FDIC examiners missed multiple opportunities to downgrade Signature Bank’s management component rating and escalate concerns before its failure in March, according to an independent party review of the agency’s handling of the New York City-based bank, released today.
The review by public accounting firm Cotton & Co. was commissioned by the FDIC’s Office of Inspector General to determine the reasons for the bank’s failure and evaluate the agency’s supervision of the institution. The firm concluded Signature failed due to insufficient liquidity and contingency funding mechanisms and inadequate risk management practices. The review also found that the FDIC missed opportunities to raise supervisory concerns with the bank, and that it did not consistently perform supervisory activities in a timely manner and repeatedly delayed issuing supervisory products. Still, the agency appropriately downgraded Signature’s liquidity component rating, the firm added.
The report contained six recommendations for how the FDIC could improve its supervisory processes. They include training for examination staff on the timely escalation of supervisory concerns, evaluating and improving existing guidance, reassessing examination staffing strategy, implementing and monitoring metrics for the agency’s supervision of large banks, and reevaluating its guidance with respect to deposit stability and liquidity stress testing.