Review of FDIC’s Handling of Failure of Signature Bank Finds Inconsistency in Exams, Oversights & More

A review of the how the FDIC handled the failure of Signature Bank has found inconsistency in examinations, missed opportunities, supervision oversights and more. According to the material loss review of Signature Bank of New York, which had $110 billion in assets at the time it failed in March, was released by the federal regulator’s Office of Inspector General (OIG). The bank’s failure, which took place at the same time as that of Silicon Valley Bank, cost the bank insurance fund $2.5 billion.

As reports separately in today’s reporting, the FDIC’s former chair says the agency’s tools and systems meant it was woefully behind the problems taking place at banks earlier this year. The review was performed by the firm of Cotton & Company Assurance and Advisory, LLC, for the FDIC’s OIG.

The OIG said it was charged with doing two things in its review:

  • Determine why the bank’s problems resulted in a material loss to the FDIC’s Deposit Insurance Fund (DIF)
  • Evaluate the FDIC’s supervision of the bank, including the agency’s implementation of Prompt Corrective Action (PCA) requirements and make recommendations for preventing any such loss in the future.

The Findings

According to the report issued by the OIG:

  • Signature Bank failed due to insufficient liquidity and contingency funding mechanisms and inadequate risk management practices by bank management
  • The FDIC missed opportunities to downgrade Signature Bank’s management component rating under the agency’s exam program, and further escalate supervisory concerns
  • The FDIC did not consistently perform supervisory activities in a timely manner and was repeatedly delayed in issuing supervisory products
  • Although the FDIC appropriately downgraded Signature Bank’s liquidity component rating in the exam program, changing market conditions warranted the FDIC’s review and potential revision to supervisory guidance
  • The FDIC found that Signature Bank was well capitalized for PCA purposes.

The Recommendations

The OIG report offers several recommendations to “apply effective forward-looking supervision in a changing banking environment.” The recommendation includes that FDIC:

  • Provide training to examination staff on the timely escalation of supervisory concerns
  • Evaluate and improve existing guidance
  • Reassess the agency’s examination staffing strategy
  • Implement and monitor metrics for the FDIC’s supervision of large banks
  • Reevaluate its guidance with respect to deposit stability and liquidity stress testing.

The full material loss review can be found here.

Courtesy of CUToday, click here for the full article.