Inside The Government Seizure Of Signature Bank

Summary

• Scott Shay’s central claim is that Signature Bank had ample liquidity and capital when the government took it, and the arithmetic is deliberately simple: “we had $34 billion in cash and liquidity, and on Friday we had an $18 billion run… even cavemen could probably do 34 minus 18 equals 16.” Over the weekend the bank raised another $20 billion, “and astonishingly, the bank was taken.” His challenge to listeners: “you tell me what it was about.”
• Shay says the Fed’s rate hikes had nothing to do with Signature’s failure. Signature’s March 1, 2023 balance-sheet filing—less than two weeks before the takeover—was mark-to-market positive, because “one thing that was clear to me… was that rates were going to go up.” He criticizes “haphazard and careless” financial journalism for not checking the filings and recommends reading Nick Carter’s work on Choke Point 2.0.
• The discussion points toward hostility to crypto as a possible regulatory backdrop, but Shay does not state a definitive cause for the takeover. He says Silvergate was shut because “they didn’t like crypto”; Signature had made itself crypto-friendly, and its Signet system processed around $1 trillion by the end of 2022, when the bank earned almost $2 billion pretax.
• His new venture, N3XT, is a nonfractional bank built as the lesson of the takeover. All deposits sit in very short Treasuries—“not repo, not anything else”—with direct government credit on all deposits, so, in his design, there is no need for $250,000 deposit insurance or a lender of last resort. N3XT is B2B; Shay says any business can open an account and that it is now launched.
• The thesis Shay presents is that “non-fractional banking is a revolution whose time has come.” Where some conference participants are integrating with TradFi mega-banks, N3XT uses a blockchain core ledger and claims to follow Satoshi’s vision: “when you move a dollar at N3XT… you actually move a dollar. You don’t move a promise to pay.”
• The career backstory is pedigree for the claim. Shay started Bank United of Texas with Lou Ranieri in 1988, bought it as a distressed roughly $1.5 billion bank at effectively zero after the government made its assets equal its liabilities, and grew it to $20 billion or more before its sale; it is now part of JPMorgan Chase. He also started Merrick Bank, helped build the forerunner of Camden Property Trust, and grew Signature from its May 1, 2001 founding to $110 billion in assets with no acquisitions. His advice: “You can survive almost anything in business except having a bad partner.”
• He will not identify who ordered the takeover—“I have suspicions, but I’m not going on the record”—even as host Avi Felman baits him with a name that rhymes with “Loren.” Shay says he had to testify and told them “the bank shouldn’t have been taken,” but says nobody followed up, including reporters.

Deep dive

1. Salomon Brothers, Lou Ranieri, and the partnership rule

• Shay started in bank M&A at Salomon Brothers during the Liar’s Poker era. He taught pro-forma accounting to the training class Michael Lewis attended and bought a first edition as soon as the book came out “to make sure that I wasn’t mentioned.” Asked whether Salomon was as crazy as the book suggested, he answered: “Yes.”
• Ranieri, whom Shay says was the only person portrayed favorably in Liar’s Poker, became his lifelong partner. Shay recalls Ranieri forcing a trader to return a 3% spread on a client’s essentially riskless trade because “I’m not going to let you, as a trader, make a penny.”
• In another example, after Shay and Ranieri bought defaulted credit cards with a payment due if returns exceeded a 25% IRR, the seller bank failed and the portfolio passed through about five successor banks. Once the portfolio was liquidated for a large profit, Ranieri tracked down the successor bank to hand over the money. “He just would not take a penny that wasn’t his.”
• Shay’s advice to younger listeners: “You can survive almost anything in business except having a bad partner.” Finding a partner you are “totally simpatico with” is “the most important decision you can make.”

