March 16, 2023

Senator Warren Demands Answers from Former Signature CEO Following Bank’s Collapse

“You owe your customers and the public an explanation for the economically disastrous outcomes you created: you worked hard to weaken the rules, promised that they “bode(d) well” for your bank – and then destroyed it with bad decision-making and excessive risk-taking.”

Weak Regulatory Environment, Bank’s “Huge Error in Judgement” On Crypto Caused Failure

Text of Letter (PDF)

Washington, D.C. – U.S. Senator Elizabeth Warren (D-Mass.) sent a letter to ex-Signature Bank CEO Joseph J. DePaolo about his gross mismanagement that resulted in the bank’s failure and his and Signature Bank lobbyists’ efforts to roll back Dodd-Frank regulations in the aftermath of the 2008 financial crisis.

In 2018, the Senate passed the Economic Growth, Regulatory Relief, and Consumer Protection Act, rolling back banking regulations enacted by the Dodd-Frank Act and raising the asset threshold for rigorous bank examination to $250 billion. This exempted  many mid-sized banks from regular stress testing and enhanced liquidity, risk management, and resolution plan, or “living will,” requirements. Signature Bank derided regulatory safeguards and financially supported those working to curtail them, telling customers that deregulation would benefit the bank.

“Signature Bank executives funneled thousands of dollars in campaign donations to leaders of the effort to loosen bank regulations in Congress,” wrote Senator Warren. “Signature Bank Chairman Scott Shay argued that it was ‘ridiculous and unacceptable’ that banks like his be subject to the same safeguards that apply to larger banks, suggesting that Signature Bank, which had already amassed over $45 billion in assets by mid-2018, was too small to have significant impact on the soundness of the financial system.”

“These rules were designed to safeguard our banking system and economy from the greed and shortsightedness of bank executives like yourself – and their rollback, which was exacerbated by your ‘huge error in judgment’, that resulted in an overreliance on cryptocurrency customers, is the appears to be the chief cause of its failure.” continued Senator Warren. 

For many years, Signature Bank executives engaged in risky activities that opened the floodgates to excessive risk. 

“While many banks steered clear of the emerging cryptocurrency industry, adhering to warnings from regulators about crypto’s enhanced risk concerns, Signature Bank bought into its get-rich-quick narrative,” Senator Warren continued. “Of cryptocurrency, you said, ‘the opportunity is significant, if you’re dealing with the right clients…Blockchain technology is the future’ and ‘you don’t want to be caught short, because in five years a number of banks will not be around because of blockchain technology.’ Indeed, Signature Bank was caught short because it embraced crypto customers with insufficient safeguards.”

“You owe your customers and the public an explanation for the economically disastrous outcomes you created,” concluded Senator Warren. “You worked hard to weaken the rules, promised that they “bode(d) well” for your bank – and then destroyed it with bad decision-making and excessive risk-taking.”

Senator Warren asked Mr. DePaolo a series of seven questions, asking for answers by March 29, 2023.

Senator Warren has been a leading voice on bank regulation and consumer protection:

