Syracuse, NY – No one was more worried than Brad O’Connor to learn of Signature Bank’s collapse. The city of Syracuse, where O’Connor is the finance commissioner, had deposited – gulp – $56 million of taxpayers’ money in the bank.
Amid mounting panic over an anticipated bank run, New York regulators seized Signature Bank on Sunday.
“Sunday’s news was big news for us,” O’Connor said. “It was scary.”
The city’s money was never in danger of being lost. Unlike private bank customers, the city had the assurance that its money would be returned by another bank if Signature could not repair.
But the bank’s takeover by government regulators has increased the risk that Syracuse officials won’t be able to get the money back when they need it, O’Connor said.
“We are not going to lose any of this money,” he said. “But there’s a risk that regulators will say, ‘Sorry, not today.’ ”
City officials therefore withdrew the $56 million earlier this week. Most of it is parked at JPMorgan Chase, O’Connor said.
The episode has raised concerns among some city councilors and city auditor Nader Maroun, who question why the city deposited money with a regional bank best known for serving crypto start-ups and investors. -cash.
“I’m very concerned,” said councilor Pat Hogan, a member of the finance committee. “I would be much more comfortable with one of the big banks than with one of those regional banks.”
Founded in 2001, Signature Bank had become one of the 20 largest American banks. It was known to host real estate companies, other private businesses and their executives. It also stood out by accepting deposits from cryptocurrency companies.
After the fall of Silicon Valley Bank, many Signature customers began to worry about their deposits, according to reports in The New York Times and elsewhere. On March 10, the Nasdaq halted trading in Signature shares, which had fallen to one-fifth of their price at the start of 2022.
The New York Department of Financial Services stepped in on Sunday to seize the bank’s assets.
Syracuse’s relationship with Signature Bank dates back to the spring of 2021, when the city received the first of two $61 million federal stimulus payments under the American Rescue Plan Act. That, plus a budget surplus, gave the city more money than normal, O’Connor said.
Looking for the best way to use the money rather than sitting idle, city officials worked with a Rochester-based consultant to assess their options. The state comptroller’s office urged local governments to invest unused money to make a return for taxpayers.
The city’s consultant, Three+One, is investigating interest rates and other benefits offered by financial institutions to help municipalities get the most out of their money, said Joe Rulison, CEO.
Based on the data provided by three+one, Syracuse officials contacted several banks and decided that Signature offered the best performance and the most convenient service, O’Connor said. The city first deposited $25 million, then another $30 million.
In January 2023, the interest rate on Syracuse’s money market account was 3.15%, Maroun said.
Dozens of other New York municipalities have also deposited funds with Signature, according to Rulison and state banking officials.
To accept deposits from public entities in New York, the bank was required to pay a “collateral agreement” to secure the money, Rulison said. Any financial institution should do the same, even one of the big four national banks, he said.
Syracuse’s money was guaranteed by the Federal Home Loan Bank of New York, a federally chartered bank that generally funds housing and community development. The Federal Home Loan Bank issued Signature a letter of credit promising to provide up to $56 million at any time to cover the Syracuse deposit.
At the request of New York banking regulators, the Federal Deposit Insurance Corp. took over the operations of what is now called Signature Bridge Bank and will run it until the bank is sold. The federal government promised to insure all deposits at the bank, relaxing the usual FDIC maximum limit of $250,000.
This offered double insurance to municipalities like Syracuse.
In a conference call Wednesday with local government officials from across the state, New York banking regulators assured officials that their money was safe at Signature and encouraged them not to withdraw it, said Rulison said.
O’Connor was not on the call. Syracuse officials had already decided to withdraw their money.
“The risk was low and close to zero – but there are other options closer to zero,” O’Connor said. “It just wasn’t worth dealing with the headaches of dealing with a bank owned by regulators.”
City officials are now considering investing some of their reserve cash in treasury bills, he said.
Maroun said he thinks the episode warrants a review of how city officials are investing the extra money. Neither he nor the common council were told when the money was deposited at Signature Bank, and Maroun said he thought they should be consulted.
“You’re talking about a substantial amount of money in the case of the city of Syracuse,” he said. “We’re a $293 million operation and you’re talking about $56 million of our taxpayers’ money.”
Councilor Michael Greene, chair of the finance committee, said he was talking to other councilors and may hold a committee meeting to discuss the matter.
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