2. Bank United to Signature: over-branched, under-banked

• Leaving Salomon to follow Ranieri, Shay bought Bank United of Texas in 1988—a roughly $1.5 billion distressed Texas bank that had lent heavily against declining real estate. The government put in money to make the assets equal the liabilities, after which Shay and his partners bought it “basically at zero” and built it to $20 billion or more before its sale. It was later sold again and is now part of JPMorgan Chase. Along the way, Shay also started Merrick Bank and the forerunner of Camden Property Trust.
• Signature, founded May 1, 2001 with Joe DePaolo and John Tamburlaine, was built on the thesis that “New York was over-branched and under-banked.” Large banks served huge corporations and mass-market retail but were less responsive to the middle market. The pitch was: “You’re not going to be able to get Jamie Dimon on the phone, but you can get me”—fast answers, including fast no’s.
• Shay’s proudest proof point: Signature reached $110 billion in assets and “never did an acquisition… all organically.” Growth came by adding people rather than acquiring clients or another bank.

3. The crypto pivot and Signet

• Shay’s penny-drop moment was 2013, when he became captivated by the confluence of cryptography and blockchain. He contrasted blockchain’s potential with incumbents such as Fidelity, FIS, Fiserv, and Jack Henry, which he said were using “COBOL and C++ from the ’70s and ’80s.” He went on CNBC as “a blockchain maximalist. I wasn’t sure about Bitcoin, but I was sure about blockchain.”
• By 2019, he had created Signet, which he describes as the first 24/7 blockchain-enabled money-transfer system. Around $1 trillion had passed through it by the end of 2022, and Signature earned almost $2 billion pretax that year. Felman confirms the client appeal: “We were a very happy client,” mainly because almost nobody else would bank a crypto business.

4. The takeover: Shay’s case that Signature was liquid and capitalized

• Shay’s caveman-finance case begins with Silvergate being shut by the government “because they didn’t like crypto,” on a Tuesday “or something,” as he recalls. The day before Signature’s run, the bank was up in deposits for the quarter and had announced $34 billion in cash and liquidity. Friday’s $18 billion run followed Silicon Valley Bank actually running out of money: “34 minus 18 equals 16.” Signature then raised $20 billion over the weekend, yet “the bank was taken” and, Shay says, had “plenty of capital.”
• On the rate-hike narrative, Shay says: “The Fed hiking rates had nothing to do with anything.” Signature’s March 1, 2023 filing was mark-to-market positive. He criticizes journalists for not doing the basic work of checking the financial statement and recommends reading Nick Carter, citing an article whose title he recalls as something like “Signature Bank Didn’t Have to Die.”
• Shay calls the takeover “the most traumatic” period of his life, while distinguishing it from his parents’ deaths because he knew he would eventually get better then. He says the government has “this whole mechanism for hounding and destroying people,” which he calls its “superpower.” He also says the nerve in his left eye began deteriorating shortly afterward. The dental implant he was scheduled to receive on the Friday of the run was never put in; he calls it his “tattoo” and a reminder.
• Shay says he had to testify and told them “the bank shouldn’t have been taken,” but says nobody followed up, including reporters. Asked who made the decision, he said: “I have suspicions, but I’m not going on the record.” Felman floated a name rhyming with “Loren”; Shay did not confirm it.

5. N3XT: nonfractional banking to avoid the choke point

• Shay says Choke Point 1.0 and 2.0 operate through fractional banking. In his example, five depositors each put in $10, the bank lends out $40, and everyone believes they still have the same $10. A stress event therefore requires a lender of last resort. Since deposits are insured only to $250,000, he says the government can withdraw insurance and “shut a bank literally with no notice any day,” with no recourse.
• With co-founders Jeffrey Wallace, Orel Bonnell, and Kyle O’Donnell, Shay says N3XT puts every deposit into very short Treasuries—“not repo, not anything else”—and keeps the exact Treasury receipt. He says this is better than a money-market fund because the bank can present the Treasury directly, giving deposits direct government credit and making $250,000 insurance unnecessary. He also promises 24/7 payments “10x better in terms of beauty than Signet ever was.”
• Shay contrasts this with conference participants integrating with TradFi mega-banks—“JPMorgan is everywhere.” N3XT instead makes its core ledger a blockchain, with immutable records, and he says it follows Satoshi’s vision that rejected fractional banking. “When you move a dollar at N3XT, at our bank, you actually move a dollar. You don’t move a promise to pay.”
• Shay says N3XT is B2B, that any business can open an account, and that it has moved from a soft launch to being launched. He also hints at theories about Satoshi’s identity for another conversation.