  • In March 2023, Senator Warren published an op-ed in the New York Times urging Congress and federal regulators to strengthen weakened rules to avoid another crisis, intensify bank oversight, reform deposit insurance, and hold S.V.B. executives accountable for any malfeasance or mismanagement that led to this failure.
  • In March 2023, released a statement following the collapse of Silicon Valley Bank (SVB).
  • In March 2023, Senators Warren, Van Hollen (D-Md.), and Marshall (R-Kan.) sent a bipartisan letter to the world’s largest crypto exchange, Binance, and its U.S. affiliate, Binance.US, asking for answers about the company’s finances, risk management, and regulatory compliance as it faces investigations into potential crimes – including sanctions evasion, money laundering, and unlicensed money transmission.
  • In February 2023, at a hearing of the Senate Committee on Banking, Housing, and Urban Affairs, Senator Warren raised concerns that key parts of the crypto industry are not subject to the same money laundering laws that cover other financial organizations, allowing financial criminals to use crypto to launder billions. 
  • On December 14, 2022, Senators Warren and Roger Marshall (R-Kan.) introduced the Digital Asset Anti-Money Laundering Act of 2022, bipartisan legislation that would mitigate the risks that cryptocurrency and other digital assets pose to the United States’s national security by closing loopholes in the existing anti-money laundering and countering of the financing of terrorism (AML/CFT) framework and bring the digital asset ecosystem into greater compliance with the rules that govern the rest of the financial system.
  • On December 8, 2022, Senators Warren and Tina Smith (D-Minn.) sent letters to three key banking regulators to raise concerns about the ties between the banking industry and crypto firms. 
  • On December 6, 2022, Senators Warren, Marshall, and John Kennedy (R-La.) wrote to Silvergate, the bank that reportedly facilitated the transfer of FTX customer funds to Alameda Research, seeking answers about the bank’s role in the loss of billions of dollars in customer funds.
  • On November 30, 2022, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren defended FDIC Acting Chair Martin Greunberg from baseless attacks and called on regulators to keep crypto out of the banking system following FTX’s collapse.
  • On November 23, 2022, Senators Warren and Sheldon Whitehouse (D-R.I.) sent a letter to the Department of Justice requesting personal accountability for former FTX CEO Sam-Bankman Fried and any complicit FTX executives for wrongdoing following the exchange’s collapse. 
  • On November 22, 2022, Senator Warren published an op-ed in the Wall Street Journal urging federal regulators to use their expansive authorities to crack down on crypto fraud and hold the industry to the same basic standards as other financial activities. 
  • On November 17, 2022, Senator Warren, along with Senator Dick Durbin (D-Ill.), sent a letter to Sam Bankman-Fried, founder and former CEO of FTX Trading Ltd. (FTX), and John Jay Ray III, the newly appointed CEO of FTX, seeking information on the reported misuse of billions of dollars of customer funds and other disturbing allegations that continue to emerge about the company’s fraudulent and illicit practices.
  • On October 25, 2022, Senators Warren and Whitehouse and Representatives Alexandria Ocasio-Cortez (D-N.Y.), Jesús “Chuy” García (D-Ill.), and Rashida Tlaib (D-Mich.) sent a letter to the U.S. Securities and Exchange Commission, the Commodity Futures Trading Commission, the U.S. Department of Treasury, the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Consumer Financial Protection Bureau, seeking information about the steps each regulator is taking to stop the revolving door between financial regulatory agencies and the cryptocurrency industry.
  • In September 2022, Senator Warren sent a letter to Treasury Secretary Janet Yellen calling on the Treasury Department and the Financial Stability Oversight Council to build a strong regulatory framework for the crypto market.
  • In March 2022, Senator Warren, Senate Armed Services Committee Chair Jack Reed (D-R.I.), Senate Intelligence Committee Chair Mark Warner (D-Va.), and Senate Defense Appropriations Subcommittee Chair Jon Tester (D-Mt.) introduced the Digital Asset Sanctions Compliance Enhancement Act to ensure that Vladimir Putin and Russian elites don't use digital assets to undermine the international community’s economic sanctions against Russia following its invasion of Ukraine.
  • In March 2022, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren highlighted the various cryptocurrency tools that could make it easier for sanctioned individuals to hide their wealth and lessen the impact of Russian sanctions.
  • In March 2022, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren warned that cryptocurrency may allow Russia to dodge sanctions and urged stronger regulation of the crypto market to ensure that countries, drug traffickers, cyber criminals, and tax cheats can’t evade economic pain.
  • In March 2022, Senators Warren, Warner, Reed, and Sherrod Brown (D-Ohio), Chair of the Senate Banking, Housing, and Urban Affairs Committee, sent a letter to Treasury Secretary Janet Yellen, asking about the Treasury Department’s plans to enforce sanctions-compliance guidance for the cryptocurrency industry to ensure that economic sanctions remain an effective tool for achieving foreign policy goals.
  • In January 2022, Senators Warren and Reed (D-R.I.) sent a letter to Dino Falaschetti – the Trump-appointed Director of the Office of Financial Research (OFR) in the U.S. Department of the Treasury – urging the OFR to use its critical tools to collect data to safeguard the financial system from stability risks.
  • In January 2022, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren pressed Fed Chair Jerome Powell on the role of corporate concentration in driving up prices for consumers during his renomination hearing to be Chair of the Board of Governors of the Federal Reserve System.
  • In December 2021, during a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren raised concerns over the growing risks presented by stablecoins. 
  • In September 2021, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren called on regulators to step up to address crypto's regulatory gaps and ensure an inclusive financial system. 
  • In July 2021, Senator Warren sent a letter to U.S. Treasury Secretary Janet Yellen urging the Financial Stability Oversight Council (FSOC) to use its existing authority to address risks posed by the highly volatile cryptocurrency market and lead the financial regulatory agencies in developing a comprehensive and coordinated approach to regulating cryptocurrencies. 
  • In July 2021, Senator Warren sent a letter to SEC Chair Gary Gensler requesting information about the agency's authority to regulate cryptocurrency exchanges and protect consumers from risks posed by the highly volatile cryptocurrency market.
  • In June 2021, chairing a hearing of the Senate Banking, Housing, and Urban Affairs Committee's Subcommittee on Economic Policy, Senator Warren delivered remarks on the opportunities and risks that digital currencies present. 
  • In a June 2021 interview, Senator Warren called the market for crypto the “wild west,” and said digital currency is “not a good way to buy and sell things and not a good investment and an environmental disaster.”
  • In May 2021, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren questioned Randal K. Quarles, Vice Chairman for Supervision at the Board of Governors of the Federal Reserve System, about his decision to weaken supervision for large foreign banks including Credit Suisse, which suffered the largest losses from the implosion of the hedge fund Archegos.

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