FDIC's Supervision of Signature Bank (report) (Part 1 of 2)
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FDIC’S SUPERVISION OF
SIGNATURE BANK
APRIL 28, 2023
Table of Contents
EXECUTIVE SUMMARY ........................................................................................................................... 2
INTRODUCTION.................................................................................................................................... 6
BACKGROUND ..................................................................................................................................... 6
CAUSES OF FAILURE AND MATERIAL LOSS................................................................................................ 7
RAPID GROWTH WITHOUT COMMENSURATE RISK MANAGEMENT PRACTICES ............................................ 7
MANAGEMENT’S RESPONSIVENESS TO SUPERVISION FINDINGS .............................................................. 9
OVERRELIANCE ON UNINSURED DEPOSITS AND LIQUIDITY RISK MANAGEMENT ....................................... 10
OVERRELIANCE ON UNINSURED DEPOSITS .................................................................................... 10
LOSS OF LIQUIDITY..................................................................................................................... 12
REPUTATION RISK AND CONTAGION FROM CRYPTO INDUSTRY TURMOIL ................................................ 13
THE FDIC’S SUPERVISION OF SIGNATURE BANK .................................................................................... 16
SUPERVISORY ACTIVITIES AND CAMELS RATINGS ASSIGNED ............................................................... 16
SUPERVISORY RECOMMENDATIONS AND ENFORCEMENT ACTIONS ........................................................ 17
EVALUATION OF THE LIQUIDITY COMPONENT RATING.......................................................................... 19
EVALUATION OF THE MANAGEMENT COMPONENT RATING ................................................................... 21
LIDI PROGRAM RATINGS ................................................................................................................. 24
CONTINUOUS EXAMINATION PROCESS IMPLEMENTATION .................................................................... 26
SUPERVISORY PLANNING ............................................................................................................ 28
EXAMINATION ACTIVITIES ............................................................................................................ 29
COMMUNICATION OF SUPERVISORY ACTIVITIES .............................................................................. 31
TIMELINESS OF COMMUNICATION WITH SBNY BOARD AND MANAGEMENT ............................................. 32
TARGETED REVIEW SUPERVISORY LETTER AND ROE TIMELINESS ...................................................... 32
SBNY STAFFING CHALLENGES ......................................................................................................... 36
NYRO RESOURCE AND STAFFING ISSUES ...................................................................................... 38
RMS ACTIONS TAKEN TO ADDRESS RESOURCE CHALLENGES........................................................... 39
CONCLUSION AND MATTERS FOR FURTHER STUDY ................................................................................. 40
APPENDIX 1: OBJECTIVE, SCOPE, AND METHODOLOGY ........................................................................... 43
APPENDIX 2: SUPERVISORY HISTORY.................................................................................................... 44
APPENDIX 3: OPEN MRBAS AND SRS FROM TARGETED REVIEWS ............................................................. 56
APPENDIX 4: LIQUIDITY-RELATED SRS AND MRBAS ............................................................................... 57
APPENDIX 5: OTHER SUPERVISORY EFFORTS......................................................................................... 59
APPENDIX 6: ACRONYMS .................................................................................................................... 62
Executive Summary
Introduction
On March 12, 2023, the New York State Department of Financial Services (NYSDFS) closed Signature
Bank of New York (SBNY) and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver
of the bank. SBNY was a full-service, commercial bank founded in 2001. As of December 31, 2022,
SBNY had total deposits of $88.6 billion and total assets of $110.4 billion. SBNY was the 29th largest
bank in the country, and its failure constituted the third largest bank failure in United States history.
As of March 19, 2023, the FDIC estimated the cost of SBNY’s failure to the Deposit Insurance Fund (DIF)
to be approximately $2.5 billion. The exact cost will be determined when the FDIC terminates the
receivership.
The FDIC was the primary federal regulator of SBNY and, in late March, FDIC Chairman Martin J.
Gruenberg commissioned the FDIC’s Chief Risk Officer to conduct an internal review of the agency's
supervision of SBNY and produce a report to the FDIC Board of Directors for release to the public by
May 1, 2023.
Background
SBNY was a state nonmember commercial bank headquartered in New York, New York. SBNY began
operations in 2001 as a de novo bank. SBNY’s main lines of business were commercial real estate
(CRE) and commercial and industrial (C&I) lending, which were principally funded through uninsured
deposits gathered from mid-sized commercial companies. Starting in 2018, SBNY began to expand its
business model by launching other lending and deposit gathering initiatives, including a Fund
Banking Division dedicated to providing financing and banking services to the private equity industry
and a Digital Assets Banking Group to collect cash deposits and maintain operating accounts for
various digital asset-related businesses. SBNY experienced tremendous deposit growth, primarily in
large uninsured deposits, during 2020 and 2021, resulting in the bank’s size more than doubling. In
2022, as interest rates began to rise and deposits began to contract due to volatility in the digital
assets market, the bank experienced significant digital asset-related deposit outflows.
Causes of Failure and Material Loss
The primary cause of SBNY’s failure was illiquidity precipitated by contagion effects in the wake of the
announced self-liquidation of Silvergate Bank, La Jolla, California (Silvergate), on March 8, 2023, and
the failure of Silicon Valley Bank, Santa Clara, California (SVB), on March 10, 2023, after both
experienced deposit runs. However, the root cause of SBNY’s failure was poor management. SBNY’s
board of directors and management pursued rapid, unrestrained growth without developing and
maintaining adequate risk management practices and controls appropriate for the size, complexity
and risk profile of the institution. SBNY management did not prioritize good corporate governance
practices, did not always heed FDIC examiner concerns, and was not always responsive or timely in
addressing FDIC supervisory recommendations (SRs). SBNY funded its rapid growth through an
overreliance on uninsured deposits without implementing fundamental liquidity risk management
practices and controls. Additionally, SBNY 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 fallout from the liquidation of Silvergate and the failure
2
of SVB was unprecedented and unfolded rapidly, SBNY’s poor governance and inadequate risk
management practices put the bank in a position where it could not effectively manage its liquidity in
a time of stress, making it unable to meet very large withdrawal requests.
The FDIC’s Supervision of Signature Bank
The FDIC conducted a number of targeted reviews and ongoing monitoring, issued Supervisory
Letters and annual roll-up reports of examination (ROEs), and made a number of SRs to address
supervisory concerns. In retrospect, FDIC could have escalated supervisory actions sooner, consistent
with the Division of Risk Management Supervision’s (RMS) forward-looking supervision concept.
Additionally, examination work products could have been timelier and communication with SBNY’s
board and management could have been more effective.
Examination Activities and Ratings Assigned: In supervising SBNY, RMS staff in the FDIC’s New York
Regional Office (NYRO) employed a continuous examination process (CEP) that included assigning a
dedicated team of examiners, conducting a number of targeted reviews, and issuing annual roll-up
ROEs. The NYRO identified recurring liquidity risk management and other weaknesses, made
numerous SRs including Matters Requiring Board Attention (MRBAs), and devoted significant
resources to evaluating SBNY operations and risks. SBNY management’s responsiveness and
effectiveness in addressing SRs was mixed. Several SRs related to liquidity risk management, Bank
Secrecy Act/Anti-Money Laundering (BSA/AML), and model risk management (MRM) remained
outstanding for multiple examination cycles
From 2017 through March 11, 2023, the NYRO assigned a Composite “2” CAMELS rating 1 to SBNY,
indicating that the overall condition of the bank was satisfactory. 2 In 2019, the NYRO downgraded
SBNY’s Liquidity component rating to “3” reflecting a need for improvement. However, the NYRO
rated SBNY’s board and management performance as satisfactory until March 11, 2023. Given the
recurring liquidity control weaknesses, SBNY’s unrestrained growth, and management’s slow
response to address findings, it would have been prudent to downgrade the Management component
rating to “3,” (i.e., needs improvement) as early as the second half of 2021. Doing so would have been
consistent with RMS’ forward-looking supervision concept, likely lowered SBNY’s Composite rating,
and supported consideration of an enforcement action.
Timeliness and Communication with the SBNY Board and Management: The FDIC’s communication
of examination results to SBNY’s board and management was often not timely. Targeted review
Supervisory Letters and annual roll-up ROEs frequently exceeded elapsed-day benchmarks and in
some cases were significantly delayed. While staffing shortages and work quality impacted
timeliness, NYRO management’s linear implementation of the CEP contributed to timeliness issues,
and, in at least one case, resulted in a current-year targeted review being withheld until the prior year
annual roll-up ROE was released. A NYRO lessons learned review following SBNY’s failure concluded
1
Bank examiners review and evaluate an institution’s condition using the Uniform Financial Institutions Rating
System, also known as CAMELS (Capital, Asset quality, Management, Earnings, Liquidity, and Sensitivity to
market risk). CAMELS ratings are scored on a scale of “1” (best) to “5” (worst). Examiners assign a rating for
each CAMELS component and an overall Composite rating.
2
On March 11, 2023, the FDIC lowered SBNY’s Composite rating to “5,” Management and Liquidity component
ratings to “5,” and Capital component rating to “3.”
3
there were opportunities for examiners to engage more frequently with bank management and the
board and provide clearer, timelier messages to SBNY executives regarding identified weaknesses.
Examination Team Resource Challenges: The FDIC experienced resource challenges with
examination staff that affected the timeliness and quality of SBNY examinations. From 2017 to 2023,
the FDIC was not able to adequately staff an examination team dedicated to SBNY (Dedicated Team).
Certain targeted reviews were not completed timely or at all because of resource shortages. 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 SBNY weaknesses.
Beyond SBNY, the NYRO has experienced persistent staffing shortages within its large financial
institution (LFI) examiner ranks. Since 2020, an average of 40 percent of the LFI positions in the NYRO
have been vacant or filled by temporary staff, and a number of large bank dedicated teams have
significant vacancies. Several other FDIC regions also have an elevated number of LFI examiner
vacancies. RMS officials in the NYRO and at FDIC headquarters identified multiple reasons for LFI
staffing challenges, including the high cost of living in New York, competition from other regulators
and private sector firms that can pay more for talent than the federal government, and competition
for LFI staff from other FDIC Divisions and headquarters, which may offer greater work-life flexibilities
or higher-graded positions. RMS officials also stated that the impact of the pandemic on New York
City and surrounding areas negatively affected staff desires to post and move for permanent positions
in the region. In addition, LFI roles such as the dedicated examiner-in-charge (EIC) are demanding
positions with a significant workload.
NYRO management indicated that it had raised staffing concerns to RMS headquarters officials
multiple times since 2020. RMS agreed that NYRO management raised concerns and described
actions taken to address LFI resource challenges. In 2021, RMS established an FDIC Performance Goal
to review the CEP and the NYRO led a Staffing Resources Working Group to evaluate and make
recommendations for improving the CEP. The Working Group crafted recommendations to make CEP
examiner positions more attractive by, for example, increasing compensation or grade levels for EIC
positions; allowing greater flexibility for CEP examiner travel and remote work options; and
streamlining aspects of the CEP. RMS headquarters indicated that it had taken actions to address
resource shortages, including developing deputy EIC positions to assist dedicated EICs, exploring the
use of corporate expert-level positions for more complicated institutions, and eliminating the
requirement for dedicated EICs to sign a five-year contract to serve in the EIC role for the same
institution. The FDIC also reached a new compensation agreement in 2022 that increased employee
pay and bonus incentives. While these actions are positive, more work is needed. Examination
resource shortages, particularly in the New York region, are a mission-critical risk that will require a
sustained whole-of-agency response.
Conclusion and Matters for Further Study
The weekend of March 10, 2023, was unprecedented. The speed with which depositors withdrew
funds from SBNY and SVB was unexpected and surprised the regulators and the banking industry. The
coincidence of these two failures and their unprecedented speed may lead to changes in regulation
and supervision and reevaluating liquidity risk management. The goal of bank supervision is to
promote safety and soundness and financial stability, not to prevent bank failures. Maintaining safety
and soundness requires effective challenge from the regulators and receptivity and responsiveness
4
from the banks. In the case of SBNY, the bank could have been more measured in its growth,
implemented appropriate risk management practices, and been more responsive to the FDIC’s
supervisory concerns, and the FDIC could have been more forward-looking and forceful in its
supervision.
NYRO management is responsible for ensuring that banks in the region are adequately supervised.
While resource shortages were a significant factor in the supervision of SBNY, NYRO management is
ultimately responsible for prioritizing and risk-focusing the use of scarce resources, ensuring
examination activities are completed and communicated timely, ensuring that ratings assigned are
forward-looking and reflect management weaknesses, and escalating supervisory actions when bank
management is not responsive.
RMS headquarters is responsible for ensuring that the regions have sufficient examination resources
with the necessary skillsets and experience to effectively supervise their portfolio of institutions. That
responsibility includes developing strategies and incentives to attract and retain employees to fill LFI
positions and working with other FDIC groups such as the Legal Division and the Division of
Administration to pursue creative solutions for meeting workforce needs, including potentially
reconsidering duty station requirements and remote work options. RMS headquarters is also
responsible for addressing regional office resource needs; making prioritization decisions across the
regional offices and reallocating examination resources based on a nationwide view of risk; and
ensuring examination programs, such as the CEP, are effective and achieve their intended objective.
Our report includes matters for further study related to examination guidance, processes, and
resources.
5
Introduction
On March 12, 2023, the NYSDFS closed SBNY and appointed the FDIC as receiver of the bank. SBNY
was a full-service, commercial bank founded in 2001. As of December 31, 2022, SBNY had total
deposits of $88.6 billion and total assets of $110.4 billion. SBNY was the 29th largest bank in the
country, and its failure constituted the third largest bank failure in United States history. As of March
19, 2023, the FDIC estimated the cost of SBNY’s failure to the DIF to be approximately $2.5 billion. The
exact cost will be determined when the FDIC terminates the receivership.
In late March 2023, FDIC Chairman Martin J. Gruenberg commissioned the FDIC’s Chief Risk Officer to
conduct an internal review of the agency’s supervision of SBNY and produce a report to the FDIC
Board of Directors for release to the public by May 1, 2023. The Chief Risk Officer assembled a team
independent of the FDIC’s RMS to perform the work. The resulting internal review report provides
information about the cause of SBNY’s failure and evaluates the FDIC’s supervision of SBNY from 2017
through SBNY’s failure on March 12, 2023.
Appendix 1 contains details on our objectives, scope, and methodology. Appendices 2 thorough 5
provide detailed information about the FDIC’s supervision of SBNY. Appendix 6 contains a list of
acronyms.
Background
SBNY was a state nonmember commercial bank headquartered in New York, New York. SBNY had
40 financial centers (branches) located in the New York metropolitan area, Connecticut, California,
North Carolina, and Nevada. The bank was publicly traded, had no holding company or principal
shareholders, and had well-diversified ownership. Table 1 presents selected SBNY financial
information.
Table 1: SBNY Financial Information (amounts in billions).
12/31/17 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22
Total Assets $43.1 $47.4 $50.6 $73.9 $118.4 $110.4
Total Cash, Interest-Bearing Bank
$0.5 $0.4 $0.9 $12.4 $29.8 $6.1
Balances
Total Loans $33.0 $36.9 $39.4 $49.2 $65.2 $74.9
Total Deposits $33.4 $36.4 $40.4 $63.3 $106.2 $88.6
Digital Asset Deposits n/a n/a $1.7 $9.0 $28.7 $17.8
Uninsured Deposits $27.3 $29.9 $33.3 $55.9 $97.6 $79.5
• Percentage of Total Assets 63% 63% 66% 76% 82% 72%
• Percentage of Total Deposits 82% 82% 82% 88% 92% 90%
Source: SBNY Supervisory History, NYRO Lessons Learned review, and SBNY Call Reports.
SBNY began operations in 2001 as a de novo bank. SBNY’s main lines of business were commercial
real estate (CRE) and commercial and industrial (C&I) lending, which were principally funded through
uninsured deposits gathered from mid-sized commercial companies. Starting in 2018, SBNY began to
expand its business model by launching other lending and deposit gathering initiatives, including a
Fund Banking Division dedicated to providing financing and banking services to the private equity
6
industry; a Digital Assets Banking Group to collect cash deposits and maintain operating accounts for
various digital asset-related businesses; and Signet, a blockchain-based digital payment platform for
SBNY customers.
SBNY experienced tremendous deposit growth, primarily in large uninsured deposits, during 2020 and
2021, resulting in the bank’s size more than doubling. During this time, SBNY’s digital assets deposits
increased substantially. In 2022, as interest rates began to rise and deposits began to contract due to
volatility in the digital assets market, the bank decided to reduce its digital asset-related deposits.
SBNY experienced $17.6 billion in deposit outflow in 2022, mostly in the fourth quarter, with digital
asset-related deposits representing 62 percent of the 2022 outflow.
Causes of Failure and Material Loss
The primary cause of SBNY’s failure was illiquidity precipitated by contagion effects in the wake of the
announced self-liquidation of Silvergate and the failure of SVB, after both experienced deposit runs.
However, the root cause of SBNY’s failure was poor management. SBNY board and management
pursued rapid, unrestrained growth without adequate risk management practices; funded growth
through an overreliance on uninsured deposits without implementing fundamental liquidity risk
management practices; and failed to understand the risk of its association with the crypto industry.
SBNY management was also not always responsive in addressing FDIC SRs.
