The post-mortem evaluation of Signature Bank of New York (SBNY) by the United States Federal Deposit Insurance Corporation (FDIC) revealed that mismanagement and inadequate risk management practices were the main cause of its collapse.
Signature Bank was shut down by federal regulators on March 12 in an attempt to protect the US economy and strengthen public confidence in the banking system. The FDIC was designated to handle the insurance process.
@federal Reserve @The United States Treasury @FDICgov issue a statement on actions to protect the US economy by strengthening public confidence in our banking system, ensuring that depositors' savings remain safe: https://t.co/YISeTdFPrO
โ Federal Reserve (@federalreserve) March 12, 2023
On April 29, the FDIC report on the matter he highlighted the collapse of the main US banks, Silvergate Bank and Silicon Valley Bank, which caused a lack of liquidity due to runs on deposits. The regulator further stated:
โHowever, the root cause of SBNY's failure was mismanagement. SBNY management did not prioritize good corporate governance practices, did not always pay attention to the concerns of FDIC examiners, and was not always responsive or timely in addressing FDIC supervisory recommendations (SRs).
The FDIC blamed SBNY's board of directors and management for seeking "runaway growth" using uninsured deposits without implementing liquidity risk management strategies. The final nail in Signature Bank's coffin was when it was unable to manage liquidity, which was required to meet large withdrawal requests.
The report also revealed that Signature Bank often denied addressing the FDIC's concerns or implementing the regulator's supervisory recommendations. Since 2017, the FDIC has sent numerous oversight letters to SBNY citing regulatory, audit, or risk management criticism, as shown below.
Due to non-compliance with the recommendations, the FDIC downgraded SBNY's liquidity component rating to a โ3โ beginning in 2019, further highlighting the need to improve its fund management practices.
Two government bodies were reportedly investigating Signature Bank for money laundering before its collapse. A March 15 report highlighted that the Justice Department was investigating the bank for possible money laundering.
In addition, it was reported that a parallel investigation was underway by the Securities and Exchange Commission. However, it is not clear how the investigations helped to close the bank.
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