Digital Assets: FDIC Report Says Signature Bank Collapsed Due To Mismanagement And Banking Turmoil

April 28, 2023 | Digital Assets, News

Exposure to the crypto industry was also cited as a reason for the failure of Signature Bank.

The Federal Deposit Insurance Corp. (FDIC) has released a report stating that the collapse of  Signature Bank was due to mismanagement by its officers and “contagion effects” from the collapse of Silicon Valley Bank and voluntary liquidation of Silvergate Bank.

The report found that Signature Bank heavily relied on uninsured deposits, had weak liquidity risk-management practices, and exhibited poor risk management overall. The bank’s association with and reliance on the crypto industry and its vulnerability to contagion from crypto industry turmoil were also cited as major risks. (CoinDesk)

The FDIC has been reviewing its oversight of the bank since the New York Department of Financial Services seized it in March.

The Federal Reserve and Government Accountability Office (GAO) also published their own reviews of Silicon Valley Bank and Signature on the same day as the FDIC’s report.

The Federal Reserve attributed SVB’s collapse to serial mismanagement worsened by unaccounted-for risks arising from interest-rate hikes and liquidity issues.

GAO said Signature had “reduced its exposure to deposits” from the crypto industry over the 12 months prior to its collapse, but suffered due to rising interest rates and exposure to the digital assets industry.

All three reports blamed federal regulators for failing to act in time to manage the banks and their risks by requesting more information or taking other actions.

Although some industry players have claimed that Signature Bank was shut down solely for serving crypto customers, the report’s findings suggest that Signature Bank’s reliance on uninsured deposits and poor risk management practices, in addition to its exposure to the crypto industry, played significant roles in its downfall.

Related Story: Federal Support Action For Resolving SVB And Signature Bank Crises

Photo by Marco Bianchetti on Unsplash

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