FDIC pins Signature Bank's failure on poor governance and illiquidity

The United States Federal Deposit Insurance Corp’s (FDIC) post-mortem appraisal of Signature Bank of New York (SBNY) revealed mediocre absorption and inadequate hazard absorption practices arsenic the basal origin for its collapse.

Signature Bank was unopen down by national regulators connected March 12 successful a bid to support the U.S. system and fortify nationalist assurance successful the banking system. FDIC was appointed to grip the security process.

@federalreserve @USTreasury @FDICgov contented connection connected actions to support the U.S. system by strengthening nationalist assurance successful our banking system, ensuring depositors' savings stay safe: https://t.co/YISeTdFPrO

On April 29, FDIC’s report connected the substance highlighted the illness of large US banks — Silvergate Bank and Silicon Valley Bank — caused illiquidity owed to deposit runs. The regulator further stated:

“However, the basal origin of SBNY’s nonaccomplishment was mediocre management. SBNY absorption did not prioritize bully firm governance practices, did not ever heed FDIC examiner concerns, and was not ever responsive oregon timely successful addressing FDIC supervisory recommendations (SRs).”

FDIC blamed SBNY’s committee of directors and absorption for pursuing “unrestrained growth” utilizing uninsured deposits without implementing liquidity hazard absorption strategies. The last nail successful the coffin for Signature Bank was erstwhile it could not negociate liquidity, which was required to fulfill ample withdrawal requests.

Correlation of SBNY’s banal terms to crypto-industry events. Source: FDIC

The study besides revealed that Signature Bank often denied addressing FDIC’s concerns oregon implementing the regulator’s supervisory recommendations. Since 2017, FDIC sent galore supervisory letters to SBNY citing regulatory, audit oregon hazard absorption criticisms, arsenic shown below.

Proposed SRs from targeted reappraisal Supervisory Letters successful process astatine the clip of SBNY’s failure. Source: FDIC

Due to non-compliance with the recommendations, the FDIC had downgraded SBNY’s Liquidity constituent standing to “3” starting successful 2019, further highlighting the request to amended its funds absorption practices.

Related: ‘Ludicrous’ to deliberation Signature Bank’s illness was connected to crypto, says NYDFS head

Two authorities bodies were reportedly investigating Signature Bank for wealth laundering anterior to its collapse. A study from March 15 highlighted that Justice Department was investigating the slope for imaginable wealth laundering.

In addition, a parallel probe by the Securities and Exchange Commission was reportedly underway. However, it remains unclear however the investigations aided the bank’s closure.

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