Signature Bank collapse due to regulators, management

The fall of Signature Bank (SBNY) has been linked to a combination of executive mismanagement and insufficient intervention by federal regulators, exacerbating the bank’s exposure to risks in the crypto industry and the ripple effects from other banks’ failures.

The downfall of Signature Bank has been connected to inadequate management and the subsequent consequences resulting from the collapses of Silicon Valley Bank and Silvergate Bank, as disclosed in a comprehensive report by the Federal Deposit Insurance Corporation (FDIC).

Signature Bank victim of many oversights

The detailed 63-page examination underscores the challenges encountered by Signature Bank, which include substandard management, an excessive reliance on uninsured deposits, poor liquidity risk management, and a general lack of effective risk management practices.

The situation was further aggravated by a bank run that transpired in the wake of the other banks’ failures.

In addition to these issues, the FDIC report emphasized that Signature Bank failed to recognize the potential dangers of its connection to the crypto industry and its susceptibility to disruptions within that market, which escalated towards the end of 2022 and persisted into 2023.

The FDIC has been examining Signature Bank since it was seized by the New York Department of Financial Services (NYDFS) in March.

Contrary to allegations that the bank was closed solely due to its crypto clientele, NYDFS Superintendent Adrienne Harris has repeatedly emphasized that the bank grappled with other issues as well.

Concurrently with the FDIC report, the Federal Reserve and the Government Accountability Office (GAO) published their findings from separate investigations into Silicon Valley Bank and Signature Bank.

The Federal Reserve’s report also linked the downfall of SVB to a chain of mismanagement problems, compounded by unforeseen risks such as increasing interest rates and liquidity challenges.

The GAO report indicated that, in the year leading up to its collapse, Signature Bank had diminished its exposure to deposits originating from the crypto sector. The GAO concluded that both banks were unable to effectively manage the risks related to their deposits.

Each of the three reports highlighted the absence of timely action by federal regulators as a significant factor, suggesting that banking authorities could have stepped in sooner to gather more data or more effectively manage the banks and the risks they were facing.