The Federal Deposit Insurance Corp. acknowledged it was too slow to respond to problems at Signature Bank before the lender’s spectacular collapse last month.
(Bloomberg) — The Federal Deposit Insurance Corp. acknowledged it was too slow to respond to problems at Signature Bank before the lender’s spectacular collapse last month.
The FDIC said that “resource challenges” in its New York office kept it from adequately staffing an examination team dedicated to Signature Bank. Regulators also could have downgraded a key risk metric on the bank’s management, according to a report from the watchdog on Friday.
New York state financial officials closed Signature after depositors fled and then the FDIC took over the institution on March 12, making it the third-largest bank failure in US history. Since then, Signature’s involvement with the cryptocurrency industry and lending to commercial real estate have drawn intense scrutiny.
The report is the FDIC’s most comprehensive account yet of what happened in the chaotic lead-up to the takeover of the lender. Signature was the third bank to fall in March after Silvergate Bank and Silicon Valley Bank. The Federal Reserve released a review on Friday of its oversight of SVB.
In its report, the FDIC said that as late as the day before its failure, Signature had a composite rating of 2 on a key risk measure known as CAMELS. The score on the 1 through 5 scale, with 5 being the worst, indicates that regulators hadn’t taken into account all of the issues facing the bank. For example, the FDIC acknowledged the management component of rating could have been downgraded more than a year earlier.
“Given the recurring liquidity control weaknesses, SBNY’s unrestrained growth, and management’s slow response to address findings, it would have been prudent to downgrade the Management component rating to ‘3,’ (i.e., needs improvement) as early as the second half of 2021,” the FDIC said.
Staff Woes
The FDIC also said it was unable to appropriately staff an examination team focused on the bank between 2017 and 2023, which delayed certain reviews. “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 agency said.
More broadly, the agency’s New York regional office has dealt with “persistent staffing shortages” among examiners focused on large financial institutions. An average of 40% of those roles have been vacant or filled by temporary staff since 2020, the agency.
Signature also had a concentration of very large depositors, the FDIC said. Crypto industry-related deposits alone represented 27% of total in 2021.
The firm “failed to understand the risk of its association with and reliance on crypto industry deposits or its vulnerability to contagion from crypto industry turmoil that occurred in late 2022 and into 2023,” the FDIC said.
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