Rapid Growth without Commensurate Risk Management Practices
SBNY board and management pursued a strategy of rapid growth, with total assets increasing by
175 percent from the end of 2017 ($43.1 billion) to the end of 2021 ($118.4 billion), before declining to
$110.4 billion at the end of 2022. In April 2023, the U.S. Government Accountability Office (GAO)
reported that from 2019 through 2021, SBNY grew significantly faster than its group of peer banks.
Specifically, SBNY grew by 134 percent while peer banks grew by 33 percent. 3 GAO noted that rapid
growth can be an indicator of risk in a bank’s business and that, in these cases, regulators are
concerned with whether a bank’s risk management practices can maintain pace with rapid growth.
SBNY’s growth model was based on attracting experienced bankers and forming them into cohesive,
Private Client Groups (PCGs). The PCG became the sole point of contact serving SBNY’s clients. FDIC
ROEs indicated SBNY’s PCG model had proven to be successful over the years in expanding the bank’s
client base. The 2021 ROE reported that SBNY had 125 PCGs.
SBNY’s rapid growth and shift in strategy resulted in a bank whose profile changed significantly over a
short period of time. SBNY grew from $12 billion to $43 billion in assets from 2010 through 2017, with
loans representing 77 percent of total assets, and it had a significant CRE concentration representing
593 percent of Tier 1 capital and the allowance for credit loss. In 2018, the bank began to alter its
business model, in part to diversify away from its highly concentrated CRE loan portfolio, by launching
other lending and deposit gathering initiatives.
3
Bank Regulation, Preliminary Review of Agency Actions Related to March 2023 Bank Failures, April 2023, GAO-23-
106736. The peer group included 19 banking institutions with reported deposit balances and total assets
between $100 and $250 million each at year-end 2022.
7
• In 2018, SBNY established a Digital Assets Banking group to collect cash deposits and maintain
operating accounts for various digital asset-related businesses.
• In 2018, SBNY expanded its operations to the west coast, by opening a private client banking
office in San Francisco, and launched a Fund Banking Group dedicated to providing financing
and banking services to the private equity industry.
• In 2019, SBNY formed a Venture Banking Division to serve venture capital firms, established a
mortgage servicing banking initiative to provide treasury management products and services
to residential and commercial mortgage servicers, and launched Signet, a new blockchain-
based internal digital payment platform for SBNY customers. These diversification initiatives
had a significant impact on the profile of the bank, especially when combined with rapid asset
growth being driven by the establishment of new PCGs.
SBNY’s loans consisted of a CRE portfolio, primarily multi-family, office, and retail properties, and a
C&I portfolio, comprised of Signature Financial, a wholly-owned subsidiary, and Signature Bank C&I
portfolio (SB). The SB portfolio included the Fund Banking Group and other C&I lending. Over the
period of our review, the Fund Banking Group accounted for the preponderance of SBNY’s loan
growth as shown in Figure 1.
Figure 1: SBNY Loan Composition and Growth
Source: Roll-up ROEs and targeted review Supervisory Letters.
The Fund Banking Group mainly provided capital call facilities, basically revolving credit lines to
private equity firm general partners, who were the borrowing entities. In 2023, examiners noted that
outstanding Fund Banking exposure had grown from $4 billion at the beginning of 2020 to $31 billion
as of June 30, 2022, while committed exposure had increased to $53 billion.
8
Management’s Responsiveness to Supervision Findings
SBNY management was sometimes slow to respond to FDIC’s supervisory concerns and did not
prioritize appropriate risk management practices and internal controls. Management was described
by FDIC supervisors as reactive, rather than proactive, in addressing bank risks and supervisory
concerns. SBNY management’s primary focus on growth, deposits, and profits took priority over the
responsibility to ensure sound risk management and responsiveness to SRs. NYRO personnel
indicated that SBNY executives were sometimes disengaged from the examination process and were
generally dismissive of examination findings. When SBNY did take action to address examination
findings, SBNY’s actions were more “check-the-box” or done to assuage the examiners, versus
management understanding and appreciating the importance of underlying findings or control
weaknesses.
SBNY’s responsiveness to SRs was mixed. In many instances, the FDIC documented and discussed
repeat findings or SRs and MRBAs across multiple examination cycles, particularly related to liquidity
risk management, BSA/AML, and MRM, without management effectively addressing the underlying
supervisory concern. SBNY management failed to implement sufficient issues tracking processes that
led to untimely remediation of numerous recommendations, findings, and deficiencies.
As discussed in greater detail below, SBNY was subject to several repeat criticisms, which reflected
management’s and the board’s slow response to supervisory issues. For example, since the 2019
examination cycle, SBNY’s management and board were aware that the bank’s fund management
practices needed improvement. SBNY’s practices were not commensurate with the institution's
complexity, risk profile, and scope of operations due to weaknesses with liquidity contingency
planning, liquidity stress testing, and internal controls. Yet, the same criticisms were levied in 2020,
2021, and 2022, as the bank more than doubled in size and its risk profile increased. Despite repeated
criticisms from FDIC supervisors, SBNY never adequately addressed the liquidity risk management
concerns. These weaknesses figured prominently into the bank’s failure.
SBNY’s management and board reaction to the bank’s liquidity risk profile in 2018 provides one
example of SBNY’s failure to be proactive. SBNY’s 2018 risk appetite statement indicated the board
had a “low” risk appetite as it related to liquidity. However, examiners identified several ongoing
breaches in board-approved risk metrics. In one case in 2021, SBNY breached a 10 percent key risk
indicator for digital assets-related deposit growth. Instead of curbing growth, SBNY increased the
limit to 35 percent of total assets. The board should have ensured that SBNY was in compliance with
its liquidity risk appetite and risk tolerance, and to the extent noncompliance was noted or identified,
the board should have ensured appropriate actions were taken to return SBNY to the approved risk
appetite. In addition, the board should have ensured other actions were taken to control and
appropriately manage and monitor SBNY’s increasing liquidity risks.
SBNY also implemented weak corporate governance practices. Examiners noted several examples
where management made decisions without regard for having proper governance standards in place.
The bank’s organizational structure lacked clear decision-making processes, transparency as to who
made decisions, and documentation as to approval and escalation protocols. Key decisions were
often made by individuals or small informal groups of executive officers, without always following
prescribed processes. Various committee charters did not provide for appropriate accountability, or
allowed for concentrated authority without adequate safeguards.
9
Overreliance on Uninsured Deposits and Liquidity Risk Management
SBNY’s primary source of growth was through uninsured deposits gathered from mid-sized
companies. Uninsured deposits can be an unstable source of funding for banks because customers
with uninsured deposits may be more likely to withdraw their funds during times of financial market
stress. SBNY maintained substantial on-balance sheet liquidity through 2021 as deposits were
growing, but experienced sharp deposit outflows in 2022 and made lending decisions that materially
reduced the bank’s liquidity.
Overreliance on Uninsured Deposits
Uninsured deposits are considered higher risk as they are more prone to rapid runoff during
reputational or financial stress than insured deposits. SBNY’s uninsured deposits ranged from
63 percent to 82 percent of total assets during our period of review. In an April 2023 report, GAO noted
that the median uninsured deposits to total assets percentage for a group of SBNY’s peer banks
ranged from 31 to 41 percent during a similar time period.4 SBNY’s overreliance on this funding
source was the primary driver of the bank's elevated liquidity risk profile. However, SBNY did not
sufficiently establish policies and controls to address this key risk. Establishing a limit on the
allowable level of uninsured deposits was not considered a viable solution, as management’s strategy
was based on the generation of large commercial deposits. In fact, SBNY targeted potential clients for
PCGs based on the clients’ ability and willingness to place large deposits with the bank.
Notwithstanding the inherent riskiness of the bank’s funding structure, management expressed its
belief that the deposit base was largely stable based on its client-centric business model. Large
depositors typically also maintained their operating account and/or lending relationship with the
bank and it was therefore assumed their deposits were “sticky”—that is, unlikely to move. However,
SBNY never fully developed liquidity stress testing deposit assumptions or a deposit runoff framework
to substantiate this assumption. SBNY management should have gathered applicable industry and
bank-specific uninsured deposits data that could have been used to model the potential degree of
uninsured deposit volatility during adverse liquidity events.
As noted above, SBNY experienced expansive growth in 2020 and 2021. As companies in new
industries like crypto formed relationships with SBNY and various depositors were fleeing to the
safety of U.S. depository bank accounts, SBNY reaped the benefits and grew assets by 46 percent and
60 percent year-over-year in 2020 and 2021, respectively. SBNY experienced deposit growth of $22.9
billion in 2020, a 57 percent increase. Growth in deposits in 2020 in particular was likely due, in large
part, to pandemic-related economic stimulus programs.
Rapid deposit growth continued in 2021, with deposit growth of $42.9 billion representing a
68 percent increase. Deposit growth was primarily driven by large uninsured deposits gathered by the
Digital Assets Group, as well as traditional commercial deposit gathering by PCGs. The Digital Assets
Group experienced the largest influx of deposits in 2021 with a growth of $19.7 billion or a 219 percent
increase, bringing digital asset-related deposits to a total of $28.7 billion, as shown in Figure 2.
4
GAO-23-106736.
10
Figure 2: SBNY Asset and Deposit Growth (Year-end 2018 through 2022).
Source: SBNY quarterly Large Insured Depository Institution (LIDI) Reports.
Similar to SVB, SBNY had also developed a concentration of very large depositors. Approximately 60
clients held deposit account balances in excess of $250 million, representing about 40 percent of total
deposits. Digital asset-related deposits alone represented 27 percent of total deposits at year-end
2021. Four separate depositors, each comprised greater than 2 percent of total assets, and together
held 14 percent of total assets. Three of these depositors were digital asset-related clients.
Despite the significant volume of uninsured deposits and the concentration of deposits in a few key
accounts, SBNY management did not acknowledge the risks this profile presented. When the FDIC
raised concerns about the deposit concentrations, SBNY management did not heed the FDIC’s
concerns and responded that the close relationship that SBNY cultivated with these large depositor
clients made them less likely to leave SBNY. When examiners presented a white paper about the risks
of maintaining high levels of uninsured deposits as it related to the failures of Washington Mutual
Bank and IndyMac Bank in 2008, SBNY management emphasized how different its bank’s profile was
from those two banks as they were failing. Rather than conceding how they were similar, particularly
in relation to the risks the high level of uninsured deposits could pose to their institution, SBNY
management stressed the strength of their client relationships. There was little acknowledgement on
the part of SBNY management about how risky and potentially volatile it was to have such a large
concentration of uninsured deposits, without sufficient funds management contingency plans, in case
of unanticipated financial market stress.
11
Loss of Liquidity
Throughout the time period in which SBNY was experiencing rapid growth and more volatility in
deposits, management never developed appropriate and sufficient funds management policies or an
adequate contingency funding plan. From the early days of the pandemic, when growth was
accelerating, management relied more on its increasingly liquid asset position, with greater volumes
of cash and liquid investments held on its balance sheet, than on a well-developed and thoroughly
tested funding contingency plan. Thus, in late 2022, when its liquidity position deteriorated in large
part due to stress in the crypto industry, SBNY was not prepared for the shock of an uninsured deposit
run.
As noted above, during most of the pandemic, SBNY maintained more liquid assets to offset the influx
of newer, large uninsured deposits. For example, SBNY’s liquid assets represented 44 percent of total
assets as of year-end 2021, and SBNY had almost $30 billion in cash on hand. However, in 2022, the
amount of deposits began to contract due to the combination of volatility in the digital assets
marketplace and rising interest rates. As a result of these changes, the bank significantly reduced its
cash position and became much more reliant on collateralized borrowings.
SBNY experienced deposit runoff from its larger deposits and started deploying more deposits to
higher-earning, but less liquid, assets. Over the course of 2022, total deposits declined by $17.6
billion, cash and interest-bearing bank balances declined by nearly $24 billion, and loans and
investments increased by almost $10 billion and $4 billion, respectively. SBNY’s on-balance sheet
liquidity position declined materially. By the end of 2022, on-balance sheet liquidity consisted of $6.1
billion in cash and cash equivalents and approximately $24 billion in U.S. Treasury and Agency
securities, representing 34 percent of total deposits, while uninsured deposits represented 90 percent
of total deposits.
As mentioned earlier, during 2021 and 2022, SBNY increased lending in the form of capital
call/subscription loans. These loans further reduced SBNY’s liquidity. Capital call loans provided
short-term C&I funding on a revolving basis to bridge the time between when an investment is made
by an obligor or fund and when capital contributions are received from investors to finance the
investment. A Capital Call Facility typically includes a General Partner which oversees the investment
strategy and Limited Partners. The Limited Partners provided substantially all of the capital and
typically consisted of qualified institutional investors such as insurance companies, endowment
funds, foundations, banks, retirement/pension funds, family investments, and qualified high net
worth individuals.
SBNY intended to pledge these loans to the Federal Reserve Bank of New York (FRB-NY) as collateral
for Discount Window lending. However, FRB-NY would not accept the loans as collateral because they
were not eligible as many of them had foreign limited partners. SBNY pursued efforts to pledge these
loans for months, hiring two law firms to make the case for FRB-NY to accept the loans. During the
weekend SBNY failed, management again tried, unsuccessfully, to pledge this portfolio to FRB-NY.
SBNY also unsuccessfully tried to identify alternate entities that would accept the portfolio as
collateral for a borrowing line. Even though SBNY management knew they did not have a formally-
confirmed avenue to obtain liquidity from this portfolio, they continued to try to include these loans
in collateral calculations just hours before the institution failed.
12
In February 2023, examiners questioned SBNY’s regulatory reporting of pledged securities, which
required SBNY to refile its year-end 2022 Call Report with a multi-billion upward adjustment to
pledged securities. Prior to and during the weekend of SBNY’s failure, examiners informed SBNY that
pledged securities were still misstated on the bank’s liquidity monitoring reports, because
management continued to under-report pledged securities and overstate on-balance sheet liquidity
on information provided to examiners. This issue persisted until the day SBNY failed, when
management finally produced an accurate report of unpledged securities.
Reputation Risk and Contagion from Crypto Industry Turmoil
SBNY’s board and management employed a strategy of rapid growth and expansion into the digital
asset markets. The strategy exposed SBNY to greater susceptibility to liquidity, reputation, and
regulatory risk due to the uncertainty and volatility of the digital asset space. The growth fueled by its
pursuit of digital marketplace players exposed SBNY to bank runs and contagion, particularly in
regards to crypto-related entities such as FTX, Alameda, and Silvergate. Pursuit of this strategy also
increased the volatility and susceptibility of SBNY’s more traditional depositor sources to event
shocks and depositor runs. Management was not sufficiently prepared to ameliorate the risks posed
by its concentration of deposits and lending relationships in the digital assets marketplace and
seemed unaware of the potential damage it could inflict on its more traditional depositor customers.
The Digital Assets Group was closely aligned with a new blockchain-based internal digital payment
platform called Signet, which SBNY developed with blockchain developer Tassat in 2018 and officially
launched in January 2019. Touted as the first to market for an FDIC-insured bank, Signet enabled
SBNY clients to settle USD payments globally 24 hours a day/7 days a week/365 days a year within the
bank. The platform operated in-house and allowed bank customers to send payments in real time to
fellow SBNY customers. Because all parties to the transactions had to be customers of SBNY, Signet
created an incentive for existing bank customers to recruit their existing business relationships to
become new SBNY customers in order to use the Signet technology. Although the Signet platform was
separate and distinct from the Digital Assets Group, the group shared the goals of furthering the
adoption of blockchain technology within the bank.
SBNY’s significant client concentration of digital asset companies put it in a precarious position when
the “crypto winter” hit in 2022. News articles scrutinized SBNY’s involvement in the industry. SBNY
experienced depositor run-off from both crypto customers as well as traditional depositors. However,
management did not acknowledge that its exposure to the crypto industry might entice other
customers to pull or reduce their own deposits. Two cryptocurrencies collapsed in May 2022
(TerraUSD and Luna), and additional turbulence in the industry surfaced shortly thereafter. Most
crypto companies and currencies had declined in value precipitously from their highs in November
2021, which led to digital asset company layoffs within the industry. Celsius Network halted
withdrawals in June 2022, around the same time that Voyager Digital failed and filed for bankruptcy.
Finally, in November 2022, both FTX and its related hedge fund, Alameda Research, failed.
Due to its reputation as a banker to many in the crypto industry, SBNY’s stock price closely tracked
these tumultuous events in the crypto industry space and dropped significantly during 2022 as shown
in Figure 3.
13
Figure 3: Correlation of SBNY’s Stock Price to Crypto-Industry Events
Source: S&P Capital IQ and news articles.
By the time of FTX’s failure, SBNY was well known as a bank that provided deposit services to crypto
businesses. Bank executives had sought to cater to digital asset companies through a PCG dedicated
to crypto companies and digital asset-related entities. Thus, there was increased scrutiny on SBNY
with each successive failure and collapse in the crypto space. In an attempt to blunt the impact of
these events on its stock price, SBNY issued a press release on November 15, 2022, to identify that it
only had a deposit relationship with FTX and related companies, and that their deposits comprised a
mere 0.1 percent of SBNY’s overall deposits.
