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What Did FDIC Learn From $2 Billion Loss at Signature Bank?

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Signature Bank was an EPIC Failure with an Estimated Cost of $2,4 Billion

Losses of this size require a "Material Loss Review"

Key points from the report:

SBNY failed and caused an estimated $2.4 billion loss to the Deposit Insurance Fund.

The review found that SBNY failed due to insufficient liquidity and contingency funding to meet a run on deposits sparked by contagion from other bank failures. SBNY management prioritized aggressive growth without adequate risk management practices to counterbalance liquidity risks from concentrated, uninsured deposits.

The FDIC missed opportunities to downgrade SBNY's CAMELS Management rating and escalate concerns despite longstanding liquidity issues and emerging corporate governance weaknesses. The FDIC also did not always perform supervisory activities timely.

However, the FDIC appropriately downgraded SBNY's Liquidity rating. The report recommends updates to FDIC examination guidance on deposit stability, liquidity stress testing, timely escalation of concerns, and monitoring of examination timeliness.

The report contains 6 recommendations intended to improve FDIC supervision processes and guidance:

1. Provide training to examiners on timely escalation of supervisory concerns.

2. Emphasize prompt communication of risks and findings to bank management.

3. Evaluate and update examination guidance on matters such as interim downgrades, bank responsiveness, and coordination.

4. Reevaluate examiner staffing strategy, especially for large, complex banks.

5. Implement metrics and monitor timeliness of examination activities and reports.

6. Update examination guidance on deposit stability and liquidity stress testing.


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