FDIC Official Attributes Collapse of Signature Bank to Poor Management
On Friday, the Federal Deposits Insurance Corporation (FDIC) officials released a report outlining the main cause of the fallout of Signature Bank. After their investigations, the FDIC observed that the bank was poorly managed.
The FDIC argued that the Signature Bank owned a significant share of uninsured deposits exposing the bank to high liquidity. Reviewing the bank practices, the FDIC team considered the Signature risk management measures insufficient and poor.
Factors that Contributed to the Collapse of Signature Bank
The FDIC team argued that the Signature Bank had adopted friendly regulations to attract crypto firms. They noted that the crashing down of the bank was caused by over-reliance on crypto assets, which tends to be risky investments.
The FDIC observed that the total share of uninsured deposits constituted 90% as of 2022. Beyond this, the FDIC team noted that approximately 20% of the Signature bank deposits were garnered from crypto assets.
In December 2022, Signature Bank ranked among the top 29th-largest bank in the US, with assets worth $110 billion. Nonetheless, the regulators analyzed the operation of the bankrupt bank from 2022 to early 2023 amid the bumpy crypto winter.
In their findings, the FDIC noted that the Signature Banks official failed to examine the crypto assets threats when the market was red. They argued that the Signature team failed to assess the vulnerability and volatility associated with crypto assets.
FDIC chief risk officer Marshall Gentry mentioned that when the prices of major crypto assets started to plummet, most Signature depository clients exited traditional banks. On a phone call on April 28, Gentry stated that from last year Signature customers adopted crypto cash deposits, which was considered as a “bank run.”
Review of FDIC and NYDFS Report
From March 12, the FDIC team questioned the actions taken by the New York Department of Financial Service (NYDFS) against the Signature Bank. Based on the US crypto requirements the NYDFS ordered Signature Bank to sunset its regional operation.
Commenting on the March 12 closure of the bank, NYDFS Superintendent Adrienne Harris outlined the factors that resulted to the closure of the financial institution. She noted that the main reason that obliged the NYDFS to make the difficult decision was bank involvement in crypto activities.
In her statement, Harris failed to disclose the other reason for the closure of Signature Bank. Harris’shallow observation of the collapse of Signature tasked the FDIC team and other watchdog agencies to probe the matter.
Recently the Federal Reserve released its report concerning the fallout of Silicon Valley and Signature banks. Reflecting on the Federal Reserves finding the Signature Bank collapsed due to multiple cases of mismanagement.
The Fed noted that the Signature bank battled numerous unaccounted risks while Silvergate Capital could not cope with high-interest rates and the liquidity crisis.
Correspondingly, regulators from the Government Accountability Office (GAO) witnessed a decline in Signature Bank deposits exposure from 2022. The GAO team attributed Silicon Valley’s fallout to being hampered by the regulators’ healthy appetite to increase the interest rates.
GAO’s findings correspond to the Fed’s observation of the Signature bank’s high exposure to digital assets.The GAO concluded that Signature Bank failed to adopt practical strategies to address the risk associated with digital assets deposits.
Based on the GAO, Fed, and FDIC reports, the regulators blamed Signature Bank officials for failing to consult the watchdog agencies on strategies to address the risks.
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