SBNY management countered a Wall Street Journal article in a January 23, 2023, press release, trying
to correct the perception that SBNY was a “crypto lender” or that it invested in, held, or was a
custodian of crypto assets. SBNY disclosed plans to limit its digital assets industry deposits to less
than 20 percent of total deposits and run off between $8 billion and $12 billion of digital deposits over
the succeeding several months, to decrease its exposure to less than 15 percent of total deposits. The
Digital Assets Group deposit concentration was approximately 23.5 percent as of September 30, 2022.
SBNY’s attempt to reduce its exposure to the crypto space was market- and media-driven and was not
prompted by FDIC supervisory activities.
In February 2023, SBNY was again subjected to media attention when a lawsuit was filed alleging it
had facilitated FTX’s commingling of accounts. SBNY was sued in the putative class-action lawsuit, in
which the plaintiffs claimed that the bank had “actual knowledge of and substantially facilitated that
now-infamous FTX fraud.”
SBNY was also frequently associated with Silvergate in media reports, as these two banks were seen
as most closely tied to the crypto industry. Following the March 1, 2023, announcement by Silvergate
regarding the delay in filing its year-end 2022 financial statements and comments about its ability to
continue as a going concern, SBNY once again experienced negative media attention, which raised
14
questions about its liquidity position. The announcement on March 8, 2023, that Silvergate intended
to self-liquidate placed additional pressure on SBNY’s liquidity.
That same day, SVB reported that it was booking a $1.8 billion loss after selling investments to cover
increasing amounts of deposit withdrawals. SVB’s client withdrawals left its deposits lower than
expected by the end of February, and the institution reported its intent to raise $2.25 billion in capital
via a sale of common and preferred stock. Moody’s downgraded SVB a few hours later. When SVB’s
stock crashed upon the market opening March 9, 2023, panic spread through texts and social media,
and the institution’s venture-capital firms exited SVB en masse. SVB’s depositors attempted to
withdraw $42 billion by the end of that day.
On March 9, 2023, a short seller who was reported to have predicted the fall of FTX and Silvergate,
alleged SBNY was involved with FTX and Silvergate in a money laundering scheme using Signet, and
claiming that 25 percent of SBNY's deposits were related to the cryptocurrency sector. The Twitter
audio conversation involving this short seller was more widely reported in news reports on March 10,
2023.
Despite this flurry of negative press, SBNY’s management did not seem sufficiently concerned about
their own depositors fleeing. SBNY management continued to differentiate itself from SVB and
Silvergate, despite its similar reliance on uninsured deposits like SVB and its similar deposit
concentration in the digital asset market like Silvergate. SBNY thought it could maintain its
customers’ deposits by virtue of its relationship management through PCGs. In the intervening days,
as the crisis deepened, SBNY management still did not believe it could fail, fervently maintaining
“SBNY is not like WaMu or IndyMac.” SBNY’s President rejected examiner concerns about the stability
of uninsured deposits as late as noon EST on March 10, 2023. Bank management failed to
acknowledge the severity of the problem until a run started on SBNY in the afternoon.
On March 10, 2023, SBNY began to experience deposit withdrawals, with deposit outflows accelerating
significantly after the announced closure of SVB. SBNY did not have sufficient cash to fulfill its large
volume of deposit withdrawal requests, which equaled 20 percent of total deposits. SBNY was
unprepared for and unable to enact contingency plans against the large deposit withdrawal requests.
Outgoing wire requests significantly exceeded funds available in SBNY’s Federal Reserve account.
Due to its weak liquidity risk management practices, SBNY management had a difficult time initially
ascertaining how much borrowing it needed to fund pending wires, had approached the Federal
Home Loan Bank of New York (FHLB) too late in the day to draw against its line, and did not have
sufficient collateral pledged at the Federal Reserve’s Discount Window to cover pending wire
requests. Bank officials worked with officials at the FHLB and the FRB-NY to resolve the bank’s
funding shortfall through actions of the FHLB to subordinate its interest in collateral to the FRB-NY
and gain Discount Window access just before the Federal Reserve’s wire room closed.
Over the weekend, liquidity risk at the bank continued to rise to a critical level as withdrawal requests
mounted, along with uncertainties about the bank’s ability to meet those requests and potentially
others. The high level of uninsured deposits and the growing demand for withdrawals raised
significant doubts about the bank’s continued viability. Regulatory staff were coordinating with SBNY
management throughout the weekend regarding the amount of deposit withdrawals that had been
queuing up, as compared to on-balance sheet liquidity resources and then-existing borrowing
15
capacity. On the afternoon of Sunday, March 12, 2023, maximum outgoing wires for the next day,
Monday, March 13, 2023, had increased to $7.9 billion. Based on a best-case scenario, FDIC
determined SBNY had $3 billion in liquidity available, or 4 percent of total deposits. On the same
evening, the NYSDFS closed SBNY and appointed the FDIC as receiver—within 53 hours of SVB’s
failure.
While contagion from the liquidation of Silvergate and the failure of SVB were unprecedented and
unfolded rapidly, SBNY management’s lack of a well-documented and thoroughly tested liquidity
contingency plan and its lack of preparedness for an unanticipated liquidity event were the root cause
of the bank’s failure. This lack of preparation prevented SBNY management from a timely
understanding of the bank’s true liquidity position in a time of stress and left it unable to meet very
large withdrawal requests.
The FDIC’s Supervision of Signature Bank
The FDIC issued Supervisory Letters and annual roll-up ROEs that repeatedly cited SBNY deficiencies
with respect to liquidity risk management and other areas of supervisory concern. In retrospect, the
FDIC could have acted sooner and more forcefully to compel the bank’s management and its board to
address these deficiencies more quickly and more thoroughly. The NYRO conducted a number of
targeted reviews and devoted significant resources and effort to evaluating SBNY operations and
risks. However, persistent, significant, resource challenges in the New York region contributed to
timeliness and work quality issues and slowed earlier identification and reporting of SBNY
weaknesses.
Supervisory Activities and CAMELS Ratings Assigned
Due to its size, complexity, and risk profile, the FDIC supervised SBNY under a CEP, which included
elements such as supervisory planning, targeted reviews, ongoing monitoring, Large Insured
Depository Institution (LIDI) reporting, and an annual roll-up ROE. The FDIC assigned a dedicated
examination team to oversee the institution and conduct continuous examination activities. All
examination activities were conducted jointly with the NYSDFS.
Financial institution regulators and examiners evaluate an institution’s safety and soundness using
the Uniform Financial Institutions Rating System (UFIRS). Under the UFIRS, RMS evaluates a bank’s
performance in six components represented by the CAMELS acronym: Capital adequacy, Asset quality,
Management practices, Earnings performance, Liquidity position, and Sensitivity to market risk. Each
component, and an overall composite score, is assigned a rating of “1” through “5”, with “1”
indicating the strongest performance and having the least degree of supervisory concern and “5”
indicating the weakest performance and having the greatest degree of supervisory concern.
Between 2017 and SBNY’s failure in March 2023, the FDIC and NYSDFS issued 36 targeted review
Supervisory Letters and five roll-up ROEs. The ROEs addressed Safety and Soundness, Trust, BSA,
Information Technology, Compliance, and Community Reinvestment Act (CRA) reviews and resulted
in Safety and Soundness ratings shown in Table 2.
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Table 2: SBNY Safety and Soundness Examination Ratings
Rating Type 2017 2018 2019 2020 2021
Composite Rating 2 2 2 2 2
Capital Component Rating 2 2 2 2 2
Asset Quality Component Rating 2 2 2 2 2
Management Component Rating 2 2 2 2 2
Earnings Component Rating 2 2 2 2 2
Liquidity Component Rating 2 2 3 3 3
Sensitivity to Market Risk Component Rating 2 2 2 2 2
Examination “as of” Date 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21
ROE Issuance Date 7/31/18 7/31/19 10/02/20 11/19/21 12/13/22
Source: Annual roll-up ROEs.
On March 11, 2023, the day before SBNY failed, the NYRO notified the bank of an interim CAMELS
rating downgrade, which resulted in a CAMELS/composite rating of 325252/5.
Detailed information about Supervisory Plans, targeted reviews, ongoing monitoring efforts,
examination findings, and SRs appears in the Supervisory History section in Appendix 2.
Supervisory Recommendations and Enforcement Actions
The NYRO made a number of recommendations, including MRBAs, to address SBNY safety and
soundness conditions and weaknesses. SBNY’s responsiveness and effectiveness in addressing these
recommendations was mixed. In some cases, FDIC cited repeat findings, and SRs, including MRBAs,
remained outstanding for multiple examination cycles, particularly related to liquidity risk
management, BSA/AML, and MRM.
The FDIC’s Large Bank Supervision Procedures provide that targeted reviews can result in issuing one
or more SRs or MRBAs. An SR refers to FDIC communications with a bank that are intended to inform
the bank of the FDIC’s views about changes needed in its practices, operations, or financial condition.
A principal purpose of SRs is to communicate supervisory concerns to a bank so that it can make
appropriate changes in its practices, operations, or financial condition and thereby avoid more formal
remedies in the future, such as enforcement actions.
Most SRs are generally correctable in the normal course of business. However, SRs involving an issue
or risk of significant importance that would typically require more effort to address than those
correctable in the normal course need to be brought to the attention of the board and senior
management through MRBA comments. Therefore, MRBAs are a subset of SRs.
In certain cases, examiners may determine that MRBAs are necessary, given the significant level of
supervisory concern. Where possible and when applicable, examiners are encouraged to bring
significant risk management deficiencies to the institution’s board even if those deficiencies are not
yet reflected in the institution’s financial condition and performance ratios.
Examples of MRBAs that could warrant highlighting include:
17
• Emerging issues in which the board needs to be more proactive in establishing policy and risk
management parameters;
• Policy weaknesses that, if left unaddressed, could increase the institution’s risk profile or
adversely affect the condition of the institution;
• Ineffective management;
• Repeat examination recommendations or regulatory, audit or risk management criticisms
that have escalated in importance.
FDIC communicated a number of recommendations to SBNY through targeted review Supervisory
Letters from 2017 through SBNY’s failure on March 12, 2023. Table 3 presents SRs for those areas most
frequently cited that remained open at the end of each examination cycle. Appendix 3 presents a
more detailed presentation of all SRs cited by Supervisory Letter issued.
Table 3: Areas Most Frequently Cited with SRs Remaining Open by Examination Cycle
Targeted Review Scope 2017 2018 2019 2020 2021 2022*
Liquidity Risk Management 3 5 18 15 11 19*
Model Risk Management 10 10 10 9 12
Information Technology 10 9 11 6 4 8
Anti-Money Laundering 5 6 8 10 6 3 13*
Sensitivity to Market Risk 4 3 15 13 4
Commercial Real Estate 12 19 1 1
Other Areas 35 18 23 11 8 12*
Total 80 72 88 61 42 52*
Source: Roll-up ROEs.
* Proposed SRs from targeted review Supervisory Letters in process at the time of SBNY’s failure.
The FDIC elevated certain supervisory recommendations to MRBAs. MRBAs related to liquidity risk
management, AML, and MRM were outstanding for multiple examination cycles. Table 4 shows MRBAs
outstanding at the end of each examination cycle during the period of our review.
5
Anti-Money Laundering includes BSA/AML, Anti-Money Laundering/Countering the Financing of Terrorism
(AML/CFT), and Office of Foreign Assets Control (OFAC) targeted reviews.
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Table 4: Open MRBAs by Examination Cycle
Targeted Review Scope 2017 2018 2019 2020 2021 2022*
Commercial and Industrial Loan Portfolio 1 1
Information Technology 1
Model Risk Management 1 1 1
Liquidity Risk Management 1 2 1 1 2*
Anti-Money Laundering 1 1 3 1 8*
Commercial Real Estate 2 3 1
Corporate Governance 2
Fund Banking 1*
Total 5 7 7 3 1 13*
Source: Roll-up ROEs.
* Proposed MRBAs from targeted review Supervisory Letters in process at the time of SBNY’s failure.
SBNY was not under enforcement action at the time of failure. In 2016, the FDIC pursued an informal
enforcement action against SBNY related to BSA/AML internal control weaknesses. In June 2018, the
FDIC concluded that SBNY’s management had taken appropriate action to address those weaknesses
and terminated that informal enforcement action. Due to weaknesses emerging from the 2022
targeted reviews, the FDIC was considering pursuing two new enforcement actions — a formal
consent order related to AML/CFT and OFAC weaknesses and apparent violations and an enforcement
action (the form of which had yet to be determined) related to longstanding funds management
deficiencies as well as other risk management weaknesses. The March 11, 2023, Interim Ratings
Downgrades Letter, issued by the FDIC, notified SBNY’s board of directors that FDIC had decided to
pursue a formal enforcement action given the precipitous decline in the bank’s condition and
management’s inadequate response to recent events.
Evaluation of the Liquidity Component Rating
The FDIC downgraded SBNY’s Liquidity component rating to “3” starting in 2019, reporting that funds
management practices required improvement. The FDIC cited numerous liquidity-related SRs and
two liquidity-related MRBAs during our period of review, including an MRBA related to Liquidity
Contingency Planning that remained outstanding from 2019 through SBNY’s failure. Many of the
liquidity-related SRs were also outstanding for multiple examination cycles. Appendix 4 includes a
detailed list of liquidity-related MRBAs and SRs from the 2019 liquidity target review and notes if the
MRBA or SR was closed or open in future year examination cycles.
The RMS Manual of Examination Policies provides that, in evaluating the adequacy of a financial
institution’s liquidity position, consideration should be given to the current level and prospective
sources of liquidity compared to funding needs, as well as to the adequacy of funds management
practices relative to the institution’s size, complexity, and risk profile. In general, funds management
practices should ensure that an institution is able to maintain a level of liquidity sufficient to meet its
financial obligations in a timely manner and to fulfill the legitimate banking needs of its community.
Practices should reflect the ability of the institution to manage unplanned changes in funding sources,
as well as react to changes in market conditions that affect the ability to liquidate assets quickly with
minimal loss. In addition, funds management practices should ensure that liquidity is not maintained
19
at a high cost or through undue reliance on funding sources that may not be available in times of
financial stress or adverse changes in market conditions.
Evaluation factors that should be considered in assessing liquidity include:
• The adequacy of liquidity sources compared to present and future needs and the ability of the
institution to meet liquidity needs without adversely affecting its operations or condition;
• The availability of assets readily convertible to cash without undue loss;
• Access to money markets and other sources of funding;
• The level of diversification of funding sources, both on- and off-balance sheet;
• The degree of reliance on short-term, volatile sources of funds, including borrowings and brokered
deposits, to fund longer-term assets;
• The trend and stability of deposits;
• The ability to securitize and sell certain pools of assets; and
• The capability of management to properly identify, measure, monitor, and control the institution’s
liquidity position, including the effectiveness of funds management strategies, liquidity policies,
management information systems, and contingency funding plans.
The FDIC assigned SBNY a Liquidity component rating of “3” starting in 2019 and reported that funds
management practices required improvement. The RMS Manual of Examination Policies defines a “3”
and “4” Liquidity Component rating as follows:
“3” Liquidity Component Rating Definition “4” Liquidity Component Rating Definition
A rating of “3” indicates liquidity levels or funds A rating of “4” indicates deficient liquidity levels or
management practices in need of improvement. inadequate funds management practices.
Institutions rated “3” may lack ready access to funds Institutions rated “4” may not have or be able to
on reasonable terms or may evidence significant obtain a sufficient volume of funds on reasonable
weaknesses in funds management practices. terms to meet liquidity needs.
The NYRO identified numerous, recurring liquidity risk management concerns and noted in multiple
roll-up ROEs that liquidity risk management practices were not commensurate with the institution's
complexity, risk profile, and scope of operations due to weaknesses with liquidity contingency
planning, liquidity stress testing, and internal controls. These weaknesses prevented the bank from
appropriately understanding the potential effects of adverse liquidity events and emergency cash
flow needs. The board needed to strengthen funds management practices to better identify,
measure, monitor, and control the bank’s daily funding needs to cover both expected and unexpected
deviations from normal operations, including its reliance on the uninsured deposit funding
concentration.
The FDIC identified SBNY’s large percentage of uninsured deposits as a potentially volatile funding
concentration within every roll-up ROE since at least 2017. Beginning with the 2019 roll-up ROE,
examiners began reporting concerns about the level of uninsured deposits concentrated in a small
number of depositors, with very large deposits, including digital asset-related deposits. The 2021 roll-
up ROE noted that the combination of rapid deposit growth, increasing funding concentrations, and
unknown deposit stability had contributed to an increasing liquidity risk profile, which highlighted the
urgent need for robust risk management practices that would enable the board and management to
adequately control liquidity risk and limit potential adverse financial impacts on the bank.
20
A complicating factor in lowering the Liquidity rating further was SBNY’s level of on-balance sheet
liquidity. At the end of 2020, SBNY had $12.4 billion in cash and interest-bearing bank balances, and
only a year later, at the end of 2021, had almost $29.8 billion in cash and interest-bearing bank
balances, which was a 140 percent increase. NYRO management stated that despite the significant
increase in on-balance sheet liquidity, liquidity risk management practices still needed improvement
and supported a “3” rating. At that time, given the level of SBNY’s on-balance sheet liquidity, it would
have been difficult to support downgrading the Liquidity component rating to “4.”
