According to the Federal Deposit Insurance Corporation (FDIC) chairman, Signature Bank failed due to poor management and not paying attention to the risks associated with cryptocurrency.
The investigations into Signature Bank’s failure indicate illiquidity circumstances and poor management. Martin Gruenberg, the Federal Deposit Insurance Corporation (FDIC) chairman, believes the bank’s inability to comprehend the dangers associated with cryptocurrencies hastened its demise.
At a recent Oversight of Prudential Regulators hearing of the United States House of Representatives Financial Services Committee, Gruenberg highlighted the recent failures of Silicon Valley Bank (SVB) and Silvergate Bank, which led to significant declines in stock prices and subsequent deposit outflows from other banks.
According to a related report by the FDIC’s chief risk officer, ineffective management was “the root cause of Signature Bank’s failure.” While highlighting Signature’s excessive reliance on uninsured deposits in the absence of adequate risk controls, Gruenberg added:
“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.”
Although regulators and banking professionals concur that deposit runs are one of the primary causes of bank failures, former SVB CEO Greg Becker cited rising interest rates as a contributing factor.
According to Becker, no bank “could survive a bank run of that velocity and magnitude.” According to Gruenberg, the failures of SVB and Signature Bank resulted in $16.1 billion and $2.4 billion in losses, respectively.
Gruenberg concluded the discussion by stating that banks with assets exceeding $100 billion “deserve special consideration, including consideration of a long-term debt requirement to facilitate orderly resolutions.”
In contrast, the U.S. Government Accountability Office‘s preliminary assessment did not explicitly attribute the failure of Signature Bank to crypto exposure.
As previously reported, numerous regulators and legislators continue referencing the failures of Signature Bank, Silicon Valley Bank, and Silvergate Bank when discussing cryptocurrencies.
