According to a study released on Friday by a federal bank regulator, the failure of crypto-friendly institution Signature Bank was caused by executives’ poor leadership and “contagion effects” following Silicon Valley Bank’s demise and the wind-down of Silvergate Bank.
According to the Federal Deposit Insurance Corp., Signature Bank had weak liquidity risk-management procedures and relied primarily on uninsured deposits. According to the study, a bank run sparked by the failure of the other banks made all of that worse. Another significant risk mentioned was the bank’s involvement in the cryptocurrency sector.
Since shortly after the bank was taken over by the New York Department of Financial Services in March, the FDIC has been reviewing its control over Signature Bank.
FDIC Looked Into Signature Bank’s Records
Despite industry rumors that Signature was closed down solely to serve cryptocurrency consumers, NYDFS Superintendent Adrienne Harris has consistently said that the bank had other problems.
The FDIC report comes on the same day that the Federal Reserve and the Government Accountability Office released their own reviews of Silicon Valley Bank and Signature. The Federal Reserve, like the FDIC, ascribed SVB’s demise to chronic mismanagement exacerbated by unaccounted-for risks – in SVB’s case, the risks were interest-rate rises and liquidity concerns.
In the year leading up to its collapse, the GAO reported that Signature had “reduced its exposure to deposits” from the cryptocurrency market.
Rising interest rates had an impact on Silicon Valley Bank, and Signature Bank was exposed to the market for digital assets. According to the GAO investigation, the banks did not appropriately manage the risks posed by their deposits.
The supervisors of the banks might have moved sooner to obtain additional information or to manage the banks and their risks, according to all three studies, which blamed the lack of action by federal regulators as a significant cause.