However, by year end 2022, SBNY’s cash and interest-bearing bank balances level dropped to
$6.1 billion. While it may have been difficult to support a liquidity component downgrade to “4,” we
concluded that the many liquidity risk management weaknesses would have supported downgrading
the Management component rating sooner, as discussed further below. The NYRO recognized this as
well in its lessons learned review.
Evaluation of the Management Component Rating
The FDIC rated the Management component “2” in each roll-up ROE, stating that SBNY’s board and
management performance remained satisfactory. ROEs through 2020 indicated the board and senior
management appropriately identified, measured, monitored, and controlled the risks of the
institution’s activities. The 2021 roll-up ROE, issued in December 2022, was less positive and noted
emerging weaknesses in corporate governance.
The RMS Manual of Examination Policies states that the quality of an institution’s management,
including its board and executive officers, is a critical factor in the successful operation of an
institution. The board has overall responsibility and authority for formulating sound policies and
objectives for the institution, for effectively supervising the institution’s affairs, and for promoting the
institution’s welfare. A vital part of the directors’ responsibilities is to set the strategic plan of the
institution. Management must deal with ever-changing economic and market conditions,
competition, innovation, and emerging and unforeseen risks. An effective strategic plan must be
dynamic and updated as circumstances change. Executive officers, such as the President and Chief
Executive Officer and the Chief Lending Officer, have primary responsibility for managing the day-to-
day operations and affairs of the bank.
The capability and performance of management and the board of directors is rated based upon, but
not limited to, an assessment of the following evaluation factors:
• The level and quality of oversight and support of all institution activities by the board of directors
and management;
• The ability of the board of directors and management, in their respective roles, to plan for, and
respond to, risks that may arise from changing business conditions or the initiation of new activities
or products;
• The adequacy of, and conformance with, appropriate internal policies and controls addressing the
operations and risks of significant activities;
• The accuracy, timeliness, and effectiveness of management information and risk monitoring
systems appropriate for the institution’s size, complexity, and risk profile;
• The adequacy of audits and internal controls to promote effective operations and reliable financial
and regulatory reporting; safeguard assets; and ensure compliance with laws, regulations, and
internal policies;
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• Compliance with laws and regulations;
• Responsiveness to recommendations from auditors and supervisory authorities;
• Management depth and succession;
• The extent that the board of directors and management is affected by, or susceptible to, dominant
influence or concentration of authority;
• Reasonableness of compensation policies and avoidance of self-dealing;
• Demonstrated willingness to serve the legitimate banking needs of the community; and
• The overall performance of the institution and its risk profile.
The FDIC assigned SBNY a Management component rating of “2” from 2017 through March 11, 2023,
reporting that board and management performance remained satisfactory. The RMS Manual of
Examination Policies defines a “2” and “3” Management Component rating as follows:
“2” Management Component Rating Definition “3” Management Component Rating Definition
A rating of “2” indicates satisfactory management A rating of “3” indicates management and board
and board performance and risk management performance that need improvement or risk
practices relative to the institution’s size, management practices that are less than satisfactory
complexity, and risk profile. Minor weaknesses given the nature of the institution’s activities. The
may exist, but are not material to the safety and capabilities of management or the board of directors
soundness of the institution and are being may be insufficient for the type, size, or condition of the
addressed. In general, significant risks and institution. Problems and significant risks may be
problems are effectively identified, measured, inadequately identified, measured, monitored, or
monitored, and controlled. controlled.
Although the NYRO rated board and management performance satisfactory in each roll-up ROE,
examiners identified repeated concerns in the areas of liquidity risk management, BSA/AML, and MRM,
that reflected negatively on management’s performance. SRs and MRBAs in these areas remained
outstanding for multiple examination cycles, without management effectively addressing the
underlying supervisory concerns. SBNY’s breaches of key risk indicators and board-defined growth
limits reflected negatively on management as did SBNY management’s failure to implement sufficient
issues tracking processes, which according to examiners “led to an inadequate identification of issues
throughout the organization, inconsistent tracking, and a lack of timely remediation of numerous
recommendations, findings, and deficiencies that have far exceeded their expected remediation
dates.”6
In some instances, ROE narrative supporting the Management component rating appeared
incongruent with the numerical (“2” Satisfactory) rating assigned. For example, from the 2019 roll-up
ROE (which did downgrade the Liquidity rating):
Board and management performance remain satisfactory. In general, the board and senior
management appropriately identify, measure, monitor, and control the risks of the
institution's activities…
6
January 23, 2023, Corporate Governance Supervisory Letter referencing an SR outstanding since 2018 that was
being escalated to an MRBA.
22
However, during the cycle, significant weaknesses were identified as noted above within
liquidity risk management. Weakness surrounding the management of liquidity under stress
conditions and by implication the assurance that sufficient liquidity exists at any point in time
were observed, leading to a downgrade of the liquidity component. In addition, concerns with
BSA/AML high-risk account reviews continue to be evident due to both the number of
outstanding reviews, and the quality of completed reviews.
And from the 2021 ROE:
Board and management performance remain satisfactory. However, funds management
practices continue to need improvement and emerging weaknesses in corporate governance
are evident.
During the 2021 examination cycle, management continued to remediate weaknesses noted
in prior examination cycles yet several recommendations have remained open for a
protracted period and expected remediation dates continue to be extended.
Emerging risk may be present as during 2021 several [key risk indicator (KRI)] breaches
occurred relating to asset and loan growth, and digital asset deposit levels, as well as
unsupported KRI limits established for fund banking lending, an area that has experienced
rapid material growth.
The RMS Manual of Examination Policies provides that examiners should employ a risk-focused
forward-looking supervisory approach where control weaknesses or other risk management
conditions or problems are assessed early, and when necessary, corrected, in order to prevent or
mitigate serious problems to an institution’s financial condition in the future. Other internal RMS
guidance provides that:
Effective supervision requires a continuous comprehensive approach that actively adapts the
supervisory strategy to changes in facts and conditions. This is particularly important in
supervising institutions undergoing significant change. Bank supervision requires analysis of
not only current financial and operational conditions but also the potential impact of
unmitigated risks and deficiencies. Early engagement with bank management and boards of
directors is essential. Intervention to address increasing risks before financial metrics
deteriorate requires effective communication and collaboration between field and regional
staff, as well as state authorities.
A key aspect of forward-looking supervision involves addressing management and control
weaknesses early before financial decline occurs.
From year-end 2019 through 2021, SBNY grew from $50.6 billion to $118.4 billion in assets. By July
2021, the FDIC had completed a second Liquidity targeted review that repeated concerns related to
liquidity contingency planning, liquidity stress tests, and internal controls over the liquidity risk
management function. SBNY also had MRBA and SRs outstanding related to risk management
practices in the areas of Liquidity, AML, MRM, Sensitivity to Market Risk, and Enterprise Risk
Management that reflected poorly on management.
23
Given the fundamental and recurring liquidity control weaknesses, SBNY’s unrestrained growth,
management’s slow response to address findings, and management deficiencies in other areas, we
believe it would have been prudent to downgrade the Management component rating to “3” as early
as the second half of 2021. Doing so would have been consistent with RMS’ forward-looking
supervision concept. Had the FDIC lowered the Management component rating, examiners would
have likely lowered the Composite rating to “3” as well, which would have supported consideration of
an enforcement action. 7
LIDI Program Ratings
The LIDI Program is designed to provide a comprehensive analysis of the risk profiles of insured
depository institutions with total assets of at least $10 billion. The timely and thorough analysis of
these institutions helps the FDIC:
• Identify, monitor, and control the largest risks to the DIF.
• Support discretionary adjustments to deposit insurance premium assessments.
• Inform potential resolution-planning decisions and estimate potential losses.
• Identify emerging risks and trends in the banking industry.
• Document and communicate risks to senior FDIC management.
Each quarter, a regional Case Manager 8 prepares a report for the LIDI program, which includes LIDI
analyses and ratings for their assigned institutions. LIDI ratings are designed to reflect a large bank’s
potential risk to the DIF and specifically incorporate assessments of risk of failure assuming stressed
conditions (Vulnerability to Stress) and FDIC losses assuming failure (Loss Severity) using the rating
scale in Table 5. The LIDI rating also includes an “Outlook” component (i.e., Positive, Stable,
Negative) that projects where the LIDI Rating appears likely to be in 12 months based on currently
available information.
7
According to FDIC’s examination module on informal actions, examiners should consider recommending
formal enforcement action pursuant to section 8 of the FDI Act for institutions with a Composite “3” rating
particularly if management appears unwilling to take appropriate corrective measures, and for all institutions
with a Composite “4“ or “5“ rating.
8
The regional office also assigns a Case Manager to be a bank’s primary risk management contact.
24
Table 5: LIDI Program Ratings Definitions
Rating Definition
A Institutions pose a low risk to the DIF under stressed conditions. Such institutions have strong
financial performance and represent the lowest level of risk of loss to the DIF.
B Institutions pose a moderate risk to the DIF under stress conditions. Such institutions generally
have satisfactory management and financial performance, are well diversified, and would not
create a material loss to the DIF in the event of failure.
C Institutions generally represent a heightened risk to the DIF under stress conditions. Such
institutions exhibit one of the following: risk management weaknesses that warrant supervisory
attention; vulnerable to a stress event due to their balance sheet composition (e.g. elevated loan or
funding concentrations, marginal level of liquid assets, etc.); or cause a material loss to the DIF in
the event of failure.
D Institutions represent a higher risk to the DIF under stress conditions. Such institutions will exhibit
more than one of the following: risk management or financial condition weaknesses that warrant
supervisory attention; more vulnerable to a stress event due to their balance sheet composition
(e.g. high loan or funding concentrations, low level of liquid assets, etc.); or cause a material loss to
the DIF in the event of failure.
E Institutions are very high-risk institutions in troubled condition. Such institutions will have a very
weak financial condition and a high degree of performance variability. Further, these institutions
exhibit significant uncertainty regarding their ongoing viability or a pronounced risk of loss to the
DIF.
Source: LIDI Report Instructions.
Case Managers prepared quarterly LIDI reports, as required, for SBNY. From 2018 through 2021, Case
Managers assigned a “C” rating with a stable outlook, indicating that SBNY represented a heightened
risk to the DIF under stress conditions. The Case Manager lowered the Outlook to “negative” in 2022.
A Large Bank Supervision (LBS) analyst recommended downgrading SBNY’s LIDI rating to a “D”
beginning in the second quarter of 2022, but the NYRO did not agree with this change. The NYRO
downgraded SBNY’s third quarter 2022 LIDI rating to “D” stable. The NYRO downgraded the LIDI
rating due to SBNY’s elevated asset stress reflecting the credit and exposures to industries vulnerable
to the impacts of the uncertain economic conditions and declining capital levels due primarily to
significant asset growth. In addition, vulnerability to funding stress was elevated due to rapid growth
of potentially volatile large uninsured deposits including a large volume of new digital asset deposits;
combined with funds management practices needing improvement. Table 6 presents the LIDI ratings
assigned to SBNY.
Table 6: SBNY LIDI Ratings and Ratings Outlook from 2017 through Third Quarter 2022
Quarter and Year LIDI Rating and Outlook
1Q – 4Q 2017 C Negative
1Q – 4Q 2018 C Stable
1Q – 4Q 2019 C Stable
1Q – 4Q 2020 C Stable
1Q – 4Q 2021 C Stable
1Q – 2Q 2022 C Negative
3Q 2022* D Stable
Source: SBNY LIDIs.
* The third quarter 2022 LIDI report was the last LIDI report finalized before SBNY failed.
25
The LBS’ LIDI Report Instructions notes that a bank’s LIDI rating will not necessarily ‘align’ with the
UFIRS Composite rating. We asked RMS to help us reconcile SBNY’s LIDI “C” rating, indicating SBNY
represented a heightened risk to the DIF under stress conditions, against SBNY’s UFIRS composite “2”
rating, indicating the overall condition of the bank was satisfactory. A senior RMS official explained
that the LIDI program’s Vulnerability to Stress assessments go beyond current condition and metrics,
particularly in benign economic periods, and reflect inherent risks such as rapid growth, funding
concentrations, asset concentrations, and identified risk management weaknesses. Loss Severity
assessments are independent of bank’s risk of failure and primarily reflect a bank’s asset mix and
funding profile. Thus, a bank’s LIDI rating will not necessarily align with the UFIRS Composite rating.
Continuous Examination Process Implementation
The FDIC supervised SBNY under a CEP that included elements such as supervisory planning, targeted
reviews, ongoing monitoring, LIDI reporting, and an annual roll-up ROE. The FDIC assigned a
dedicated examination team that operated onsite at the bank and included examiners from NYSDFS. 9
The FDIC’s Large Bank Supervision Procedures provides guidance for conducting CEP activities.
Under the CEP, the dedicated examination team is led by a dedicated or designated EIC. For each CEP
institution, the size and composition of the dedicated examination team is based on the size,
complexity, and risk profile of the bank. A field office supervisor is responsible for staffing the team
and may assign additional resources or specialists as needed. The regional office also assigns a Case
Manager to be a bank’s primary risk management contact. The field office supervisor and Case
Manager report to an Assistant Regional Director (ARD) who has responsibility for a portfolio of
assigned banks. In addition, the LBS Branch in headquarters provides nationwide oversight and
quality control of significant examination activities at institutions in the CEP. Table 7 presents CEP
roles and responsibilities.
9
In response to the pandemic, examiners performed their work offsite from March 2020 until September 2022.
26
Table 7: CEP Roles and Responsibilities
Dedicated Team Case Manager ARD LBS
• Prepares the annual • Works with dedicated • Reviews and • Provides feedback
Supervisory Plan. team in directing approves the and
• Prepares scope memos, supervisory efforts. Supervisory Plan. recommendations
entry letters, information • Participates in periodic • Approves on draft LIDIs,
request lists, exit meeting meetings with dedicated significant ROEs, and
agendas, examiner team and LFI deviations from Supervisory Plans.
conclusions memos, and management. the Plan • Provides quarterly
supervisory letters for • Reviews Supervisory Plan throughout the LIDI analysis,
targeted reviews. and shares plan with the examination quarterly banking
• Conducts ongoing appropriate Federal and cycle. results, horizontal
monitoring activities and State Agencies. • Reviews and reviews of
prepares ongoing • Reviews significant approves LIDI emerging risk,
monitoring reports. deviations/changes to reports. and other ongoing
• Maintains SR logs. scope memos. • Signs Supervisory analysis.
• Prepares the ROE. • Reviews SR logs and Letters and ROEs. • Analyzes and
• Provides periodic updates ongoing monitoring reports SR trends
to regional and reports. across
headquarters management • Prepares LIDI reports. institutions.
on risk trends and other • Reviews and processes
matters related to the Supervisory Letters and
institution. ROEs.
• Meets with various • Communicates significant
members of LFI events.
management on a recurring • Schedules quarterly
basis. meetings with LBS and
interagency staff.
• Maintains internal
tracking and
documentation systems.
Source: Large Bank Supervision Procedures, updated January 2018.
Generally, the Dedicated Team, Case Manager, and NYRO management completed CEP planning and
examination activity deliverables. As shown in Table 8, we confirmed to what extent planned targeted
reviews were performed and CEP deliverables were completed.
27
Table 8: Completed SBNY CEP Deliverables
CEP Deliverable 2017 2018 2019 2020a 2021a 2022 2023
Supervisory Plan Y Y Y Y Y Y Y
Targeted Reviews
• Planned Reviews 19 10 7 6 7b 7c 6
• Completed Reviews 13 6 6 4 7d 3c 0
• Scope Memos 12 6 6 4 7 5 0
• Summary Conclusion Memose 10 5 6 4 5 5 0
• Supervisory Letters 13 6 6 4 5 2 0
Supervisory Recommendation Logs 0 0 0 0 0 1 1
Quarterly Ongoing Monitoring Reports 0 3 4 3 3 1 N/A
Quarterly LIDI Reports 4 4 4 4 4 3 N/A
Roll-up ROE Y Y Y Y Y N N/A
a
A Supervisory Plan was prepared for 2020. Due to the pandemic, a revised Supervisory Plan for the remainder of 2020 was
included with the Supervisory Plan for 2021. The Plan was prepared for August 2020 through December 2021.
b
Planned targeted reviews were referenced as priority reviews in the August 2020 through December 2021 Supervisory Plan.
c
Planned and Completed Reviews in 2022 include a Compliance/CRA examination, which has some similar and some
different documentation and reporting requirements than Safety and Soundness targeted reviews.
d
The results of one targeted reviewed were reported as part of ongoing monitoring in a quarterly Supervisory Letter and the
results of another targeted review were reported in the roll-up ROE.
e
Summary Conclusion Memos include workprograms and InTREx (Information Technology Examination) modules.
We observed that certain CEP deliverables were not always completed or documented in accordance
with the Large Bank Supervision Procedures. For example, a few targeted review results were not
documented in summary conclusion memos, but instead were documented in examiner conclusion
memos. In addition, a few documents appeared to be draft documents and some documents were
not stored in the Regional Automated Document Distribution and Imaging system (RADD) as required
by the Large Bank Supervision Procedures. As it relates to Ongoing Monitoring Reports, the Dedicated
Team did not complete these Reports prior to the second quarter of 2018 as required by the Large
Bank Supervision Procedures. In addition, starting in 2020, this internal reporting requirement was
periodically waived due to competing priorities and staffing constraints. Lastly, it appears that until
the fourth quarter of 2022, the Dedicated Team did not formally maintain a Supervisory
Recommendation Log in accordance with the Large Bank Supervision Procedures.
