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FDIC Report Cites Poor Management as the Cause of Signature Bank Failure

Signature Bank‘s collapse was attributed to poor management and inadequate risk management practices, according to a post-mortem assessment conducted by the US Federal Deposit Insurance Corporation (FDIC).

The bank was closed on March 12 to protect the US economy and strengthen public confidence in the banking system, with the FDIC taking on the insurance process.

The regulator’s report, released on April 29, identified the root cause of SBNY’s failure as poor management, with the bank’s board of directors and management blamed for pursuing unrestrained growth using uninsured deposits and neglecting to implement liquidity risk management strategies.

The inability to manage liquidity, which was required to fulfill large withdrawal requests, was the final straw for Signature’s demise.

The report also highlighted the collapse of major US banks, such as Silvergate Bank and Silicon Valley Bank, as a contributor to illiquidity due to deposit runs.

According to the report, Signature Bank repeatedly refused to address the FDIC’s concerns and implement its supervisory recommendations.

The FDIC had sent several supervisory letters to SBNY since 2017, which pointed out issues related to regulations, audits, or risk management.

Proposed SRs from targeted review Supervisory Letters in process at the time of SBNY’s failure. Source: FDIC

As a result of noncompliance, the FDIC downgraded SBNY’s liquidity component rating to “3” from 2019, indicating that the bank needed to enhance its fund management practices.

According to reports, two government agencies were investigating Signature Bank for possible money laundering before its collapse.

One report published on March 15 revealed that the U.S. Department of Justice was conducting an investigation into the bank’s activities.

Additionally, according to Cointelegraph, the U.S. Securities and Exchange Commission was reportedly conducting a parallel investigation. However, it is unclear how these investigations were related to the bank’s eventual closure.

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