— (Reuters) In a report detailing its supervision and regulation of the neighborhood bank, the Federal Deposit Insurance Corporation stated on Friday that the failure of New York-based Signature Bank last month was brought on by “poor management” and a pursuit of “rapid, unrestrained growth” with little consideration for risk management.
The 63-page assessment states that the bank’s management and board chased deposits and expansion without “developing and maintaining adequate risk management practices and controls appropriate for the size, complexity, and risk profile of the institution.”
A fundamental obstacle to the FDIC’s mandate of ensuring the safety and soundness of the banking system, it claimed, was that its supervisory personnel lacked the resources necessary for the job of supervising the bank.
The FDIC’s big bank supervisory workforce in the New York region has had an average of 40% empty or temporary jobs since 2020, according to the report.
Regulators shut down Signature on March 12, two days after Silicon Valley Bank was forced to close due to a $42 billion day-to-day deposit outflow. According to FDIC Chair Martin Gruenberg, on the same day that SVB failed, Signature lost 20% of its entire deposits in a few of hours.
Earlier on Friday, the Federal Reserve published a paper outlining how it monitored and controlled SVB.
Similar to SVB, Signature’s examiners found lax corporate governance procedures and management failures to address issues brought to their attention by supervisors, such as the company’s reliance on uninsured deposits.
The FDIC stated that management at Signature “failed to acknowledge the severity of the problem until a run started” later that afternoon. Management at Signature “rejected examiner concerns about the stability of uninsured deposits as late as noon EST on March 10, 2023,” the FDIC added.
In the week following Signature’s liquidation, Flagstar Bank, a division of New York Community Bancorp, agreed to acquire nearly all of its deposits and loans. The FDIC predicted that the transaction will drain its Deposit Insurance Fund of about $2.5 billion.
According to the Department of Financial Services for the state of New York, at the end of the previous year, Signature had assets worth $110.36 billion and deposits at $88.59 billion. According to Gruenberg, between 2019 and 2020, when its assets climbed 64%, Signature saw a boom in growth similar to that of SVB, relying largely on uninsured deposits.
With private client offices in New York, Connecticut, California, Nevada, and North Carolina, Signature was a commercial bank with nine national business lines, including commercial real estate and digital asset banking.
Nearly 25% of its deposits as of September came from the cryptocurrency industry, but the bank announced in December that it would reduce those deposits by $8 billion.
The rescue agreement made with Flagstar did not include Signature’s remaining crypto client deposits.
The New York State Department of Financial Services denied claims made by the cryptocurrency industry and former U.S. Representative and Signature board member Barney Frank that the regulator shut down the bank because of its engagement in digital assets.
A decision to close the bank was taken based on Signature’s capacity to do business in a safe and secure manner the following day, according to the agency, which claimed that as withdrawal requests grew over the weekend, Signature failed to produce accurate and consistent data.
Former President Donald Trump and his family had a long-standing association with Signature, which gave Trump and his company bank accounts and provided funding for a number of the family’s endeavors. Following the fatal Capitol Hill riots on January 6, 2021, the bank severed ties with Trump and urged his resignation.