Detailed information about Supervisory Plans, targeted reviews, ongoing monitoring efforts,
examination findings, and SRs appears in the Supervisory History section in Appendix 2.
The FDIC’s Large Bank Supervision Procedures provides guidance for conducting CEP activities and
sets expectations for planning, examination activities, and communication.
Supervisory Planning
The Large Bank Supervision Procedures state that the initial step in the supervisory process is to
develop an annual Supervisory Plan, which is an important tool in identifying and prioritizing risk and
effectively allocating required resources. Supervisory Plans are prepared by the EIC and submitted to
the Case Manager, reviewed and approved by the ARD, and submitted to the applicable LBS analyst
for review and comment. The EIC coordinates with field or regional officials responsible for providing
staff to ensure availability of examination resources. Effective pre-planning for targeted reviews
should include the development of a comprehensive strategy to identify risk and assess the
28
effectiveness of risk management controls. Each targeted review should be supported by a
comprehensive Scope Memo.
We confirmed the Dedicated Team prepared comprehensive Supervisory Plans, which included
planned staffing requirements needed to complete targeted reviews and ongoing monitoring
activities, as determined by risk assessments of the bank.
Supervisory Plans also estimated the examination hours required to conduct the planned targeted
reviews and ongoing monitoring. We obtained actual hours expended on SBNY examination activities
and compared that information to Supervisory Plan estimates. With the exception of the 2018
examination cycle, actual examination hours were within about 7 percent of planned hours or
exceeded the planned hour estimate as shown in Table 9.
Table 9: Planned and Actual Examination Hours
Percentage of
SBNY Assets Planned Actual Planned Hours
Examination Cycle (in billions) Hours Hours Actually Used
2017 $35.0b as of 3/31/16 11,972 11,128 93%
2018 $40.3b as of 3/31/17 13,559 10,531 78%
2019 $44.4b as of 3/31/18 11,749 13,234 113%
2020 $48.6b as of 3/31/19 11,194 13,967 125%
2021 $53.1b as of 3/31/20 13,288 12,945 97%
2022 $85.4b as of 3/31/21 15,250 15,763 103%
Source: Supervisory plans and field office staffing Information.
Over time, the planned hours increased in relation to SBNY’s growth and FDIC authorized additional
positions to the Dedicated Team. 10 While the NYRO was able to assign short-term resources to largely
meet planned hour estimates, the Dedicated Team experienced significant turnover and vacancies
and the team was supplemented by temporary staff, as discussed later in our report. An NYRO official
told us that, as a result, some of the targeted reviews required more hours to complete than would
have been needed by a more tenured team with greater membership stability.
Examination Activities
The Large Bank Supervision Procedures state that examination activities include targeted reviews and
ongoing monitoring. Examination deliverables include the:
• Examiner Conclusion Memo prepared by each examiner after concluding examination work;
• Summary Conclusion Memo prepared by the lead examiner within 15 days of concluding
examination work;
• Target Conclusion Letter or Supervisory Letter, prepared by the lead examiner after every targeted
review and transmitted to the bank’s CEO and board within 45 days of the exit meeting;
• Quarterly LIDI report prepared by the Case Manager, due 55 days after the end of each quarter;
10
The SBNY Supervisory Plans included a metric, “planned hours per billion in assets,” that provided perspective
on the planned examination level of effort in relation to the size of the bank. We observed that this metric
declined from 342 examiner hours per billion in assets in 2017 to 163 hours per billion in assets in 2022. An RMS
official indicated the metric was more appropriate for community bank point-in-time examinations and that it
was not as useful for CEP institutions with varied business lines and risk profiles.
29
• Ongoing Monitoring Report, which summarizes ongoing monitoring activities for the quarter and
due within 45 days of the quarter end;
• Quarterly Supervisory Letters, an optional letter transmitted to the bank’s CEO and board within 60
days of the end of the quarter;
• Supervisory Letters transmitted to the bank’s CEO and board to communicate closure of SRs or
results from ongoing monitoring activities; and
• Roll-up ROE, prepared annually and addresses Safety and Soundness, Trust, BSA, and Information
Technology reviews. The ROE should generally be issued to the bank within 150 days of the
examination “as of date.”
As discussed earlier, the NYRO issued 36 targeted review Supervisory Letters and five annual roll-up
ROEs during our period of review. Targeted reviews frequently addressed areas such as Information
Technology, BSA/AML, MRM, and liquidity risk management.
We observed the Dedicated Team did not always complete all targeted reviews contemplated in
annual Supervisory Plans. The EIC developed Supervisory Plans for each examination cycle that
identified planned targeted reviews for the year. Dedicated examination teams are allowed to deviate
from the Supervisory Plan during the year; however, any significant deviations to the Supervisory Plan
should be approved by the ARD. Supervisory Plans from 2017 through 2021 contemplated 49 targeted
reviews. In addition, three targeted reviews were completed, which were not included in the original
Supervisory Plans. The NYRO issued 36 targeted review Supervisory Letters during this period and
communicated the results of one targeted review through an ROE and one targeted review, as part of
ongoing monitoring, through a quarterly Supervisory Letter. The NYRO canceled or postponed 14
targeted reviews during this period and LBS was unable to provide the NYRO documentation that a
horizontal targeted review was completed during this period. In total, approximately 30 percent of
the contemplated targeted reviews were canceled or postponed during this period. Table 10 presents
the topics of the canceled or postponed targeted reviews.
30
Table 10: Canceled or Postponed Targeted Reviews
Completed
Examination Planned
Cycle Reviews Canceled or Postponed Targeted Reviews
2017 19 • Problem Loans, Collections, Troubled Debt Restructurings
• Loan Risk Rating System
• Operational Risk
• Internal Routines and Controls, Accounting Procedures
• Call Report Review/Schedule RC-O
• Capital, Earnings, Financial Planning
2018 10a • Data Governance
• Credit Risk Management
• Signature Financial (C&I Lending)
• Signature Bank (C&I) Non Signature Financial
2019 7b • CRE Portfolio Management / Concentration Risk Management
• Model Risk Management
2020 6b • Private Equity Lending
• Model Risk Management
• Current Expected Credit Loss
2021 7c • Noned
Source: SBNY Supervisory Plans and roll-up ROEs.
a
A targeted review of SBNY’s Dodd-Frank Act Company-Run Stress Test was not performed due to regulatory requirement
changes and a targeted review of MRM was performed, which was not planned.
b
An additional targeted review was completed in this examination cycle year, which was not included in the Supervisory
Plan.
c
Planned targeted reviews were referenced as priority reviews in the August 2020 through December 2021 Supervisory Plan.
d
The results of one targeted reviewed were reported as part of ongoing monitoring in a quarterly Supervisory Letter and the
results of another targeted review were reported in the roll-up ROE.
We observed that RADD did not contain approvals for all planned targeted reviews that were canceled
or postponed. NYRO officials acknowledged that, generally, targeted reviews were canceled or
postponed due to staffing shortages.
Communication of Supervisory Activities
The FDIC’s Large Bank Supervision Procedures provides guidance for communication of supervisory
activities and notes that external communication with bank management and the board must be clear
and frequent to ensure a timely discussion of risks and remediation of supervisory issues. Each
targeted review should include a pre-planning meeting, an entrance meeting, periodic update
meetings, and a final exit meeting. If the review involves MRBA, a meeting with the board, or
committee thereof, is appropriate. Generally, the EIC, with Regional Office support, as deemed
necessary, should 1) conduct quarterly meetings with bank management to obtain status updates on
bank performance, strategic initiatives, audit findings, and 2) generally conduct annual meetings to
ensure the board, or an appropriate committee thereof, is apprised of the examination cycle findings
and ratings and to communicate expectations and supervisory program priorities for the upcoming
year. Findings from a targeted review or ongoing monitoring activities may also trigger the need to
meet with the board before the end of the examination cycle.
The NYRO generally communicated the results of targeted reviews to bank management through exit
meetings with bank management and through Supervisory Letters to the board and management.
31
The NYRO also transmitted written ROEs to SBNY’s board and management. However, as discussed in
the next section the communication of examination activity results to SBNY was not always timely.
Timeliness of Communication with SBNY Board and Management
FDIC’s communication of examination results to SBNY’s board and management often was not timely.
Supervisory Letter issuance frequently exceeded elapsed-day benchmarks and roll-up ROE issuance
exceeded the CEP median and, in some cases, the issuance delays were significant. While staffing
shortages and work quality impacted timeliness, NYRO management’s linear implementation of the
CEP contributed to timeliness issues, and, in at least one case, resulted in current-year targeted
review results being withheld until the prior year annual roll-up ROE was released.
As discussed earlier, the CEP approach consists of an annual cycle of targeted reviews that are
communicated by Supervisory Letters during the year and summarized in an annual roll-up ROE that
also communicates the CAMELS ratings. For SBNY, the annual cycle ended on December 31, the
examination “as of date.”
Targeted Review Supervisory Letter and ROE Timeliness
FDIC issued 36 targeted review Supervisory Letters communicating the results of targeted reviews
from 2017 through SBNY’s failure on March 12, 2023. We observed instances where it took an
inordinate amount of time to complete targeted reviews and deliver review results to the bank. The
dedicated examination team should generally complete and discuss the results of a targeted review
with bank management within 50-60 days and issue a written Supervisory Letter 45 days later. Of the
36 targeted reviews for which Supervisory Letters were issued, 24 took 100 or more days to complete
and discuss with bank management, 12 took 100 or more days to issue the Supervisory Letter after
discussing the targeted review with bank management, and 17 took 250 or more days from the start of
the review until the targeted review Supervisory Letter was issued, with one targeted review taking
over 400 days to issue the Supervisory Letter. Table 11 shows those targeted reviews with elapsed
days between the review start date and the exit meeting with management in excess of 200 or more
days.
32
Table 11: Targeted Reviews with Elapsed Days in Excess of 200 or More Days
(A) (B) Elapsed
Exam Exit Days
Examination Start Meeting Between
Targeted Review Topic Cycle Date Date A and B
Anti-Money Laundering 2017 09/18/17 05/22/18 246
Enterprise Risk Management 10/02/17 06/08/18 249
CRE Loan Portfolio 11/06/17 07/09/18 245
Model Risk Management 2018 07/02/18 02/13/19 226
CRE Concentration Risk Management 07/30/18 02/15/19 200
Anti-Money Laundering 09/17/18 04/26/19 221
Asset and Liability Management 10/22/18 05/22/19 212
Liquidity Risk Management 2019 10/21/19 06/16/20 239
Internal Audit 2020 10/06/20 09/03/21 332
Model Risk Management 2021 05/10/21 05/09/22 364
Liquidity Risk Management 11/08/21 06/07/22 211
Current Expected Credit Losses 11/08/21 06/21/22 225
Information Technology 2022 03/14/22 01/09/23 301
Source: Internal review team analysis of SBNY targeted review Supervisory Letters.
The FDIC issued five annual roll-up ROEs summarizing SBNY examination and ongoing monitoring
activities. As shown in Table 12, the 2020 and 2021 ROEs far exceeded the CEP median at a time when
SBNY’s risk profile and liquidity position were significantly changing.
Table 12: Report of Examination Timeliness
Days from “as of date” to ROE Issuance Date
ROE “as of date”
(12/31/20XX) SBNY ROE Issuance Date CEP Median SBNY Difference
2017 Roll-up ROE 7/31/18 171 212 +41
2018 Roll-up ROE 7/31/19 168 212 +44
2019 Roll-up ROE 10/2/20 168 276 +108
2020 Roll-up ROE 11/19/21 152 323 +171
2021 Roll-up ROE 12/13/22 167 347 +180
Source: Internal review team analysis of ROEs and transmittal letters.
Over time, delays in completing targeted reviews created a backlog of examination deliverables and
situations where the examination team completed current year targeted reviews before the prior year
annual roll-up ROE had been issued. In at least one case, NYRO management followed a linear
implementation of the CEP and withheld written targeted review results until the prior year ROE could
be issued. Because certain ROEs were not issued until 11 or 12 months after the examination “as of”
date, written communication of supervisory concerns to SBNY was not timely.
Table 13 presents the 18 targeted review Supervisory Letters (18 of 36) that exceeded the 45-day
benchmark for transmittal to the SBNY’s CEO and board. The exit meeting dates marked with an
asterisk indicate instances where the exit meeting date occurred before the prior year’s roll-up ROE
33
had been completed but the Supervisory Letter was not issued until after the ROE was issued. Other
than the 2022 Corporate Governance and the Information Technology targeted reviews, NYRO officials
stated that delays were generally due to quality of work issues and report products that had to be
rewritten and that the NYRO did not withhold current year targeted review Supervisory Letters until
prior year ROEs were issued.
Table 13: Supervisory Letters Issued More Than 45 Days after the Targeted Review Exit Meeting
Examination (A) Elapsed
Cycle for Exit (B) Days
Targeted Meeting Supervisory Between
Targeted Review Topic Review Date Letter Date A and B
C&I Loan Portfolio 2017 3/22/17* 12/1/17 254
Information Technology 4/25/17* 12/15/17 234
Sales Practices and Incentive Compensation 5/25/17* 11/28/17 187
Model Risk Management 5/3/17* 12/1/17 212
Investment Portfolio 8/14/17* 12/1/17 109
Dodd-Frank Act Company-Run Stress Test 11/22/17 1/29/18 68
Asset and Liability Management 11/3/17 3/1/18 118
Internal Loan Review 2/28/18 6/1/18 93
Internal Audit 11/21/17 3/1/18 100
Signature Financial Portfolio 2/21/18 5/14/18 82
Information Technology 2018 2/20/18* 8/27/18 188
Information Technology 2019 4/17/19* 9/9/19 145
Anti-Money Laundering 1/29/20 5/4/20 96
Information Technology 2020 6/3/20* 11/4/20 154
Information Technology 2021 6/16/21* 2/3/22 232
Liquidity Risk Management 6/7/22 7/28/22 51
Current Expected Credit Losses 6/21/22 8/23/22 63
Corporate Governance 2022 5/19/22* 1/23/23 249
Source: Internal review team analysis of SBNY targeted review Supervisory Letters.
* Targeted Review exit meeting date occurred before the prior year ROE was issued.
Corporate Governance Targeted Review and 2021 Roll-up ROE: The NYRO conducted a Corporate
Governance targeted review in March 2022. The NYRO supplemented the Dedicated Team with
experienced resources for the review. The review team identified a number of concerning
management weaknesses. The team discussed the results of the targeted review with SBNY bank
management and several board members in May 2022. However, the NYRO did not issue the
Corporate Governance Supervisory Letter until January 2023, more than eight months later. NYRO
management delayed issuance of the Supervisory Letter because the prior-year roll-up ROE,
completing the 2021 examination cycle, had not been issued. The NYRO issued the 2021 roll-up ROE
in December 2022, almost 12 months after the 2021 examination financial “as of date.” The relevant
CEP median for ROE issuance during that year was about 5 months.
The 2021 roll-up ROE and January 2023 Corporate Governance Supervisory Letter, issued within about
40 days of each other, communicated different views of the sufficiency of SBNY management as
presented below.
34
2021 Roll-Up ROE Transmittal Letter Corporate Governance Supervisory Letter
(dated December 13, 2022) (dated January 23, 2023)
The letter stated the overall condition of the bank The letter was more critical of management.
remained satisfactory, but that: • Concluded that corporate governance over the
• Liquidity risk management practices continue to operations, substantial growth, and management's
require improvement. overall organizational structure and decision-
• That board and senior management oversight is making processes needed improvement.
satisfactory, but noted that the bank had • Stated the board's decision to allow a strategic
experienced material growth in the prior two position of rapid growth and concentrated
years and had executed several new initiatives. expansion into digital asset markets had brought
• That it was imperative that the board and increased susceptibility to liquidity, reputation, and
management ensure the corporate governance regulatory risks.
and risk management framework of the bank • Noted several examples where management made
maintains pace with the significant growth and decisions without regard for the proper governance
is in line with the current size, complexity, and standards in place.
risk profile of the bank. • Noted that it is critical that the board and senior
management provide for the appropriate
The ROE indicated that a review of Corporate organizational framework, guidelines, and
Governance in relation to the bank’s material asset infrastructure to ensure safe and sound operations
growth would be completed during the 2022 in consideration of the size, complexity, and rapid
examination cycle. pace of change within the institution.
• Communicated two MRBAs and four SRs.
Given the duration of time that had elapsed since the 2021 “as of” examination date (December 31,
2021) and the corporate governance weaknesses that the NYRO had identified after the “as of” date,
the addition of a subsequent events section to the 2021 roll-up ROE, communicating concerns from
the Corporate Governance targeted review, would have helped to deliver a more consistent
assessment of SBNY board and management as of December 2022.
