by then-Rep. Barney Frank in the wake of the 2008 subprime mortgage meltdown, financial crises seem to crop up periodically.

"Every 10 years, you have something or other in the banking industry," he said. "Accidents will take place."

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