The collapse of Signature Bank has been blamed on “poor management” and risky crypto deposits, according to a comprehensive report by the US Federal Deposit Insurance Corporation (FDIC) released on April 28.
The report found that Signature Bank’s reliance on uninsured deposits posed a risk that the bank was unable to manage carefully. The bank did not understand the inherent risks of uninsured deposits and was not prepared for the bank run that led to its collapse. The report also revealed that almost all of the digital asset-related deposits at the bank were uninsured.
Before its collapse, Signature Bank had $110 billion in assets under management and was the 29th largest lender in the US. It experienced rapid growth between 2019 and 2021 after expanding services to crypto-related companies. However, the lender’s “growth outpaced the development of its risk control framework,” according to the report.
The FDIC also acknowledged its own shortcomings in supervising Signature Bank and called for improvements, particularly in providing timely guidance. The regulator cited a shortage of available staff as one of the reasons for the lack of oversight. Signature Bank’s liquidity controls were severely lacking, and it failed to meet the unprecedented withdrawal requests as it faced an almost $4 billion cash shortfall on March 10.
The collapse of Signature Bank has raised concerns about the safety of uninsured deposits and the risks associated with crypto-related companies. The FDIC is now seeking bids for troubled First Republic, which could be taken into receivership if a rescue deal is not found. The collapse of Signature Bank is a cautionary tale for banks and regulators alike, highlighting the need for better risk management and oversight in the rapidly evolving world of finance.
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