NYRO officials met with SBNY’s board and management on February 15, 2023, to discuss the 2021 roll-
up ROE. During the meeting, board members also raised questions about the January 2023 Corporate
Governance Supervisory letter. Two board members expressed concern that the feedback received
from SBNY senior management regarding findings from the Corporate Governance Targeted Review
during the May 2022 exit meeting did not align with the severity in tone of the resulting Supervisory
Letter. NYRO officials indicated the examination team clearly communicated their supervisory
concerns during several closeout meetings with management and at the May 2022 exit meeting. SBNY
board member comments emphasize the importance of timely written communication of
examination results to the board.
Additionally, since the letter for this exam was issued in January 2023, management’s responses to
the new MRBAs were not due until March 9, 2023, almost 10 months after the targeted review findings
were discussed with SBNY management. SBNY management requested additional time to respond,
and the bank failed before the FDIC received management’s response. NYRO officials noted that SBNY
knew the nature of the findings from the May 2022 exit meeting and should have been working on
corrective action. However, given SBNY management’s historical slowness in addressing supervisory
concerns, written findings and SRs were important.
35
A NYRO lessons learned review following SBNY’s failure concluded there were opportunities for
examiners to engage more with bank management and the board and provide clearer, timelier
messages to SBNY executives regarding identified weaknesses. The review noted that SBNY
management had been disengaged from the examination process and generally dismissive of FDIC
findings. Adjustments to the meeting cadence with SBNY management during 2022 helped to surface
additional weaknesses and challenged SBNY management disengagement. The review noted
dedicated teams typically meet with a bank’s board of directors once per year following the roll-up
ROE; it further acknowledged more frequent meetings, possibly quarterly, may be warranted
especially for areas involving continuing weaknesses. With respect to the February 2023 meeting with
SBNY’s board and management, the lessons learned review concluded the NYRO could have delivered
a stronger message regarding repeat funds management weaknesses as well as preliminary findings
from ongoing targeted reviews and trends of concern.
SBNY Staffing Challenges
The Dedicated Team experienced frequent vacancies and continuous turnover during our period of
review (i.e., 2017 through March 2023). The Dedicated Team was authorized three positions in 2017,
five positions from 2018 through 2021, seven positions in 2022, and nine for 2023, based on SBNY’s
rapid growth and increasing complexity and risk profile. NYRO staff stated the team had at least one
vacancy 60 percent of the time and had 17 different staff assigned during this time period not
including field territory resources that were temporarily assigned to cover gaps. Figure 4 shows
Dedicated Team changes and vacancies by examination cycle.
Figure 4: Authorized and Filled Staffing Analysis for the Dedicated Team Assigned to SBNY
Source: Internal review team analysis of SBNY Supervisory Plans and staffing information.
While not always shown, vacancies sometimes occurred within a quarter.
V – Vacant position. The staff highlighted in gold were assigned to SBNY when another LFI changed to a national bank
charter.
a
Temporary appointment.
b
Temporary appointment converted to permanent appointment.
C
Assigned EIC role, after postings failed to identify qualified candidates.
In addition to the vacancies and staffing changes shown in the figure above:
• The staff highlighted in gold were added in late 2022 when another large bank in the New York
territory (Large Bank B) merged and transitioned to a national bank charter, thus freeing up
examination resources. NYRO officials indicated that it was unclear how the Dedicated Team would
have been staffed if not for Large Bank B changing banking charters and the Office of the
36
Comptroller of the Currency assuming primary federal regulator supervision responsibilities. NYRO
would have had to move resources from other teams and continue using an acting EIC.
• The EIC position is of critical importance. The NYRO had difficulty finding qualified staff to serve
that role. During this period, LFI EICs were required to sign a five-year contract to serve as EIC for a
large bank. The five-year contract for EIC-1 expired at the end of 2021. The NYRO advertised the EIC
vacancy two separate times during late 2021 and early 2022 but identified no qualified applicants.
The NYRO resorted to assigning a Supervisory Examiner (SE) who continued performing his SE
duties while also serving as SBNY’s EIC during 2022. In September 2022, the NYRO assigned an
experienced Senior LFI Examiner to serve as SBNY’s EIC, while the SE continued to work with the
Dedicated Team to issue the 2021 roll-up ROE.
• Several times during this period, the NYRO advertised for multiple team vacancies and filled only
one vacancy due to weak rosters or lack of interest. In several cases, the NYRO advertised positions
as temporary positions with the opportunity to become permanent in order to attract qualified
candidates. However, the temporary positions generally led to more turnover.
• Multiple Dedicated Team members departed for opportunities with other FDIC regions or
headquarters, other regulators, or the private sector.
• On multiple occasions, the New York field territory supplemented the Dedicated Team with
temporary non-LFI examination staff. While necessary, the LFI learning curve and the lack of
knowledge regarding SBNY made this practice less than ideal.
Several NYRO officials we interviewed indicated that LFI examiners in the region were aware of the
frequent turnover and resource shortages within the Dedicated Team assigned to SBNY which made it
more difficult to attract and retain staff. Further, SBNY was frequently in the media spotlight, which
required frequent interaction with RMS headquarters to respond to numerous information requests
and media articles, further exacerbating resource challenges.
In addition to challenges in filling authorized positions, multiple NYRO and field territory officials
commented to us about the adequacy of the skillsets of the Dedicated Team over time prior to the
addition of new team members in 2022. These concerns resulted in the need for additional
supervisory review, analysis of supporting working papers, substantial re-write of reports, and
questions about the quality and sufficiency of work from NYRO officials that would normally not be
involved in such activities.
As discussed earlier, in 2022, the NYRO assigned experienced staff to conduct the Corporate
Governance targeted review. The resulting Supervisory Letter identified a number of concerning,
fundamental corporate governance and risk management weaknesses. NYRO officials surmised these
conditions were likely present in earlier examination cycles, but that prior Dedicated Teams had not
identified them. The addition of experienced team members and specialists in fall 2022 also identified
a number of weaknesses during targeted reviews. NYRO officials indicated that the lack of
commensurate expertise on the SBNY team was critical given how quickly the institution was
evolving.
We concluded that the vacancies and adequacy of the skillsets of the Dedicated Team slowed earlier
identification and reporting of SBNY weaknesses.
37
NYRO Resource and Staffing Issues
Beyond SBNY, the NYRO has faced persistent staffing challenges in filling the region’s LFI authorized
positions. The New York region has 61 authorized LFI positions. Since 2020, an average of 40 percent
of the LFI positions have been vacant or filled by temporary staff. The use of temporary staff in
supervising LFIs is problematic. Multiple NYRO officials indicated that it takes at least six months to
become familiar with large institutions such as SBNY and the use of temporary staff, while necessary,
is inefficient and presents continuity challenges. Further, on boarding temporary staff requires
permanent, dedicated examination team member involvement, consuming scarce time to orient new
team members that would otherwise be spent on examination activities. NYRO officials indicated that
dedicated examination teams at several large institutions in the in the region, including within the
New York field territory were also significantly resource challenged. NYRO management indicated
that it had raised staffing concerns to RMS headquarters officials multiple times through several
channels since 2020.
Because of regional critical resource shortages, in December 2022, the NYRO completed a Risk-
Focused Supervision Project to reallocate resources from lower risk complex institutions to higher risk
complex institutions within the New York region. Based on approved 2023 Supervisory Plans for the
region’s 13 CEP institutions, the NYRO determined that 30 percent of the required dedicated
examination team hours would come from positions that were vacant or soon to be vacant. The
project determined that seven of 13 CEP institutions had more than one-third of their dedicated team
hours vacant. The NYRO identified dedicated examination teams that required extended, experienced
LFI assistance and dedicated examination teams from which those resources could be pulled. The
project resulted in 2023 Supervisory Plan changes, including cancelled or deferred targeted reviews
and reductions in review scope. All changes were approved by regional management. The project
resulted in additional resource allocations to two complex institutions, one of which was SBNY.
However, SBNY failed before the additional experienced LFI resources could be placed on the
Dedicated Team.
NYRO and headquarters RMS officials identified multiple reasons for LFI staffing challenges including
the high cost of living in New York, competition from other regulators and private sector firms that can
pay more for talent than the federal government, and competition for LFI staff from other FDIC
Divisions and headquarters, which may offer greater work-life flexibilities or higher-graded positions.
RMS officials also stated that the impact of the pandemic on New York City and surrounding areas
negatively affected staff desires to post and move for permanent positions in the region. LFI roles
such as the dedicated EIC are demanding positions with a significant workload, requiring an onsite
presence and frequent interaction with numerous internal stakeholders from the field, regional, and
Washington offices and sophisticated large bank management who may challenge or not be receptive
to examination findings. NYRO officials we interviewed and the NYRO lessons learned review noted
that, given the nature and difficulty of LFI work, particularly the EIC role, a sentiment exists that there
are other similarly-graded positions available within the FDIC that are less difficult or that come with
less responsibility. Further, some of those positions offer location flexibility and do not require an
onsite presence.
We reviewed LFI staffing information for other FDIC regions to understand whether staffing shortages
were limited to the NYRO. We observed that two other regions also have an elevated number of LFI
vacancies. Further, the trend of vacancies for several regional offices has increased over the past
38
three years. RMS is also challenged with maintaining a pipeline of commissioned examiners that can
advance into the premium examiner ranks, which includes LFI examiners. RMS examiners also serve
as the pipeline for commissioned examiner staffing in the FDIC’s Division of Complex Institution
Supervision and Resolution (CISR). A large percentage of RMS field examiners are pre-commissioned
and still learning how to perform community bank point-in-time examinations; they lack the
experience to assist with large bank examination activities. In addition, attrition levels for pre-
commissioned examiners is elevated.
RMS Actions Taken to Address Resource Challenges
RMS has taken actions to address LFI resource challenges. In 2021, RMS established an FDIC
Performance Goal to review the CEP for balancing examination efficiencies with risk-focused forward-
looking supervision. The NYRO led a Staffing Resources Working Group to evaluate and make
recommendations for improving the CEP. The Working Group made recommendations for making
CEP examiner positions more attractive, for example, by increasing compensation or grade levels for
EIC positions; allowing greater flexibility for CEP examiner travel and remote work options; and
streamlining aspects of the CEP.
RMS headquarters noted that it had developed deputy EIC positions to assist the dedicated EICs for
more complicated institutions; offered corporate expert level positions for certain complex EIC
assignments; removed the five-year term for CEP EICs that was viewed as an impediment to posting
those positions; posted term loan review specialist positions seeking industry credit experts to
specifically assist with loan reviews at institutions examined under the CEP; developed position
descriptions for credit and emerging technology specialists; provided additional resources to the
regions by providing experts in capital markets, information technology, AML/CFT, emerging
technology, and model evaluation from across the FDIC to assist with examination work; and sought
authorization from the Office of Personnel Management to rehire retired examiners to assist with
training newer examiners to allow existing commissioned examiners more time to devote to
examination work.
The FDIC also reached a new compensation agreement in 2022 that increased employee pay and
bonus incentives. While these actions are important, examination resource shortages, particularly in
the New York region is a mission-critical risk that will require a sustained whole-of-agency response.
39
Conclusion and Matters for Further Study
The weekend of March 10, 2023, was unprecedented. The speed with which depositors withdrew
funds from SBNY and SVB was unexpected and surprised the regulators and the banking industry. The
coincidence of these two failures and their unprecedented speed may lead to changes in regulation
and supervision and reevaluating liquidity risk management. The goal of bank supervision is to
promote safety and soundness and financial stability, not to prevent bank failures. Maintaining safety
and soundness requires effective challenge from the regulators and receptivity and responsiveness
from the banks. In the case of SBNY, our internal review found that the bank could have been more
measured in its growth, implemented appropriate risk management practices, and been more
responsive to FDIC’s supervisory concerns, and the FDIC could have been more forward-looking and
forceful in its supervision.
NYRO management is responsible for ensuring the adequate supervision of the banks in its region.
While resource shortages were a significant factor in SBNY’s supervision, NYRO management is
ultimately responsible for prioritizing and risk-focusing the use of scarce resources, ensuring
examination activities are completed and communicated timely, ensuring ratings assigned are
forward-looking and reflect management weaknesses, and escalating supervisory actions when bank
management is not responsive.
RMS headquarters is responsible for ensuring the regions have sufficient examination resources with
the necessary skillsets and experience to effectively supervise their portfolio of institutions. That
responsibility includes developing strategies and incentives to attract and retain employees to fill LFI
positions and working with other FDIC groups, such as the Legal Division and the Division of
Administration, to pursue creative solutions for meeting workforce needs, including potentially
reconsidering duty station requirements and remote work options. RMS headquarters is also
responsible for addressing regional office resource needs; making prioritization decisions across the
regional offices and reallocating examination resources based on a nationwide view of risk; and
ensuring examination programs, such as the CEP, are effective and achieve their intended objective.
We offer the following matters for the FDIC’s consideration or further study.
Area Matters for Further Study
Guidance 1. Reiterate RMS’ forward looking supervision philosophy and the importance of
addressing risk management weaknesses before financial decline occurs.
2. Consider the need for enhanced examination guidance related to supervising
banks that are overly reliant on uninsured deposit funding or have concentrations
in uninsured deposits.
3. Consider the need for enhanced examination guidance related to assessing
liquidity risk management practices based on FDIC’s experiences supervising
SBNY.
Processes 4. Continue to evaluate the continuous examination process (CEP) and implement
necessary changes to ensure the CEP provides efficient, effective, and timely, risk-
40
Area Matters for Further Study
based feedback to large banks, including interim CAMELS ratings, when
appropriate.
5. As part of item 4, evaluate existing CEP required deliverables and level-of-effort to
prepare deliverables in relation to benefits derived. Look for opportunities to
streamline program requirements and written deliverables.
6. Incorporate a subsequent events section into the roll-up ROE to reflect situations
where substantive changes in the bank’s condition occur after the “as of” date, but
before the ROE issue date, to ensure the assigned ratings reflect the bank’s current
condition.
7. Evaluate the SR and MRBA escalation process for situations involving repeat
recommendations, and define paths for progressive enforcement when bank
management is unable or unwilling to effectively address chronic problem areas.
8. Consider implementing workflow solutions that would track the timeliness of
examination deliverables such as targeted reviews/supervisory letters and ROEs,
and provide the regions and LBS with reporting information highlighting outlier
situations.
Resources 9. Develop a near-term strategy for increasing the attractiveness and interest in LFI
positions, particularly LFI EIC positions. Potential and ongoing efforts that could
be considered include:
• Further differentiating compensation from non-LFI positions.
• Continuing to consider Corporate Expert graded positions for larger more
complex banks.
• Continuing to reduce EIC workloads by assigning deputy EICs, where
appropriate.
• Reevaluating to what extent LFI positions could be assigned outside of the
local duty station of the bank, particularly for hard-to-fill situations.
10. Continue to work with other parts of the Corporation, including the FDIC’s Division
of Administration, Division of Finance, Legal Division, CISR and Corporate
University to enhance the examiner staffing and retention strategy to deliver a
healthy and sustainable pipeline of financial institution specialists that can
ultimately advance to provide a sufficient number of premium graded examiners,
including candidates for LFI positions and CISR positions. Addressing this
challenge will require an agency wide effort that is creative and includes fresh
perspectives and ideas (e.g., possibly engaging consultants).
11. Continue to explore the use of contractors to provide services that support
supervisory functions so examiners can focus on policy, the application of
regulations, and other inherently governmental functions.
12. Enhance examiner staffing dashboards to include hiring and attrition trends for LFI
and other positions to readily show:
• Vacancy trends by region and field office,
• Trends for why examination staff leave LFI and other positions, and
• Where staff exiting LFI positions go.
41
Area Matters for Further Study
13. Develop a means for monitoring regional dedicated team staffing shortages and
develop protocols for RMS headquarters to quickly move staff between regions to
address shortages based on a nationwide view of large bank risks.
42
Appendix 1: Objective, Scope, and Methodology
Objective
In late March 2023, FDIC Chairman Martin J. Gruenberg commissioned the FDIC’s Chief Risk Officer to
conduct an internal review of the agency’s supervision of SBNY and produce a report to the FDIC
Board of Directors for release to the public by May 1, 2023.
The objective of this internal review was to provide information about the cause of SBNY’s failure and
evaluate the FDIC’s supervision of SBNY.
Scope and Methodology
The scope of the review included an evaluation of the regulatory supervision of SBNY from 2017 until
SBNY’s failure on March 12, 2023.
To evaluate the FDIC’s supervision of SBNY, we assessed whether the supervisory approach and
actions taken with respect to SBNY, specifically related to management and liquidity risks, were
commensurate with its risk profile and relevant regulations, policies, and guidelines. Specifically, we:
• Identified and reviewed RMS policies and procedures, including the RMS Manual of Examination
Policies, the Formal and Informal Actions Procedures Manual, Large Bank Supervision Procedures, the
LIDI Report Instructions, and Case Manager Procedures that were relevant to SBNY and the
supervisory actions taken with respect to the bank;
• Analyzed Supervisory Plans, ROEs, LIDI reports, and Supervisory Letters and summary conclusion
memos for in-process targeted reviews that would affect the liquidity and management
components of the CAMELS rating, to identify the timing and nature of supervisory actions taken to
address management and liquidity risks at the bank;
• Reviewed FDIC- and RMS-prepared documents on SBNY’s supervision and failure;
• Interviewed FDIC officials who had supervisory responsibility for SBNY, including officials in the
NYRO and examiners in the New York Field Office, to obtain clarification and context regarding key
supervisory activities and determinations;
• Interviewed RMS headquarters senior officials and officials from the LBS Branch.
