WASHINGTON — The Federal Deposit Insurance Corp. said Signature bank's poor governance and inadequate risk management practices put the bank in a position where it couldn't effectively manage its liquidity in times of stress, rendering it unable to meet large withdrawal requests and ultimately unable to withstand the contagion effects of recent bank failures.
Unlike with the Federal Reserve's
"The goal of bank supervision is to promote safety and soundness and financial stability, not to prevent bank failures," the FDIC said.
FDIC said Signature's board of directors and management sought rapid, unhindered growth without developing and maintaining adequate risk management practices and controls appropriate for the institution's size, complexity, and risk profile.
These underlying illiquidity risks were exacerbated by the contagion effects of two major bank failures: that of Silvergate Bank and Silicon Valley Bank. Ultimately, it was Signature's poor governance and inadequate risk management practices that put it in a position where it couldn't effectively manage its liquidity under stress, rendering it unable to meet large withdrawal requests.
Like Silicon Valley Bank, Signature funded its rapid growth through an overreliance on uninsured deposits. But unlike SVB, Signature was a household name for those looking to park digital assets.
Signature, along with Silvergate, the bank that collapsed prior to both Silicon Valley Bank and Signature Bank, were known as the primary crypto bankers, and the concentration of digital asset deposits wound up harming Signature Bank in the end, the FDIC said.
"The growth fueled by its pursuit of digital marketplace players exposed SBNY to bank runs and contagion, particularly in regards to crypto-related entities such as FTX, Alameda, and
The FDIC said Signature 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. However, its particular deposit makeup made its deposits particularly flighty, especially because another major crypto bank — Silvergate Bank —
The FDIC said in its report that it flagged issues with the concentration of deposits that eventually led to the bank's downfall, but Signature Bank largely dismissed those concerns on the grounds that its institution was particularly resilient.
"When the FDIC raised concerns about the deposit concentrations, SBNY management did not heed the FDIC's concerns and responded that the close relationship that SBNY cultivated with these large depositor clients made them less likely to leave SBNY," the FDIC said in the report. "When examiners presented a white paper about the risks of maintaining high levels of uninsured deposits as it related to the failures of Washington Mutual Bank and IndyMac Bank in 2008, SBNY management emphasized how different its bank's profile was from those two banks as they were failing."
FDIC said that Signature's leadership was defiant even in the face of supervisors drawing their attention to the high potential for deposit flight and insolvency, insisting that their circumstances were rosier than supervisors thought.
"There was little acknowledgement on the part of SBNY management about how risky and potentially volatile it was to have such a large concentration of uninsured deposits, without sufficient funds management contingency plans, in case of unanticipated financial market stress," according to the report.
The FDIC conceded that its bank supervisors in the agency's New York office could have followed up with Signature on certain shortcomings more frequently and provided "clearer, timelier messages to SBNY executives regarding identified weaknesses." The report blames this inaction, in part, on a shortage of staff and resources, saying that from 2017 to 2023, they were not able to adequately staff an examination team dedicated to Signature.
Signature Bank was shuttered by New York State regulators on Sunday, March 12, amid mounting withdrawal requests that far exceeded the bank's available funds. By the afternoon of its closure, the bank had amassed $7.9 billion of outgoing wire requests, the report states, but just $3 billion of liquidity, equivalent to 4% of its total deposit base.
The FDIC will publish a separate report on the adequacy of deposit insurance in light of the failures, and discussion of potential changes to the deposit insurance structure, on Monday.
