Federal Deposit Insurance Corporation's (FDIC) new report on its supervision of failed Signature Bank said that it did not have enough staff for proper regulation of Signature and that the bank's failure was due to bad management and FDIC's inaction.
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Signature Bank, a crypto friendly bank in New York, was taken over by FDIC in March after a run. This followed the closure of the crypto friendly Silvergate Bank in California. Both banks had a volatile deposit base and a business plan that focused on rapid deposit growth.
The FDIC's report (pdf) states that despite repeated criticisms by FDIC supervisors SBNY has never adequately addressed liquidity risk management concerns.
Signature's deposits increased 175% between 2017 and 2021. This was much faster than other banks of similar size. In 2021, Signature set a limit of 10% for the growth in deposits for its group of digital assets. Signature did not slow down the growth of its deposits from this industry. Instead, it increased the limit to 35 percent of all deposits.
The FDIC stated that the bank's organization structure was lacking in clear decision-making procedures, transparency regarding who made decisions and documentation regarding approval and escalation protocol. "Key decisions are often taken by individuals or informal groups of executives, without following prescribed processes."
A second problem: the FDIC stated that it could not adequately staff a team dedicated to regulation Signature from 2017-2023. The agency stated that some reviews of the bank were not done on time or at all.
Since 2020, the FDIC estimates that its New York Regional Office has a 40% shortage of large financial institution examiners. The FDIC said that while other regional offices had staffing issues, the New York office was particularly affected by the high costs of living and the competition for talent from other regulators.
Since 2020, the New York office has raised concerns with the Risk Management and Controls Division of the regulator. The FDIC formed a group to study the effects of increasing compensation for examiners in charge or allowing staff at these positions more flexibility through remote work. The agency had also been creating deputy positions to help senior examiners, and exploring other changes in order to make the role attractive to potential candidates. This included pay increases that were agreed upon in 2022.
The report states: "While the actions taken are positive, there is still more to be done." The report notes that "the lack of examination resources, especially in the New York area, is a mission critical risk which will require sustained responses from all agencies."