FDIC Says Poor Risk Management, Illiquidity Led to Failure of Signature Bank

NEW YORK, NEW YORK - MARCH 13: People wait inside the Signature Bank branch on March 13, 2023 in New York City. Signature Bank a $110 billion commercial bank with offices in California, Connecticut, Nevada, New York and North Carolina, was closed by Regulators on Sunday the customers alarmed by SVB yanked their funds.

Leonardo Munoz / VIEWpress / Getty Images

Improper risk management helped doom crypto-friendly Signature Bank (SBNY) as it grew rapidly, the Federal Deposit Insurance Corp. (FDIC) said Friday.

Key Takeaways

  • FDIC: Illiquidity and poor management caused SBNY to fail.
  • Management relied too heavily on illiquid deposits without appropriate risk protocols.
  • `Unprecedented' speed of March bank runs may change liquidity risk supervision.

Regulators shuttered Signature Bank on March 12 amid the failure of another crypto lender, Silvergate Capital, and Silicon Valley Bank. The FDIC and the Federal Reserve instituted emergency measures to pay back depositors and provide liquidity to other banks in need. SBNY's failure cost the FDIC's Deposit Insurance fund $2.5 billion, although the total loss will be known only after its FDIC receivership ends.

The FDIC noted in a report that the "primary cause" of the bank's failure was illiquidity caused by the collapse of Silvergate. However, it also said the root cause was poor management, saying its board pursued "rapid, unrestrained growth without developing and maintaining adequate risk management practices". Management also failed to adopt proper corporate governance and failed to listen to FDIC concern respond quickly to its recommendations.

The FDIC said the bank had an over-reliance on uninsured deposits and that management failed to understand the inherent risks involved with its reliance on crypto industry deposits and wasn't aware of its vulnerability to the contagion that existed from 2021 through 2022.

As of 31 Dec. 2022, SBNY had total deposits of $88.6 billion and assets of $110.4 billion. In the FDIC's conclusions, it said the speed at which depositors withdrew funds from SBNY and Silicon Valley Bank in March was "unprecedented" and may lead to changes in regulation and supervision related to liquidity risk management.

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  1. FDIC. "Statement by Chairman on Supervision of Signature Bank".

  2. FDIC. "FDIC's Supervision of Signature Bank".

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