Post-mortem evaluation of Signature Bank (SBNY) by the US Federal Deposit Insurance Corporation (FDIC) revealed that the root cause of its bankruptcy was poor management and inappropriate risk management practices.
Federal regulators shut down Signature Bank on March 12 to protect the US economy and bolster public confidence in the banking system. The FDIC was designated to manage the underwriting process.
@federalreserve @USTreasury @FDICgov Issue statement on actions to protect the US economy by strengthening public confidence in our banking system, ensuring depositors’ savings remain safe: https://t.co/YISeTdFPrO
—Federal Reserve (@federalreserve) March 12, 2023
@federalreserve @USTreasury @FDICgov release statement on actions to protect the US economy by strengthening public confidence in our banking system, ensuring depositors’ savings remain safe.
On April 29, the report of the FDIC noted that the collapse of large US banks, such as Silvergate Bank and Silicon Valley Bank, caused a lack of liquidity due to deposit withdrawals. The regulator further stated that:
“However, the root cause of SBNY’s bankruptcy was poor management. SBNY management did not prioritize good corporate governance practices, did not always heed the concerns of FDIC examiners, and was not always receptive or timely in addressing supervisory recommendations (SRs). in English) of the FDIC”.
The FDIC blamed Signature’s board of directors and management for pursuing “runaway growth” using uninsured deposits without implementing liquidity risk management strategies. The final nail in Signature’s coffin came when it was unable to manage liquiditynecessary to satisfy large withdrawal requests.
The report also revealed that Signature often denied addressing the FDIC’s concerns or implementing the regulator’s oversight recommendations. Since 2017, the FDIC has sent numerous oversight letters to SBNY citing regulatory, audit, or risk management criticism.as it’s shown in the following.
Due to non-compliance with recommendations, the FDIC downgraded SBNY’s liquidity component rating to “3” effective 2019further highlighting the need to improve its fund management practices.
Two government bodies were reportedly investigating Signature Bank for money laundering before its collapse. A report on March 15 noted that the US Department of Justice was investigating the bank for possible money laundering.
Besides, the United States Securities and Exchange Commission was conducting a parallel investigation. However, it is not clear how these investigations contributed to the closure of the bank.
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