Signature Bank Failed to Understand the Risks Associated with Crypto: FDIC Chairman

The investigation surrounding the collapse of Signature Bank points to liquidity conditions and poor management. However, the chairman of the Federal Deposit Insurance Corporation (FDIC), Martin J. Gruenberg believes that the bank’s failure to understand the risks associated with cryptocurrencies hastened its downfall.

speaking on the hearing On “Oversight of Prudential Regulators,” Grunberg highlighted the recent failures of Silicon Valley Bank (SVB) and Silvergate Bank, which ultimately manifested in a large drop in stock prices and subsequent deposit outflows to other banks.

A related report written by the FDIC’s chief risk officer cited poor management as “the root cause of Signature Bank’s failure.” Pointing to Signature Bank’s excessive reliance on uninsured deposits without proper risk controls, Gruenberg said:

“Additionally, the bank failed to understand the risk of crypto industry deposits or its reliance on exposure to spillovers from the crypto industry turmoil expected in late 2022 and into 2023.”

Although regulators and banking professionals agree on the deposit run as one of the key drivers of the bank’s collapse, SVB’s former CEO Greg Baker blamed rising interest rates among the above factors for its demise.

According to Baker, no bank “could survive a bank run of that velocity and magnitude.” Gruenberg revealed that the failures of SVB and Signature Bank resulted in losses of $16.1 billion and $2.4 billion, respectively. Concluding the discussion, Gruenberg said that banks with $100 billion or more in assets “deserve special attention, including consideration of long-term debt requirement to facilitate systematic resolutions.”

Connected: FDIC pins Signature Bank failure on poor governance and illiquidity

On the other hand, a preliminary review by the United States Government Accountability Office (GAO) did not explicitly blame crypto exposure for the collapse of Signature Bank.

As previously reported by Cointelegraph, several regulators and lawmakers continue to call for the downfall of Signature Bank, Silicon Valley Bank, and Silvergate Bank in discussions about crypto.