Signature Bank’s failure in March 2023 has been attributed to poor governance and illiquidity in a report by the Federal Deposit Insurance Corporation (FDIC), which was appointed to manage the bank’s insurance process. The report stated that the failure of other major US banks such as Silvergate Bank and SVB had contributed to illiquidity because of deposition runs, but poor management was the root reason of Signature Bank’s failure.
According to the FDIC report, Signature Bank’s panel of directors and administration pursued “unrestrained shift” utilizing uninsured deposits without executing proper liquidity danger management strategies. When the bank faced large withdrawal requests, it could not handle its liquidity, leading to its downfall. The FDIC blamed Signature’s management for not prioritizing good corporate governance practices, failing to address concerns raised by FDIC examiners, and not being responsive to or timely in addressing FDIC supervisory recommendations.
The FDIC sent multiple supervisory letters to SBNY since 2017, citing audit, regulatory, or risk management complaints, but Signature often denied addressing the FDIC’s concerns or implementing its supervisory recommendations. As a result of noncompliance, the FDIC devaluated SBNY’s liquidity element rating to “3” initiating in 2019, stressing the need for the bank to improve the fund management techniques.
The FDIC report did not mention any connection between Signature Bank’s failure and the cryptocurrency industry, despite some rumors to the contrary. However, two govt bodies were examining Signature Bank for funds laundering before its downfall.
According to reports, the US Department of Justice had initiated an investigation into Signature Bank for possible money laundering activities. Along with this, the US Securities and Exchange Commission had also started a parallel probe. However, it is unclear whether these investigations played a role in the bank’s eventual collapse.
The collapse of Signature Bank, a mid-sized commercial bank with $20 billion in assets and over 30 branches across the US, has raised concerns regarding the US banking system health. The FDIC report highlights the need for banks to prioritize good governance practices and implement proper liquidity risk management strategies to avoid similar failures in the future.
The report also highlights the role of the FDIC in ensuring the stability of the US banking system. The FDIC provides deposit insurance to protect depositors in the event of bank failures, and it works to promote sound banking practices through supervision, examination, and regulation of banks. The FDIC’s handling of the insurance process for Signature Bank demonstrates its commitment to maintaining public confidence in the US banking system.
