FDIC Review of Signature Bank Failure Echos Fed Report: the FDIC could have escalated supervisory actions soone

On Friday, the Federal Deposit Insurance Corporation (FDIC) issued a report on the failure of Signature Bank. The report scrutizined oversight of the bank from 2017 until its collapse in March 2023.

The cause of the failure reflects a similar report posted by the US Federal Reserve on the recent bank failures pointing to poor management. The FDIC notes that the banks board of directors and management pursued rapid growth without maintaining robust risk management protocols. At the same time, the bank “did not always heed FDIC examiner concerns.”

“The primary cause of SBNY’s failure was illiquidity precipitated by contagion effects in the wake of the announced self-liquidation of Silvergate Bank, La Jolla, California (Silvergate), on March 8, 2023, and the failure of Silicon Valley Bank, Santa Clara, California (SVB), on March 10, 2023, after both experienced deposit runs.”

The report admits that the FDIC “could have escalated supervisory actions sooner, consistent with the Division of Risk Management Supervision’s (RMS) forward–looking supervision concept.” Communication between examiners and the bank fell short.

The FDIC also blames a lack of resources, stating:

“The FDIC experienced resource challenges with examination staff that affected the timeliness and quality of SBNY examinations. From 2017 to 2023, the FDIC was not able to adequately staff an examination team dedicated to SBNY (Dedicated Team). Certain targeted reviews were not completed timely or at all because of resource shortages. These vacancies and the adequacy of the skillsets of the Dedicated Team contributed to timeliness and work quality issues and slowed earlier identification and reporting of SBNY weaknesses.”

The FDIC has itemized issues for future study. The report is available here.

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