Tether, the firm behind the largest stablecoin by market capitalization, reportedly allowed its clients to send funds through Signature Bank’s payments platform — granting the firm access to United States banks.
According to an April 4 Bloomberg report, Tether had a pathway to the U.S. banking system by instructing its users to send dollars though Signature’s Signet to its Bahamian partner Capital Union Bank. The report cited “people with knowledge of the situation,” who added this system was in place at the time regulators took control of Signature in March.
Tether doesn’t have direct access to the US banking system, but for a while it found at least one pathway: through Signature Bank https://t.co/gKDgTs6Jae
— Bloomberg (@business) April 4, 2023
While the arrangement between Tether and Signature reportedly would not have been illegal, failing to disclose such information to the investing public would suggest high risk practices. According to a Tether spokesperson, banks used by the stablecoin issuer “always had access to several banking channels and counterparties” and associate entities “wouldn’t be affected by either direct or indirect exposure to Signature.”
The New York Department of Financial Services announced the shutdown of Signature on March 12, saying at the time the decision had been made with the Federal Deposit Insurance Corporation (FDIC) in an effort to “protect the U.S. economy.” Stablecoin issuer Paxos reported at the time it had $250 million tied to Signature, while Tether’s chief technology officer Paolo Ardoino said the firm didn’t have any exposure to the failed bank.
#tether doesn’t have any exposure to Signature Bank.
— Paolo Ardoino (@paoloardoino) March 12, 2023
U.S. lawmakers continue to look into the collapse of the crypto-friendly bank, the third in a chain starting with Silvergate and Silicon Valley. At a March 28 hearing of the Senate Banking Committee, FDIC chair Martin Gruenberg said Signature had not adequately managed traditional banking risks. Though Signature had reduced its exposure to digital assets in the wake of the collapse of the FTX exchange, one user has filed a lawsuit alleging the bank “aided and abetted” fraud facilitated by former FTX CEO Sam Bankman-Fried.
The bank plans to sell its roughly $38 billion worth of deposits and $13 billion in loans to Flagstar Bank, a subsidiary of New York Community Bancorp. Gruenberg said $4 billion in crypto deposits would likely be returned to users sometime this week.