Worker shortage: A pedestrian passes by the FDIC headquarters in Washington, DC. The regulator says its inability to appropriately staff the examination team between 2017 and 2023 ended up delaying certain reviews. — Bloomberg
WASHINGTON: The Federal Deposit Insurance Corp (FDIC) has acknowledged it was too slow to respond to problems at Signature Bank (SB) before the lender’s rapid collapse last month, partly due to a staffing shortage in its New York office.
The FDIC said that “resource challenges” in that office kept it from adequately staffing an examination team dedicated to the lender.
The regulator also could have downgraded a key risk metric on SB’s management, according to a report from the watchdog on Friday.
New York state financial officials closed SB after depositors fled. Then the FDIC took over the institution on March 12, making it the third-largest bank failure in US history.
Martin Gruenberg, the agency’s chairman, remarked that SB lost 20% of total deposits in just a “matter of hours” on March 10. The bank’s involvement with the cryptocurrency industry and lending to commercial real estate have drawn intense scrutiny.
The report is the FDIC’s most comprehensive account yet of what happened in the chaotic lead-up to the takeover of the lender.
SB was the third bank to fall in March after Silvergate Bank and Silicon Valley Bank (SVB). The Federal Reserve released a review on Friday of its oversight of SVB.
The FDIC said its inability to appropriately staff the examination team between 2017 and 2023 ended up delaying certain reviews.
“These vacancies and the adequacy of the skillsets of the Dedicated Team contributed to timeliness and work quality issues and slowed earlier identification and reporting of SB weaknesses,” the agency said.
More broadly, the agency’s New York regional office has dealt with “persistent staffing shortages” among examiners focused on large financial institutions.
The FDIC’s New York region has 61 authorised examiner positions for large financial institutions, according to the agency.
Since 2020, an average of 40% of those have been vacant or filled by temporary staff, the report said.
SB also had a concentration of very large depositors, the FDIC said. Crypto industry-related deposits alone represented 27% of total deposits in 2021.
The firm “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,” the FDIC said in its report.
In its report, the FDIC said that as late as the day before its failure, SB had a composite rating of two on a key risk measure known as Camels.
The score on the one-through-five scale, with five being the worst, indicated that regulators hadn’t taken into account all of the issues facing the bank.
For example, the FDIC said the management component of the rating could have been downgraded more than a year earlier.
The root cause of the bank’s failure was poor management, said Marshall Gentry, the agency’s chief risk officer.
“SB’s board and management pursued rapid unrestrained growth without developing and maintaining adequate risk management practices and controls appropriate for its size, complexity and risk profile,” he said on a call Friday with reporters to discuss the report.
The bank also didn’t always heed FDIC examiners’ guidance and wasn’t always timely or responsive in addressing recommendations, Gentry said. In light of those issues, the report suggested that FDIC consider revising its policies. — Bloomberg
