FDIC Says Signature Bank Cratered Due to Contagion Effects and Failure To Understand the Risks of Crypto
Signature Bank (SBNY) primarily failed due to contagion that spread from other recently collapsed financial institutions, according to the U.S. Federal Deposit Insurance Corporation (FDIC).
The FDIC says in a new report that the self-liquidation of Silvergate Bank and the failure of Silicon Valley Bank (SVB) paved the way for Signature’s high-profile implosion last month.
However, the regulator also notes that other factors, including crypto, played a role in the financial institution’s demise.
“SBNY’s board of directors and management pursued rapid, unrestrained growth without developing and maintaining adequate risk management practices and controls appropriate for the size, complexity and risk profile of the institution. SBNY management did not prioritize good corporate governance practices, did not always heed FDIC examiner concerns, and was not always responsive or timely in addressing FDIC supervisory recommendations (SRs). SBNY funded its rapid growth through an overreliance on uninsured deposits without implementing fundamental liquidity risk management practices and controls. Additionally, SBNY failed to understand the risk of its association with and reliance on crypto industry deposits or its vulnerability to contagion from crypto industry turmoil that occurred in late 2022 and into 2023.”
The New York Department of Financial Services (NYDFS) shuttered the crypto-friendly financial institution in March after customers withdrew $10 billion worth of deposits in a single day. The NYDFS then appointed the FDIC to run a “bridge bank” holding all of Signature’s assets until it could be sold off.
Signature Bank board member Barney Frank, a former Democratic Congressman from Massachusetts, told CNBC at the time that he thought the bank’s closure was part of a regulatory crackdown on crypto. However, NYDFS superintendent Adrienne A. Harris later denied that, saying the bank’s shuttering happened entirely due to liquidity issues.
Later in March, the FDIC entered into a “purchase and assumption agreement” with Flagstar Bank, a subsidiary of New York Community Bancorp.
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