• Interviewed RMS Regional Directors to understand LFI staffing constraints across RMS regions; and
• Participated in interviews with NYSDFS examiners to obtain their perspectives on the supervision of
SBNY.
We conducted our work from March 27, 2023 through April 28, 2023. Due to the time constraints of our
review, we acknowledge that other reviews of SBNY’s failure and FDIC’s supervision may identify
additional findings and recommendations beyond those identified in this report.
43
Appendix 2: Supervisory History
During the period of our review, 2017 through SBNY’s failure on March 12, 2023, the FDIC supervised
SBNY under the CEP. The FDIC developed annual Supervisory Plans, conducted targeted reviews,
conducted ongoing monitoring, and issued a roll-up ROE for each annual examination cycle.
2017 Examination Cycle
The FDIC prepared a Supervisory Plan that outlined ongoing monitoring activities and planned onsite
targeted reviews for the 2017 supervisory cycle. The Supervisory Plan allocated 10,965 FDIC hours for
onsite targeted reviews and 2,977 FDIC hours for ongoing monitoring activities. For this supervisory
cycle, the plan included 19 targeted reviews and the roll-up examination. As noted below, the
Dedicated Team issued 13 Supervisory Letters in 2017, based on results of targeted reviews. The
Supervisory Plan noted that the Dedicated Team planned to expand from three dedicated examiners
to four dedicated examiners; however, the Dedicated Team was authorized three examiners in 2017
and was only fully staffed from July 2017 through December 2017.
The 2017 examination cycle commenced January 9, 2017, and included ongoing monitoring and 13
targeted reviews.
(A) (B) B–A (C) C–B
Start Exit Elapsed Issue Elapsed
Targeted Review Date Meeting Days Date Days
C&I Loan Portfolio 1/9/17 3/22/17 72 12/1/17 254
Information Technology 1/17/17 4/25/17 98 12/15/17 234
Model Risk Management 3/27/17 5/3/17 37 12/1/17 212
Sales Practices and Incentive Compensation 5/15/17 5/25/17 10 11/28/17 187
Investment Portfolio 6/5/17 8/14/17 70 12/1/17 109
Dodd-Frank Act Company-Run Stress Test 8/7/17 11/22/17 107 1/29/18 68
Asset and Liability Management 9/5/17 11/3/17 59 3/1/18 118
Anti-Money Laundering 9/18/17 5/22/18 246 6/1/18 10
Internal Loan Review 10/2/17 2/28/18 149 6/1/18 93
Enterprise Risk Management 10/2/17 6/8/18 249 7/5/18 27
Internal Audit 10/16/17 11/21/17 36 3/1/18 100
Signature Financial Portfolio 11/6/17 2/21/18 107 5/14/18 82
CRE Loan Portfolio 11/6/17 7/9/18 245 7/18/18 9
The findings from these targeted reviews and ongoing monitoring activities formed the basis for the
conclusions and CAMELS ratings assigned in the 2017 roll-up ROE, which FDIC issued on July 31, 2018.
Assigned CAMELS ratings and narrative summary of the Asset Quality, Management, and Liquidity
component ratings follow:
Sensitivity to
Composite Rating Capital Asset Quality Management Earnings Liquidity Market Risk
2 2 2 2 2 2 2
44
Asset Quality: The 2017 examination cycle concluded that asset quality was considered generally
satisfactory as CRE credit risk management, including stress testing, had improved. The loan portfolio
continued to be heavily concentrated in CRE in New York, thus exposing the bank to risk given a shock
to the New York real estate market. Concentration risk management practices were assessed as
generally satisfactory; however, MRBAs related to CRE stress testing and loan-level sensitivity analyses
were outstanding at the conclusion of the examination cycle. In addition, the credit quality and risk
management of the C&I portfolio was deemed satisfactory; however, a MRBA was opened related to
risk management practices with this portfolio. Several SRs related to the C&I loan portfolio, MRM, the
investment portfolio, sales practices and incentive compensation, Dodd-Frank Act Company-Run
Stress Test, liquidity, sensitivity to market risk, the Signature Financial portfolio, and internal loan
review were also outstanding.
Management: Board and senior management performance was deemed satisfactory. The roll-up
ROE noted that management enhanced oversight of the CRE concentration and improved the
BSA/AML program. SBNY had spent significant resources on improving systems, processes, and
personnel to remediate outstanding issues; effectively manage current exposures; and provide a
framework for overseeing a growing institution. While examiners deemed the overall BSA/AML
program satisfactory, weaknesses with suspicious activity monitoring led to an MRBA and two
apparent violations for failure to report suspicious activities. The ROE also reported weaknesses with
the MRM program.
At the conclusion of the examination cycle, there were outstanding MRBAs related to loan exception
management, Information Technology (IT) security administration, suspicious activity monitoring and
nongovernmental organizations, the use of stress-testing output in strategic and operational
decisions, and loan level sensitivity analysis. There were also several SRs in areas such as IT,
BSA/AML, corporate governance, enterprise risk management, CRE, and compliance with the
Sarbanes-Oxley Act.
Liquidity: The ROE reported that liquidity levels and fund management practices were satisfactory.
The funds management program appropriately identified, measured, monitored, and controlled the
institution’s liquidity position, and included stress testing as well as an adequate contingency funding
plan. SBNY’s business model continued to result in a significant amount of large, uninsured deposits
totaling $27.3 billion and representing 63 percent of total assets. The ROE identified uninsured
deposits along with insured high-rate deposits and brokered deposits as a potentially volatile funding
concentration.
At the conclusion of the examination cycle, there were no outstanding MRBAs related to liquidity.
There were SRs related to incorporating the board’s risk tolerance for uninsured deposits into the Risk
Appetite Statement; documenting material liquidity stress testing assumptions, including deposits
run off; and applying liquidity stress test scenarios to shorter time horizons such as intraday, day-to-
day and other time horizons.
2018 Examination Cycle
The FDIC prepared a Supervisory Plan that outlined ongoing monitoring activities and planned onsite
targeted reviews for the 2018 supervisory cycle. The Supervisory Plan allocated 9,565 FDIC hours for
onsite targeted reviews and 5,154 FDIC hours for ongoing monitoring activities. For this supervisory
45
cycle, the plan included 10 targeted reviews and the roll-up examination. As noted below, the
Dedicated Team issued six Supervisory Letters in 2018, based on results of targeted reviews. The
Supervisory Plan also noted that the Dedicated Team planned to expand to five dedicated examiners.
While the Dedicated Team was authorized for five examiners in 2018, throughout the year the
Dedicated Team was never fully staffed.
The 2018 examination cycle commenced January 2, 2018, and included ongoing monitoring and six
targeted reviews.
(B) B–A (C) C–B
(A) Exit Elapsed Issue Elapsed
Targeted Review Start Date Meeting Days Date Days
Information Technology 1/2/18 2/20/18 49 8/27/18 188
Enterprise Risk Management 6/4/18 10/18/18 136 11/5/18 18
Model Risk Management 7/2/18 2/13/19 226 3/11/19 26
CRE Concentration Risk Management 7/30/18 2/15/19 200 3/11/19 24
Anti-Money Laundering 9/17/18 4/26/19 221 5/17/19 21
Asset and Liability Management 10/22/18 5/22/19 212 7/1/19 40
The findings from these targeted reviews and ongoing monitoring activities formed the basis for the
conclusions and CAMELS ratings assigned in the 2018 roll-up examination report, which FDIC issued
on July 31, 2019. Assigned CAMELS ratings and narrative summary of the Asset Quality, Management,
and Liquidity component ratings follow:
Sensitivity to
Composite Rating Capital Asset Quality Management Earnings Liquidity Market Risk
2 2 2 2 2 2 2
Asset Quality: The 2018 examination cycle concluded that asset quality was satisfactory based on
strong credit metrics and improved risk management practices. Assets remained concentrated in CRE
loans. C&I portfolio credit quality and risk management practices were satisfactory, and the
investment portfolio exhibited lower credit risk exposure. Concentration risk management practices
were generally satisfactory; however, MRBAs related to CRE stress testing and loan-level sensitivity
analyses were outstanding at the conclusion of the examination cycle. Several SRs related to
strengthening various lending policies and procedures, improving borrower and guarantor financial
analysis, and expanding loan portfolio monitoring and reporting metrics and limits were also
outstanding.
Management: The 2018 ROE concluded that board and management performance remained
satisfactory and appropriately identified, measured, monitored, and controlled the risks of the
institution’s activities. Weaknesses in risk management practices had, or were in the process of, being
addressed. Governance standards, the internal control structure, and the audit program were
satisfactory. Management had demonstrated the ability to address identified risk management
concerns and respond appropriately to regulatory comments. However, significant weaknesses were
observed during the 2018 MRM targeted review related to risk governance, risk measurement, issue
tracking, model validation and other areas. Examiners also observed BSA/AML weakness related to
46
the higher risk customer review process and the digital deposit account opening process.
At the conclusion of the examination cycle, there were outstanding MRBAs related to MRM and
BSA/AML higher risk account reviews. There were also several SRs in areas such as IT, enterprise risk
management, and MRM, as well as BSA/AML risk assessment, staffing, suspicious activity monitoring,
and customer due diligence.
Liquidity: The ROE noted that liquidity risk management and management systems were
commensurate with the institution’s complexity, risk profile, and scope of operations. However,
liquidity risk was increasing, and several liquidity related financial metrics had breached board-
established warning levels. Liquidity risk was described as increasing due to asset growth outpacing
deposit generation. The board needed to ensure compliance with its approved low liquidity risk
appetite and take action to control and appropriately manage and monitor the bank’s increasing
liquidity risks. Risk management and control processes and material assumptions used in liquidity
stress testing required further development, and the liquidity stress testing model had not been
appropriately validated. Uninsured deposits continued to be the primary funding source and
represented 82 percent of total deposits and 63 percent of total assets as of December 31, 2018, and
were a funding concentration.
At the conclusion of the examination cycle, there was an outstanding MRBA related to maintaining
compliance with the board-approved liquidity risk appetite and ensuring that liquidity strategies
aligned with the board’s risk appetite. There were also SRs related to liquidity stress testing and
contingency funding plans.
2019 Examination Cycle
The FDIC prepared a Supervisory Plan that outlined ongoing monitoring activities and planned onsite
targeted reviews for the 2019 supervisory cycle. The Supervisory Plan allocated 6,465 FDIC hours for
onsite targeted reviews and 6,704 FDIC hours for ongoing monitoring activities. For this supervisory
cycle, the plan included seven targeted reviews and the roll-up examination. As noted below, the
Dedicated Team issued six Supervisory Letters in 2019, based on results of targeted reviews. The
Supervisory Plan also noted that the Dedicated Team would continue to include five dedicated
examiners. While the Dedicated Team was authorized for five examiners in 2019, it was only fully
staffed from November 2019 through December 2019.
The 2019 examination cycle commenced January 2, 2019, and included ongoing monitoring and six
targeted reviews.
47
B–A (C) C–B
(A) (B) Elapsed Issue Elapsed
Targeted Review Start Date Exit Meeting Days Date Days
Information Technology 1/2/19 4/17/19 105 9/9/19 145
Credit Risk Management 5/20/19 7/30/19 71 9/9/19 41
Interest Rate Risk 6/24/19 9/18/19 86 10/24/19 36
Strategic Planning 7/29/19 11/25/19 119 12/30/19 35
Anti-Money Laundering 9/23/19 1/29/20 128 5/4/20 96
Liquidity Risk Management 10/21/19 6/16/20 239 7/6/20 20
Ongoing monitoring findings related to the status of corrective actions taken by bank management to
address outstanding MRBAs and SRs were communicated to the bank via Supervisory Letters dated
December 6, 2019, and April 21, 2020. The findings from these targeted reviews and ongoing
monitoring activities formed the basis for the conclusions and CAMELS ratings assigned in the 2019
roll-up ROE, which was issued on October 2, 2020. Assigned CAMELS ratings and narrative summary of
the Asset Quality, Management, and Liquidity component ratings follow:
Sensitivity to
Composite Rating Capital Asset Quality Management Earnings Liquidity Market Risk
2 2 2 2 2 3 2
Asset Quality: The 2019 examination cycle concluded that asset quality and asset concentration risk
management were satisfactory and supported by an appropriate credit risk management framework,
including governance, policies and procedures, reporting, and measurement of exposures. A strategic
shift to reduce the CRE concentration and diversify into more C&I lending was noted. At the
conclusion of the examination cycle, there was an outstanding MRBA related to CRE loan sensitivity
analyses. There were also several SRs in areas such as borrower and guarantor analysis, loan
underwriting, risk ratings, and loan pricing.
Management: The 2019 ROE concluded board and management performance remained satisfactory
and that the board and senior management appropriately identified, measured, monitored, and
controlled the risks of the institution’s activities. The ROE noted weaknesses with liquidity funds
management and continued concerns with BSA/AML high-risk account reviews due to both the
number of outstanding reviews and the quality of completed reviews. Implementation of the ERM
framework also needed further development to be fully effective and transparent.
At the conclusion of the examination cycle, there were outstanding MRBAs related to board reporting
and oversight of BSA/AML, developing an action plan to address BSA/AML weaknesses, BSA/AML
higher risk account reviews, and MRM. There were also several SRs in areas such as IT, enterprise risk
management, interest rate risk management, and MRM, as well as BSA/AML internal controls and risk
assessment, and OFAC models and monitoring.
Liquidity: The ROE reflected the Liquidity component rating downgrade to “3” and concluded funds
management practices needed improvement, as previously communicated to SBNY via a Supervisory
Letter. Although management had returned the previously non-compliant liquidity ratios to levels
above board-approved minimums, risk management practices were not commensurate with the
institution’s complexity, risk profile, and scope of operations due to weaknesses with liquidity
48
contingency planning, liquidity stress testing, and internal controls. These weaknesses prevented the
bank from appropriately understanding the potential effects of adverse liquidity events and
emergency cash flow needs. The board needed to strengthen funds management practices to better
identify, measure, monitor, and control the bank’s daily funding needs to cover both expected and
unexpected deviations from normal operations, including the reliance on the uninsured deposit
funding concentration. Improvement was also needed in the development of the deposits modeling
framework, including assumption testing, model documentation, and model validation.
The ROE noted SBNY’s most critical liquidity exposure came from the potential volatility associated
with the high-level of uninsured deposits, identified as a funding concentration, representing
82 percent of deposits and 66 percent of total assets. As of December 31, 2019, there were 128 clients
with deposit account balances exceeding $50 million, or 40 percent of total deposits.
At the conclusion of the examination cycle, there were outstanding MRBAs related to the board-
approved liquidity risk appetite and liquidity contingency plans. There were also several SRs related
to liquidity stress testing and assumption documentation, as well as internal controls and
contingency funding plans.
2020 Examination Cycle
The FDIC prepared a Supervisory Plan that outlined ongoing monitoring activities and planned
targeted reviews for the 2020 supervisory cycle. The Supervisory Plan allocated 5,680 FDIC hours for
onsite targeted reviews and 7,014 FDIC hours for ongoing monitoring activities. For this supervisory
cycle, the plan included six targeted reviews and the roll-up examination. In response to the
pandemic, in September 2020, a revised Supervisory Plan for August 2020 through December 2020
was included in the Supervisory Plan for 2021. The revised Supervisory Plan noted four targeted
reviews would be completed in 2020. As noted below, the Dedicated Team issued four Supervisory
Letters in 2020, based on results of the targeted reviews. The original and revised Supervisory Plans
noted that the Dedicated Team would continue to include five dedicated examiners. The Dedicated
Team was authorized for five examiners in 2020 and was fully staffed for most of the year, but
experienced turnover in two positions.
The 2020 examination cycle commenced January 1, 2020, and included ongoing monitoring and four
targeted reviews.
B–A C–B
(A) (B) Elapsed (C) Elapsed
Targeted Review Start Date Exit Meeting Days Issue Date Days
Information Technology 1/2/20 6/3/20 153 11/4/20 154
Anti-Money Laundering 9/21/20 1/28/21 129 3/5/21 36
Internal Audit 10/6/20 9/3/21 332 9/15/21 12
Liquidity Risk Management 11/30/20 6/8/21 190 7/9/21 31
Ongoing monitoring findings related to the status of corrective actions taken by bank management to
address outstanding MRBA and SRs were communicated to the bank via Supervisory Letters dated
October 19, 2020, and January 19, 2021. The findings from the targeted reviews and ongoing
monitoring activities formed the basis for the conclusions and CAMELS ratings assigned in the 2020
49
roll-up ROE, which was issued on November 19, 2021. Assigned CAMELS ratings and narrative
summary of the Asset Quality, Management, and Liquidity component ratings follow:
Sensitivity to
Composite Rating Capital Asset Quality Management Earnings Liquidity Market Risk
2 2 2 2 2 3 2
Asset Quality: The 2020 examination cycle concluded that asset quality remained satisfactory despite
increasing credit risk in the loan portfolio. The increase in credit risk was centered in the CRE loan
portfolio and resulted from the adverse economic effects of the Covid-19 pandemic. Credit risk
selection, the credit granting process, and overall credit administration and monitoring practices
were generally satisfactory. There were no asset--related MRBAs outstanding at the conclusion of the
examination cycle. Outstanding SRs related to CRE loan workout staffing, borrower reputation risk
analysis, and loan pricing methodologies.
