The head of the US Federal Deposit Insurance Corporation (FDIC) says Signature Bank (SBNY) did not understand the risks of doing business with the crypto industry prior to the collapse.
In new testimony before a US House of Representatives committee, Martin Gruenberg, chairman of the FDIC, says the crypto industry’s market volatility over the past two years contributed to Signature’s demise as the contagion spread. after the fall of two financial institutions, Silvergate Bank and Silicon Valley Bank (SVB). ).
says Gruenberg,
“Signature Bank funded its rapid growth by over-relying on uninsured deposits without implementing fundamental liquidity risk management practices and controls. In addition, the bank did not understand the risk of its association with and reliance on crypto industry deposits or its vulnerability to contagion from the crypto industry turmoil that occurred in late 2022 and into 2023.
While the fallout from Silvergate’s liquidation and SVB’s bankruptcy were unprecedented and unfolding rapidly, Signature Bank’s poor governance and inadequate risk management practices left the bank in a position where it could not effectively manage its liquidity at a time of stress, making her unable to meet very large withdrawal requests.”
Gruenberg’s comments echo last month’s FDIC report on Signature Bank’s demise.
The New York Department of Financial Services (NYDFS) shut down the crypto-friendly financial institution in March after customers withdrew $10 billion in 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 regulatory crackdown on crypto. However, in response to the claim, NYDFS superintendent Adrienne Harris said the bank’s closure was solely due to liquidity issues.
Flagstar Bank, a subsidiary of New York Community Bancorp, eventually bought most of Signature Bank’s assets.
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