Material Loss Review of Signature Bank of New York, EVAL-24-02 (Part 1 of 2)
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Material Loss Review of Signature Bank of New York
October 2023 EVAL-24-02
Evaluation Report
Audits, Evaluations, and Cyber
IntegrityIndependenceAccuracyObjectivityAccountability
NOTICE
Pursuant to Pub. L. 117-263, section 5274, non-governmental organizations and business
entities identified in this report have the opportunity to submit a written response for the
purpose of clarifying or providing additional context to any specific reference. Comments
must be submitted to [email protected] within 30 days of the report publication date as
reflected on our public website. Any comments will be appended to this report and posted on
our public website. We request that submissions be Section 508 compliant and free from any
proprietary or otherwise sensitive information.
Federal Deposit Insurance Corporation
Office of Inspector General
Date: October 23, 2023
Memorandum To: Doreen R. Eberley
Director, Division of Risk Management Supervision
/s/
From: Terry L. Gibson
Assistant Inspector General for Audits, Evaluations, and Cyber
Subject Material Loss Review of Signature Bank of New York |
Report No. EVAL-24-02
This memorandum transmits Cotton & Company Assurance and Advisory, LLC’s (Cotton) Material Loss Review of
Signature Bank of New York. Under a contract monitored by this office, we engaged Cotton to perform this Material
Loss Review. The contract required that the Material Loss Review be performed in accordance with the Council of
the Inspectors General on Integrity and Efficiency (CIGIE) Quality Standards for Inspection and Evaluation.
The objectives of the engagement were to (1) determine why the bank’s problems resulted in a material loss to the
Deposit Insurance Fund and (2) evaluate the FDIC’s supervision of the bank, including the FDIC’s implementation
of the Prompt Corrective Action (PCA) requirements of section 38 of the Federal Deposit Insurance Act, and make
recommendations for preventing any such loss in the future.
In its Material Loss Review, Cotton determined:
• Signature Bank failed due to insufficient liquidity and contingency funding mechanisms and inadequate risk
management practices by bank management;
• The FDIC missed opportunities to downgrade Signature Bank’s Management component rating and further
escalate supervisory concerns;
• The FDIC did not consistently perform supervisory activities in a timely manner and was repeatedly delayed
in issuing supervisory products;
• The FDIC appropriately downgraded Signature Bank’s Liquidity component rating, but changing market
conditions warrant the FDIC’s review and potential revision to supervisory guidance; and
• The FDIC found that Signature Bank was well capitalized for PCA purposes.
The report contains six recommendations intended to improve the FDIC’s supervision processes and its ability to
apply effective forward-looking supervision in a changing banking environment. The FDIC concurred with all of
these recommendations and plans to complete corrective actions by March 31, 2024.
Cotton is responsible for the attached report dated October 23, 2023, and the information and conclusions
expressed in the report. As a result, with the oversight provided by our office, we relied upon the statements and
conclusions derived by Cotton. Cotton performed its work from April through September 2023. This review fulfills a
statutory mandate and does not serve any investigatory purposes.
We appreciate the cooperation and courtesies provided to Cotton and our office during the Material Loss Review. If
you have any questions, please do not hesitate to contact me at (703) 562-2529.
October 2023 EVAL-24-02
Executive Summary
Material Loss Review of Signature Bank of New York
Section 38, Prompt Corrective Action, of the Federal Deposit Insurance Act requires the
Inspector General (IG) of the appropriate federal banking agency to conduct a review and
issue a written report when there is a material loss to the Deposit Insurance Fund (DIF)
related to an insured depository institution for which the Federal Deposit Insurance
Corporation (FDIC) is appointed receiver. On March 12, 2023, the New York State
Department of Financial Services (NYSDFS) closed Signature Bank of New York (SBNY)
and appointed the FDIC as receiver. On April 28, 2023, the FDIC estimated the loss to the
DIF to be approximately $2.4 billion.
The FDIC supervises insured state-chartered banks that are not members of the
Federal Reserve System, state-chartered savings associations, and insured state-
chartered branches of foreign banks. SBNY was a state-chartered nonmember
commercial bank headquartered in New York, New York, with no holding company or
affiliates. SBNY was regulated jointly by the FDIC and the NYSDFS.
The FDIC Office of Inspector General (OIG) engaged the professional services firm
of Cotton & Company Assurance and Advisory, LLC (Cotton) to conduct this MLR.
The objectives of the engagement were to (1) determine why the bank’s problems
resulted in a material loss to the DIF and (2) evaluate the FDIC’s supervision of the
bank, including the FDIC’s implementation of the Prompt Corrective Action (PCA)
requirements of section 38 of the FDI Act, and make recommendations for
preventing any such loss in the future.
