Apr 30, 2023
FDIC Report Reveals Poor Management Led to Signature Bank Collapse
The United States Federal Deposit Insurance Corporation’s (FDIC) evaluation of Signature Bank (SBNY) has revealed that inadequate risk management practices and poor management led to its collapse. On March 12, the FDIC was appointed to handle the insurance process and safeguard the U.S. economy.
@federalreserve @USTreasury @FDICgov issued a statement about the actions taken to protect the U.S. economy and bolster public confidence in the banking system: https://t.co/YISeTdFPrO — Federal Reserve (@federalreserve) March 12, 2023
The FDIC’s report, released on April 29, states that the collapse of major U.S. banks, such as Silvergate Bank and Silicon Valley Bank, created liquidity issues due to deposit runs. The report also found that SBNY’s management did not prioritize good corporate governance practices, disregarded FDIC examiner concerns, and was not responsive or timely in addressing FDIC supervisory recommendations (SRs).
The FDIC noted that SBNY pursued “unrestrained growth” using uninsured deposits without implementing liquidity risk management strategies. This ultimately led to the bank’s inability to manage liquidity, which was necessary to fulfill large withdrawal requests.
Correlation of SBNY’s stock price to crypto-industry events. Source: FDIC
The FDIC also noted that SBNY regularly ignored its supervisory recommendations. Since 2017, the FDIC has sent multiple supervisory letters to SBNY citing regulatory, audit or risk management criticisms, as seen in the chart below.
Proposed SRs from targeted review Supervisory Letters in process at the time of SBNY’s failure. Source: FDIC
Because of its noncompliance, the FDIC downgraded SBNY’s liquidity component rating to “3” in 2019, further emphasizing the need for improved fund management practices.
Related: ‘Ludicrous’ to think Signature Bank’s collapse was connected to crypto, says NYDFS head
Before its collapse, two government bodies were reportedly investigating Signature Bank for money laundering. A report from March 15 found that the U.S. Department of Justice was examining the bank for potential money laundering, while the U.S. Securities and Exchange Commission was also conducting a parallel investigation. The outcome of these investigations, however, is still unclear.
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