A “Reckless Growth Strategy”
During a hearing before the Financial Services House Committee, chairman Gruenberg pointed out that Signature’s downfall was largely a consequence of its inability to handle the repercussions of its “reckless growth strategy” and insufficient risk management practices.
While acknowledging his agency’s delay in taking timely action to mitigate the crisis permeating Signature’s operations, chairman Gruenberg assumed partial responsibility for the shortcomings that occurred.
FDIC and Crypto’s Role in Signature Bank’s Downfall
FDIC chairman 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. “
While the FDIC report pinpointed poor management as the fundamental reason behind Signature Bank’s collapse, it also highlighted specific areas where the FDIC’s supervisory efforts could have been better.
Lessons from Recent Bank Failures
The collapses of Signature Bank, Silicon Valley Bank, and Silvergate Bank continue to be referenced by regulators and lawmakers in ongoing discussions surrounding cryptocurrencies. The United States Government Accountability Office (GAO) has conducted a preliminary review of the failures of Silicon Valley Bank and Signature Bank, which involved exposure to deposits from the cryptocurrency industry.
According to a report released on May 11, “poor governance and unsatisfactory risk-management practices” were the primary factors contributing to the collapse of Signature Bank in March. While the report did not explicitly attribute the bank’s failure to digital assets, it did mention its exposure to the cryptocurrency industry as a potential contributing factor. These findings from the GAO shed light on the complexities surrounding the failures of these banks, highlighting the importance of robust governance and risk management practices.
The mention of exposure to the crypto industry in the report reflects the growing recognition of the need for effective risk assessment and management concerning digital assets within the banking sector.