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Signature Bank Failed Because of Mismanagement

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  • Signature Bank failed partly because it had too many deposits related to cryptocurrency, according to the Federal Deposit Insurance Corporation.

A bank regulator said on Friday that Signature Bank failed because its managers made mistakes and because of the negative impact of the failure of Silicon Valley Bank and the closure of Silvergate Bank.

The FDIC released a 63-page report that explains why Signature Bank failed. The report blamed the bank’s failure on bad management, relying too much on deposits that weren’t insured, and not managing risks well. These problems got worse when other banks collapsed, causing people to rush to withdraw their money from Signature Bank. The fact that the bank worked with the cryptocurrency industry was also a big risk.

The report also said that Signature Bank did not realize how risky it was to have so many deposits related to cryptocurrency, and it did not understand how much it could be affected by problems in the cryptocurrency industry in late 2022 and early 2023.

The FDIC has been looking at how it supervised Signature Bank since the New York Department of Financial Services (NYDFS) took over the bank in March.

Many people in the industry thought that Signature Bank was closed down only because it worked with cryptocurrency customers, but the NYDFS Superintendent Adrienne Harris has said many times that the bank had other problems too.

On the same day, the Federal Reserve and the Government Accountability Office (GAO) released their own reviews of Silicon Valley Bank and Signature Bank. The Federal Reserve also said that the reason for Silicon Valley Bank’s failure was because of bad management and the bank not considering certain risks. In this case, the risks were related to changes in interest rates and problems with having enough money to pay debts.

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The GAO report mentioned that Signature Bank had decreased the amount of deposits it had from the cryptocurrency industry in the year before it failed.

The GAO report stated that Silicon Valley Bank faced problems because of higher interest rates, while Signature Bank had risks related to the cryptocurrency industry. Both banks did not manage these risks well, according to the report.

The reports from all three organizations blamed federal regulators for not doing enough to manage the risks that the banks were facing. They said that regulators could have asked for more information or taken other actions to help the banks and prevent them from failing.

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