Signature’s board of directors and management were at fault, according to the FDIC, since they pursued “unrestrained growth” using uninsured deposits without taking any precautions to control liquidity risk.
Signature Bank (SBNY) went down due to weak management and lax risk management, according to a postmortem conducted by the United States Federal Deposit Insurance Corporation (FDIC).
On March 12, federal authorities took action to defend the U.S. economy and boost public trust in the banking system by closing Signature Bank. Insuring has been delegated to the FDIC.
The failure of large U.S. banks including Silvergate Bank and Silicon Valley Bank on April 29 triggered illiquidity owing to deposit runs, according to a study by the FDIC. The regulating body went on to say:
Poor management, however, ultimately led to SBNY’s demise. Signature’s board of directors and management were at fault, according to the FDIC, since they pursued “unrestrained growth” using uninsured deposits without taking any precautions to control liquidity risk. Signature went bankrupt because it lacked the cash on hand to meet customers’ significant withdrawal demands.
Signature was also seen in the study to have consistently rejected addressing FDIC concerns and failed to follow regulator supervisory guidelines. As may be seen below, the FDIC has written many supervisory letters to SBNY since 2017 with various complaints about regulatory compliance, auditing, and risk management.
SBNY’s liquidity component rating has been lowered to “3” by the FDIC beginning in 2019 as a result of the bank’s failure to implement the suggestions for better fund management.
Before its bankruptcy, Signature Bank was allegedly being investigated by two federal agencies for money laundering. According to a March 15 news article, the FBI and the U.S. Department of Justice are looking into allegations of money laundering at the bank.
It was also stated that the Securities and Exchange Commission of the United States was conducting an investigation into the same matter. It is unclear how the inquiries contributed to the eventual liquidation of the bank.
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