The Federal Deposit Insurance Corporation (FDIC) ex-post evaluation of Signature Bank (SBNY) revealed that poor management and inadequate risk management practices were the root causes of its collapse.
Federal regulators closed Signature Bank on March 12 to protect the US economy and boost public confidence in the banking system. The FDIC was designated to handle the insurance process. On April 29, an FDIC report highlighted illliquidity as a result of a run on deposits caused by the failure of major US banks such as Silvergate and Silicon Valley Bank. The regulator further stated:
“However, the root cause of SBNY's failure was poor management. SBNY management did not prioritize good corporate governance practices, did not always heed the concerns of FDIC examiners, and was not always responsive when addressing FDIC regulatory recommend ations (SRs) Promptly or timely. " The FDIC accused Signature's board and management of using uninsured deposits to pursue "uncontrolled growth" without implementing a liquidity risk management strategy. The final nail in the coffin came when Signature was unable to manage the liquidity, which is necessary to sat isfy the high volume of withdrawal requests.
The report also revealed that Signature has frequently denied addressing the FDIC's concerns or implementing the regulator's regulatory recommendations. Since 2017, the FDIC has issued multiple regulatory letters to SBNY citing regulatory, audit, or risk management critique ticism, as listed below. The FDIC started 2019 by downgrading SBNY's liquidity component rating to a "3" for non-compliance with recommendations, further highlighting the need to improve its fund management practices. Two government agencies were reportedly investigating money laundering at Signature Bank before its co lapse. A March 15 report highlighted that The US Department of Justice was investigating the bank for possible money laundering.
Additionally, the SEC is reportedly conducting a parallel investigation. However, it is unclear how these investigations helped the bank fail.
