Sunday, December 10, 2023

Signature Bank collapse was due to ‘poor management,’ FDIC says

bank collapse signature It was due to “deficient management” by its managers, according to a report published this Friday by the Federal Deposit Insurance Corporation (FDICfor its acronym in English).

“The address of Signature Bank did not prioritize good governance practices, did not always address the concerns of the FDIC, and did not always satisfy, or not in a timely manner, the recommendations of supervision of the FDIC ”, has explained the organism.

The effect contagion following the collapse of the Silicon Valley bank and the liquidation of the bank Silvergatewhich occurred days before the Signature was intervened, spurred a flight of deposits, the document has confirmed.

In this sense, “it depended on excess of uninsured deposits”, which represented between 63% and 82% of total assets during the period analyzed.

In addition, the bank itself “failed to appreciate” its high exposure to deposits in cryptocurrencies, which accounted for 20% of their deposits, or the vulnerability derived from the instability in this sector at the end of 2022 and which continued into 2023.

“When the difficulties in the sector and interest rates began to rise, these deposits began to leave the bank”, the FDIC’s main risk advisor, Marshall Gentry, explained this Friday in statements collected by ‘CNN’. “Even if they were deposits of cryptocurrencies, they acted as in a conventional deposit flight”, added Gentry.

However, the body has also recognized that “the results of FDIC examinations were not timely reported to bank management” with due frequency due to understaffing.

Similarly, the Federal Reserve (Fed) today revealed that Silicon Valley Bank (SVB) had 31 open warnings from regulators in some “essential areas”such as governance, risk assessment, liquidity or interest risk management, when it collapsed last March.

The Fed has censored the significant management failures on the part of the management of the bank and its inability to appreciate the risks assumed. However, the Fed has also recognized that regulators did not act in time despite the fact that the SVB had 31 open warnings, “approximately triple that of their counterparts.”

Likewise, the changes regulations undertaken by the Fed in 2019 after the approval of the Consumer Protection, Regulatory Reform and Economic Growth Act, during the presidency of donald trumpinvolved the “tailor-made” review of the requirements for other banks that were not globally systemically important, as was the case with Silicon Valley Bank. This has led to less demanding regulatory standards, the Fed has said.

Following the inquiries, Michael Barrthe Federal Reserve’s vice president in charge of banking supervision, has recommended tightening Fed regulation of entities with more than $100 billion in assets.

Barr has suggested revising the rules regarding tests stress and liquidity requirements. In addition, he has proposed limiting share repurchases, dividend distributions and executive compensation in companies with inadequate risk and capital management.


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