Management: The 2020 ROE concluded board and management performance remained satisfactory
and that the board and senior management appropriately identified, measured, monitored, and
controlled the risks of the institution’s activities. Strategic planning was satisfactory. Examiners
deemed financial performance satisfactory, although funds management practices continued to need
improvement. The BSA/AML program had improved, but issues requiring the board and
management’s attention remained outstanding, such as the quality of periodic higher risk customer
account reviews. Management had improved the MRM governing framework, but remediation related
to the validation process, effective challenge, model development documentation, and other areas
was still ongoing.
At the conclusion of the examination cycle, there were outstanding MRBAs related to BSA/AML higher
risk account reviews and MRM. There were also several SRs in areas such as IT, internal audit, MRM,
and sensitivity to market risk management, as well as BSA/AML model documentation and validation,
customer due diligence, and suspicious activity alert clearing.
Liquidity: The ROE concluded that funds management practices required improvement. On-balance
sheet liquidity had increased year over year from 11 percent to 25 percent of total assets, but
inadequate liquidity contingency planning, liquidity stress testing, and internal controls continued to
impede management’s ability to identify and establish appropriate mitigating plans against the
potential volatility of uninsured deposits. Although management began addressing the deficiencies
identified in the 2019 Liquidity targeted review, the 2020 Liquidity targeted review concluded more
time was required to develop and implement an appropriate liquidity Contingency Funding Plan
commensurate with the bank’s risk profile.
The 2020 Liquidity Supervisory Letter noted that examiners expected development of appropriate
timeframes, frequencies, and metrics, in addition to stress scenario testing, to occur after SBNY
implemented a new liquidity model. Liquidity stress testing did not enable identification,
measurement, monitoring, or control of funding risk; thus, management could not establish an
appropriately-sized liquidity buffer. Moreover, management had not developed a metric to identify
the impact of adverse events to capital levels or the limitations of remediation plans. In addition,
deposit assumptions remained in development, sensitivity testing had not been completed, and
accurate rate caps had not been modeled. Model documentation continued to lack a complete
50
description of model operations, approach, testing, and outcome analysis, which were critical to
ensuring the continued relevance of the model.
The single-funding source concentration grew larger in 2020 with uninsured deposits representing
88 percent of total deposits and 76 percent of total assets. There were 196 clients with balances that
exceeded $50 million as of year-end 2020, accounting for $35 billion, or 55 percent of total deposits.
Digital assets-related deposits accounted for the largest deposit growth with $7.3 billion or
approximately 32 percent of total 2020 deposit growth.
An MRBA related to liquidity contingency planning and SRs related to liquidity stress testing and
assumption documentation, as well as internal controls and effective challenge, were outstanding.
2021 Examination Cycle
The FDIC prepared a Supervisory Plan that outlined ongoing monitoring activities and planned
targeted reviews for the 2021 supervisory cycle that was included in the revised 2020 Supervisory
Plan. The Supervisory Plan allocated 13,288 FDIC hours for targeted reviews and ongoing monitoring
activities. In September 2020, the 2021 Supervisory Plan was issued. The Supervisory Plan noted
seven targeted reviews would be completed in 2021, referenced as priority reviews, and the roll-up
examination. As noted below, the Dedicated Team issued five Supervisory Letters in 2021, based on
results of the targeted reviews. The Supervisory Plan noted that the Dedicated Team would continue
to include five examiners. While the Dedicated Team was authorized for five examiners in 2021, it was
only fully staffed in January 2021 through February 2021 and July 2021 through December 2021.
The 2021 examination cycle commenced January 1, 2021, and included ongoing monitoring and seven
targeted reviews 11.
(B) B–A C–B
(A) Exit Elapsed (C) Elapsed
Targeted Review Start Date Meeting Days Issue Date Days
Information Technology 4/12/21 6/16/21 65 2/3/22 232
Model Risk Management 5/10/21 5/9/22 364 6/17/22 39
Anti-Money Laundering 7/19/21 1/31/22 196 2/10/22 10
Liquidity Risk Management 11/8/21 6/7/22 211 7/28/22 51
Current Expected Credit Losses 11/8/21 6/21/22 225 8/23/22 63
Ongoing monitoring findings related to the status of corrective actions taken by bank management to
address outstanding MRBA and SRs were communicated to the bank via a Supervisory Letter dated
September 13, 2021. A Supervisory Letter dated January 31, 2022, communicated the results of the
third quarter 2021 continuous monitoring reviews of private equity and CRE lending.
The findings from these targeted reviews and ongoing monitoring activities formed the basis for the
conclusions and CAMELS ratings assigned in the 2021 roll-up ROE, which was issued on December 13,
11
The results for one targeted review were reported as part of ongoing monitoring in a quarterly Supervisory
Letter and the results of another targeted review were reported in the roll-up ROE. These two targeted reviews
are not reflected in the table, because a targeted review Supervisory Letter was not issued to communicate the
results of the review.
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2022. The exit meeting with bank management was held on November 15, 2022. The meeting with
the board occurred on February 15, 2023. Assigned CAMELS ratings and narrative summary of the
Asset Quality, Management, and Liquidity component ratings follow:
Sensitivity to
Composite Rating Capital Asset Quality Management Earnings Liquidity Market Risk
2 2 2 2 2 3 2
Asset Quality: The 2021 examination cycle concluded that asset quality was satisfactory. Although
underwriting, credit, and concentration risk management practices remained generally satisfactory,
weaknesses had been identified within certain aspects of credit administration and board reporting.
There were no asset-related MRBAs outstanding at the conclusion of the examination cycle.
Outstanding SRs were related to borrower reputation risk analysis, loan pricing methodologies, the
CRE credit risk rating framework, the appraisal re-evaluation process, and fund banking board
committee reporting.
Management: The 2021 ROE concluded board and management performance remained satisfactory
and management continued to remediate weaknesses noted in prior examination cycles. However,
weaknesses in corporate governance were emerging. Further, several recommendations had
remained open for a protracted period and expected remediation dates continued to be extended.
Multiple liquidity risk management recommendations had been open since 2019 and management
had not developed an effective issue tracking system, an SR outstanding since 2018.
Examiners noted that SBNY had significantly exceeded asset and loan growth estimates listed in
multi-year business plans and materially breached asset and loan growth key performance indictor
limits. Examiners stressed it was imperative the board and management ensured the corporate
governance and risk management framework of the bank maintained pace with its significant growth
and was in line with the current size, complexity, and risk profile of the bank.
Examiners deemed the MRM program to be generally satisfactory. Although management remediated
all prior MRM SRs, examiners identified weaknesses during the 2021 MRM targeted review. Further,
the lack of model validation precluded examiners from performing full-scope reviews of the models
and reflected a poor risk management practice.
At the conclusion of the examination cycle, there was one outstanding MRBA related to liquidity
contingency planning. There were also several SRs in areas such as IT, MRM, and sensitivity to market
risk management, as well as BSA/AML higher risk customer reviews, customer due diligence, and
suspicious activity alert clearing.
Liquidity: The ROE again concluded that liquidity remained less than satisfactory. Funds
management practices remained hampered by the lack of a comprehensive contingency funding plan
and the lack of a validated stress testing model with institution-specific underlying assumptions. The
need for strong funds management practices was underscored by the institution’s funding risk profile,
which had increased throughout 2020 and 2021. Since the prior year, SBNY’s balance sheet grew
rapidly by 60 percent due to a significant increase in large uninsured deposits and digital asset
industry deposits. The combination of rapid deposit growth, increasing funding concentrations, and
unknown deposit stability had contributed to an increasing liquidity risk profile, which highlighted the
52
urgent need for robust risk management practices that enable the board and management to
adequately control liquidity risk and limit potential adverse financial impacts on the bank.
Management had made limited progress in addressing findings from the 2019 Liquidity targeted
review. Management had not identified an appropriate liquidity buffer, demonstrated the ability to
adequately measure and control the impact of deposit volatility during stress events, or properly
assessed the likelihood of and survival requirements for a variety of idiosyncratic and macroeconomic
stress events.
The most positive sign as it related to liquidity was increasing on-balance sheet liquidity, then
consisting of cash, interest-bearing bank balances, and unpledged securities totaling $43 billion or
36 percent of total assets as of year-end 2021. However, digital asset-related deposits rose well above
the key risk indicator set for those deposits at 10 percent of total assets. Instead of decreasing
deposits to meet the previously prescribed limit, SBNY management increased the limit to 35 percent
of total assets in December 2021. There was no evidence of appropriate analysis or stress testing
being completed to support the limit increase.
The contingency funding plan still required improvement. The plan did not identify metrics that
would measure the impact of stress events to liquidity and capital to ensure the institution could
survive the entire stress time horizon. Additionally, underlying deposit assumptions had not been
finalized. In 2021, SBNY engaged a consultant to complete a deposit study to identify trends in
depositor behavior from regression analyses. Management planned to complete scenario
development and documentation subsequent to the consultant’s study, which was anticipated for
completion in 2022.
The new Liquidity Model was finally implemented in 2021 and was anticipated to assist with
development of the contingency funding plan. The model had been considered a significant
improvement over the legacy Excel-based model, as it provided the opportunity to readily identify,
measure, and monitor the potential impact of liquidity stress events over a 24-month period.
However, model documentation had not been finalized, and the model had not been validated.
Uninsured deposits had increased to 92 percent of total deposits and 82 percent of total assets. SBNY
had also developed a concentration of very large depositors. Approximately 60 clients held deposit
account balances in excess of $250 million, representing about 40 percent of total deposits. In
addition, roughly 290 clients held deposit account balances exceeding $50 million for a total of
$65 billion, which represented 61 percent of total deposits. Management believed the deposit base
was considerably stable based on the length of time of the relationships, the volume of client
accounts, and the various types of products clients utilized at SBNY. However, management’s
assumptions were not well documented and had not been substantiated.
Digital asset-related deposits totaled 24 percent of total assets, resulting in its own independent
concentration. Those deposits had grown rapidly in 2021 by $19.7 billion and totaled $28.7 billion on
December 31, 2021. The portfolio consisted of digital asset exchanges (44 percent), stable coin issuers
(23 percent), mining operations (9 percent), digital custody platforms, digital lenders, and other
businesses related to the digital asset industry. Many of the depositors also utilized the Signet
platform. The other large depositor concentration included four single depositors, each comprising
53
greater than 2 percent of total assets, totaling 14 percent of total assets. Three of the depositors were
digital asset-related clients.
At the conclusion of the examination cycle, there was an outstanding MRBA related to liquidity
contingency planning. Several SRs related to liquidity stress testing and assumption documentation,
as well as internal controls and effective challenge, were also outstanding.
2022 Examination Cycle
The FDIC prepared a Supervisory Plan that outlined ongoing monitoring activities and planned
targeted reviews for the 2022 supervisory cycle. The Supervisory Plan allocated 15,250 FDIC hours for
targeted reviews and ongoing monitoring activities. For this supervisory cycle, the plan included
seven targeted reviews 12 and the roll-up examination. As noted below, the Dedicated Team issued
two Supervisory Letters, based on results of targeted reviews, before the bank failed. The Supervisory
Plan noted that the Dedicated Team would be expanded to seven examiners, which was authorized;
however, the Dedicated Team was never fully staffed in 2022.
(B) B–A C–B
(A) Exit Elapsed (C) Elapsed
Targeted Review Start Date Meeting Days Issue Date Days
Information Technology 3/14/22 1/9/23 301 2/8/23 30
Corporate Governance 3/21/22 5/19/22 59 1/23/23 249
Fund Banking 8/29/22 1/24/23 148 n/aa n/aa
Liquidity Risk Management 10/3/22 n/ab n/ab n/aa n/aa
Anti-Money Laundering 10/24/22 n/ab n/ab n/aa n/aa
a
Pending issuance when SBNY failed.
b
Exit meeting had not been held when SBNY failed.
The 2022 roll-up examination was in-process when SBNY failed on March 12, 2023.
Corporate Governance Supervisory Letter: In March 2022, RMS moved up a Corporate Governance
targeted review that was scheduled to start in July 2022 and assigned a team of senior examiners,
with assistance of regional resources, to conduct the review. FDIC conducted the previous corporate
governance targeted review in 2016. The review focused on SBNY’s implementation of their digital
asset initiatives, which had experienced significant growth in 2020 and 2021. The review identified a
number of corporate governance weaknesses. The targeted review team noted that the issues
identified likely impacted the institution as a whole and urged the Dedicated Team to perform similar
targeted reviews in future examination cycles.
The Corporate Governance targeted review resulted in new MRBAs related to issues and event
management and SBNY’s organization structure and decision-making processes. The review also
resulted in several new SRs related to the product implementation process, key risk and performance
indicators, operational risk management oversight, and risk and control self-assessments and the
control environment.
One targeted review was a Compliance/CRA examination. The results of Compliance/CRA examinations are
12
not communicated using targeted review Supervisory Letters, but instead communicated in the roll-up ROE.
54
2022 Draft Liquidity Targeted Review: The NYRO was drafting a Supervisory Letter to the 2022
Liquidity targeted review when SBNY failed. The draft findings indicated that SBNY funds
management practices continued to require improvement. Underlying assumptions for the liquidity
stress test and deposit outflow methodology were not fully developed and documented. In addition,
significant deficiencies were identified in the independent review of liquidity and funds management,
including the relevance of the internal audit procedures and evaluation. This was of heightened
importance given SBNY’s high reliance on uninsured deposits, and the elevated level of digital asset
deposits that drove the high-risk liquidity profile of the bank.
On-balance sheet liquidity was composed of cash, interest-bearing bank balances, loans held for sale,
and unpledged securities. As of September 30, 2022, it measured 31 percent of total assets compared
to 40 percent on September 30, 2021. The decline was caused by a $17.8 billion reduction in liquidity
and $7.7 billion increase in assets over the period. In addition to the impact of the cryptocurrency
market volatility that was specific to SBNY, the industry experienced slowing of deposit growth given
the end of the pandemic and the low interest rate environment.
As of September 30, 2022, the uninsured deposits concentration was 82 percent of total assets. Digital
asset deposits also represented a concentration at 21 percent of total assets. SBNY had experienced
volatility in deposit levels, and reputation risks from media exposure had elevated liquidity risk.
Liquidity risk did not align with the board-approved low risk appetite.
The draft targeted review proposed one new MRBA and a number of new SRs. Issuing the
accompanying Supervisory Letter would have resulted in SBNY having two liquidity-related MRBAs
and 19 liquidity-related SRs outstanding.
Information Technology Supervisory Letter: The Information Technology targeted review contained
SRs related to end-of-life management, vulnerability timeframes, configuration management, IT
succession plan, project management reporting, risk assessment, asset inventory, and business
continuity management.
Other In-Process Supervisory Letters: At the time of failure, Fund Banking, AML/CFT, and Liquidity
targeted reviews were in process when SBNY failed. Preliminarily, these reviews identified a number
of weaknesses. As a result, initial discussions related to ratings downgrades and potential
enforcement actions had started within the NYRO.
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Appendix 3: Open MRBAs and SRs from Targeted Reviews
Table 14: MRBAs Remaining Open by Examination Cycle
Targeted Review Scope 2017 2018 2019 2020 2021 2022*
Commercial and Industrial Loan Portfolio 1 1
Information Technology 1
Model Risk Management 1 1 1
Liquidity Risk Management 1 2 1 1 2*
Anti-Money Laundering 1 1 3 1 8*
Commercial Real Estate 2 3 1
Corporate Governance 2
Fund Banking 1*
Total 5 7 7 3 1 13*
Source: Internal review team analysis of SBNY roll-up ROEs.
* Proposed MRBAs from targeted review Supervisory Letters in process at the time of SBNY’s failure.
Table 15: SRs Remaining Open by Examination Cycle
Targeted Review Scope 2017 2018 2019 2020 2021 2022*
Liquidity Risk Management 3 5 18 15 11 19*
Model Risk Management 10 10 10 9 12
Information Technology 10 9 11 6 4 8
Anti-Money Laundering 6 8 10 6 3 13*
Sensitivity to Market Risk 4 3 15 13 4
Commercial Real Estate 12 19 1 1
Enterprise Risk Management 2 6 6 1 1
Credit Risk Management 8 3 4
Commercial and Industrial Loan Portfolio 7 6 1
Strategic Planning 6 2 1
Investments 5 1 1
Dodd-Frank Act Company-Run Stress Test 7
Corporate Governance 1 2 2 4
Internal Audit 5
Sales Practices and Incentive Compensation 3 1
Signature Financial Portfolio 4
Internal Loan Review 4
Sarbanes-Oxley Act 2 2
Current Expected Credit Losses 1
Fund Banking 8*
Total 80 72 88 61 42 52*
Source: Internal review team analysis of SBNY roll-up ROEs.
* Proposed SRs from targeted review Supervisory Letters in process at the time of SBNY’s failure.
56
Appendix 4: Liquidity-Related SRs and MRBAs
Table 16: Open Liquidity MRBAs and SRs from the 2019 Liquidity Targeted Review by
Examination Cycle
Issue Description 2019 2020 2021 2022*
Ensure that the bank is in compliance with the board ✓
approved liquidity risk appetite. If non-compliance is noted
the board should ensure appropriate