The report by the FDIC Chief Risk Officer cited poor management as the root cause of Signature Bank’s failure.
Investigations into Signature Bank’s bankruptcy point to illiquidity and mismanagement. However, Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation (FDIC), believes the bank’s lack of understanding of the risks associated with cryptocurrencies accelerated the decline.
SVB CEO Links Bank Failures to Interest Rates
Speaking at the hearing on Prudential Regulatory Oversight, Gruenberg pointed to the recent failures of Silicon Valley Bank (SVB) and Silvergate Bank, noting that these failures have led to huge drops in stock prices.
The corresponding report by the FDIC Chief Risk Officer cited mismanagement as the root cause of Signature Bank’s failure. Gruenberg pointed out that Signature Bank is overly reliant on uninsured deposits without appropriate risk controls. “The bank failed to understand the risk of its relationship to and reliance on crypto industry deposits, or its vulnerability to contagion from the crypto turmoil that occurred in late 2022 and in 2023,” Gruenberg continued.
While regulators and banking experts agree that deposit flows are one of the root causes of bank collapses, former SVB CEO Greg Becker cited rising interest rates as the reason for the bank’s bankruptcy. According to Becker, no bank could have survived a bank collapse of this speed and size.
Gruenberg announced that the bankruptcies of SVB and Signature Bank resulted in losses of $16.1 billion and $2.4 billion, respectively. At the end of the talk, Gruenberg said that banks with assets of $100 billion or more deserve special attention, including an assessment of the need for long-term borrowing to facilitate regular solutions.
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