Key takeaways:
- As per the FDIC, inadequate risk management procedures and poor management were the main contributors to the failure of SBNY.
- The FDIC accused the board of directors and management of SBNY of utilizing uninsured deposits to pursue “unrestrained growth” without using liquidity risk management techniques.
Inadequate risk management procedures and poor management were the main contributors to the failure of Signature Bank of New York (SBNY), according to the United States Federal Deposit Insurance Corporation’s (FDIC) analysis.
On April 28, the FDIC published a thorough study on Signature Bank and the factors that contributed to its demise. The period under consideration by the regulator lasted from January 1 to March 12 of this year, when authorities seized the New York-chartered bank following a brief $18.6 billion bank run. The regulator added the following:
“However, the root cause of SBNY’s failure was poor management. SBNY management did not prioritize good corporate governance practices, did not always heed FDIC examiner concerns, and was not always responsive or timely in addressing FDIC supervisory recommendations.”
Prior to its demise, Signature Bank managed $110 billion in assets, ranking as the 29th largest lender in the United States. After extending services to companies involved in cryptocurrencies, it saw a sharp increase in growth between 2019 and 2021.
The FDIC accused the board of directors and management of SBNY of utilizing uninsured deposits to pursue “unrestrained growth” without using liquidity risk management techniques. When Signature Bank could not control the liquidity needed to meet significant withdrawal requests, it was the icing on the cake for the institution.
“Signature’s reliance on uninsured deposits posed a risk that the Bank had to manage carefully to ensure adequate liquidity while maintaining a safe and sound business.”
The FDIC claimed that the bank’s management was unprepared for the type of bank run that Signature faced and did not comprehend the inherent dangers associated with uninsured deposits. It further mentioned that practically all of the bank’s deposits relating to digital assets were uninsured.
The audit also showed that Signature Bank frequently refuted addressing FDIC concerns or carrying out the supervisory advice of the regulator. The FDIC has written SBNY many supervisory letters since 2017 identifying regulatory, audit, or risk management issues.
The FDIC had reduced SBNY’s Liquidity component rating to “3,” commencing in 2019, because to non-compliance with the recommendations, underscoring the need to enhance its funds’ management procedures.
Prior to the collapse of Signature Bank, two government agencies were reportedly looking into the bank for money laundering. According to a report dated March 15, the Justice Department was looking into the bank for possible money laundering.
The Securities and Exchange Commission was conducting a parallel investigation as well. It is still unclear, though, how the investigations contributed to the bank’s demise.
