Breaking News
Investing Pro 0
Final hours: unlock premium data with Claim 60% OFF

Signature Bank failure due to 'poor management,' US FDIC report says

Published Apr 28, 2023 01:02PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: A woman walks past a Signature Bank location in Brooklyn, New York, U.S., March 20, 2023. REUTERS/Brendan McDermid/File Photo
 
SBNY
0.00%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
NYCB
-0.81%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

(Reuters) - Last month's failure of New York-based Signature Bank (OTC:SBNY) was caused by "poor management" and a pursuit of "rapid, unrestrained growth" with little regard for risk management, the Federal Deposit Insurance Corporation said on Friday in a report detailing its supervision and regulation of the regional bank.

Bank management and its board chased growth and deposits without "developing and maintaining adequate risk management practices and controls appropriate for the size, complexity and risk profile of the institution," according to the 63-page report.

Just as critically, the FDIC said its supervisory staff was inadequately resourced for the task of overseeing the bank, an issue it flagged as a significant impediment more widely to its mission of maintaining the safety and soundness of the banking system.

Since 2020, an average of 40% of positions in the FDIC's large bank supervisory staff in the New York region were vacant or filled by temporary employees, the report said.

Regulators closed Signature on March 12, two days after Silicon Valley Bank was shuttered following $42 billion in deposit outflows in a single day. The same day SVB failed, Signature lost 20% of its total deposits in a matter of hours, FDIC Chair Martin Gruenberg has said.

The Federal Reserve issued a report detailing its supervision and regulation of SVB earlier on Friday.

Similar to SVB, Signature examiners reported weak corporate governance practices and failures by bank management to address shortcomings identified by supervisors, including the firm's reliance on uninsured deposits.

Signature's leadership "rejected examiner concerns about the stability of uninsured deposits as late as noon EST on March 10, 2023," the FDIC said, adding that management "failed to acknowledge the severity of the problem until a run started" later that afternoon.

Flagstar Bank, a subsidiary of New York Community Bancorp (NYSE:NYCB), agreed to buy substantially all of the deposits and loans from Signature in the week following its closure. The FDIC estimated the deal would cost its Deposit Insurance Fund approximately $2.5 billion.

Signature had $110.36 billion in assets and $88.59 billion in deposits at the end of last year, according to New York state's Department of Financial Services. Like SVB, Signature relied heavily on uninsured deposits and experienced a boom in growth between 2019 and 2020, when its assets grew 64%, according to Gruenberg.

U.S. officials invoked a "systemic risk exception" to back all deposits, even those above the amount insured by the FDIC, at both Signature and SVB in an effort to prevent more bank runs.

CRYPTOCURRENCY SECTOR DEPOSITS

Signature was a commercial bank with private client offices in New York, Connecticut, California, Nevada and North Carolina, and had nine national business lines including commercial real estate and digital asset banking.

As of September, almost a quarter of its deposits came from the cryptocurrency sector, but the bank announced in December that it would shrink its crypto-related deposits by $8 billion.

Signature's remaining deposits from crypto clients were not part of the rescue deal arranged with Flagstar.

The New York State Department of Financial Services pushed back on speculation from the crypto industry as well as Signature board member and former U.S. Representative Barney Frank's assertions that the regulator closed the bank due to its involvement in digital assets.

The agency said Signature failed to provide reliable and consistent data as withdrawal requests ballooned over the weekend and made the decision to close the bank based on its ability to do business in a safe and sound manner the next day.

Signature had a long-standing relationship with former President Donald Trump and his family, providing Trump and his business with checking accounts and financing several of the family's ventures. The bank cut ties with Trump in 2021 following the deadly Jan. 6 riots on Capitol Hill, and urged Trump to resign.

Signature Bank failure due to 'poor management,' US FDIC report says
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (2)
Stephen Fa
Stephen Fa Apr 28, 2023 2:04PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
But Democrat Barnie Frank?
MK MK
MK MK Apr 28, 2023 1:29PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I demand life sentence for the management
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email