The head of the U.S. Federal Deposit Insurance Corporation (FDIC) says that Signature Bank (SBNY) failed to grasp the risks of doing business with the crypto industry ahead of its collapse.
In new testimony before a U.S. Housing of Representatives committee, FDIC chairman Martin Gruenberg says that the crypto industry’s market volatility in the past two years contributed to Signature’s demise as contagion spread after the fall of two financial institutions, Silvergate Bank and Silicon Valley Bank (SVB).
Says Gruenberg,
“Signature Bank funded its rapid growth through an overreliance on uninsured deposits without implementing fundamental liquidity risk management practices and controls. Additionally, the bank 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.
Although fallout from the liquidation of Silvergate and the failure of SVB was unprecedented and unfolded rapidly, Signature Bank’s poor governance and inadequate risk management practices put the bank in a position where it could not effectively manage its liquidity in a time of stress, making it unable to meet very large withdrawal requests.”
Gruenberg’s remarks are in line with last month’s FDIC report on Signature Bank’s downfall.
The New York Department of Financial Services (NYDFS) shuttered the crypto-friendly financial institution in March after customers withdrew $10 billion worth of deposits in a single day.
At the time, Signature Bank board member Barney Frank said he believed the bank’s closure was part of the US’s regulatory crackdown on crypto. However, in response to the claim, NYDFS superintendent Adrienne Harris said that the bank’s closure was solely due to liquidity issues.
Flagstar Bank, a subsidiary of New York Community Bancorp, ended up purchasing most of Signature Bank’s assets.
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