Results
Causes of Failure and Material Loss to the Deposit Insurance Fund
SBNY’s failure was caused by insufficient liquidity and contingency funding
mechanisms, which impeded the bank’s ability to withstand a run on deposits. In
addition, SBNY management prioritized aggressive growth over the implementation
of sound risk management practices needed to counterbalance the liquidity risk
associated with concentrations in uninsured deposits.
The FDIC’s Supervision of SBNY
Leading up to the failure of SBNY, the FDIC, in coordination with the NYSDFS,
identified and communicated supervisory findings across a variety of areas with a
October 2023 EVAL-24-02
Executive Summary
total of 3 open Matters Requiring Board Attention and 49 open Supervisory
Recommendations. These findings pertained to Liquidity, Model Risk Management,
Sensitivity to Market Risk, Credit Risk Management, Enterprise Risk Management,
the Bank Secrecy Act, Current Expected Credit Loss, Commercial & Industrial
Lending, Information Technology, Strategic Planning, and several aspects of
corporate governance. Most notably, supervisory concerns and recommendations
related to SBNY’s liquidity were continuously raised since the 2018 examination
cycle. While supervisory ratings had remained stable for several years, the FDIC
downgraded SBNY’s ratings the day before its failure.
Cotton found that the FDIC:
• Missed multiple opportunities to downgrade SBNY’s Management component
rating and further escalate supervisory concerns;
• Did not consistently perform supervisory activities in a timely manner and was
repeatedly delayed in issuing supervisory products; and
• Appropriately downgraded the SBNY’s Liquidity component rating, but
changing market conditions warrants the FDIC’s review and potential revision
to its examination guidance.
With respect to PCA, Cotton determined that the FDIC found that SBNY was well
capitalized throughout each examination cycle prior to its failure based on defined
capital measures.
Recommendations
This report contains six recommendations intended to improve the FDIC’s supervision
processes and its ability to apply effective forward-looking supervision in a changing
banking environment. Specifically, Cotton recommended training to examination staff on
the timely escalation of supervisory concerns, evaluating and improving existing guidance,
reassessing the FDIC’s examination staffing strategy, and implementing and monitoring
metrics for the FDIC’s supervision of large banks. Additionally, Cotton recommended that
the FDIC reevaluate its guidance with respect to deposit stability and liquidity stress testing.
The FDIC concurred with the six recommendations. The FDIC plans to complete all
corrective actions by March 31, 2024.
October 2023 EVAL-24-02 ii
Contents
Part I
Report by Cotton & Company Assurance I-1
And Advisory, LLC
Material Loss Review of Signature Bank of New
York
Part II
FDIC Comments and OIG Evaluation II-1
FDIC Comments II-2
Summary of the FDIC’s Corrective Actions II-7
Part I
********
Report by Cotton & Company Assurance
and Advisory, LLC
October 2023 EVAL-24-02
SUBMITTED TO
FEDERAL DEPOSIT INSURANCE CORPORATION
OFFICE OF INSPECTOR GENERAL
MATERIAL LOSS REVIEW OF SIGNATURE BANK OF NEW YORK
OCTOBER 23, 2023
October 23, 2023
Terry L. Gibson
Assistant Inspector General for Audits, Evaluations, and Cyber
Office of Inspector General
Federal Deposit Insurance Corporation
Subject: Material Loss Review of Signature Bank of New York
Cotton & Company Assurance and Advisory, LLC (Cotton) is pleased to submit the attached
report detailing the results of our material loss review (MLR) of Signature Bank of New York,
New York to the Federal Deposit Insurance Corporation’s (FDIC’s) Office of Inspector General
(OIG).
We conducted this MLR in accordance with the Council of the Inspectors General on Integrity
and Efficiency’s Quality Standards for Inspection and Evaluation (commonly referred to as the
Blue Book). In addition, we conducted this engagement in accordance with the American
Institute of Certified Public Accountants’ Statement on Standards for Consulting Services.
We performed our work from April through September 2023 at the Cotton office in Alexandria,
Virginia and remotely.
Sincerely,
COTTON & COMPANY ASSURANCE AND ADVISORY, LLC
/s/ Steven M. Koons, CPA
Partner
/s/ Jesse J. Carpenter, CPA
Partner
Material Loss Review
Signature Bank of New York
TABLE OF CONTENTS
INTRODUCTION ....................................................................................................................... 1
FDI ACT REQUIREMENTS ................................................................................................................................ 1
ENGAGEMENT OBJECTIVES ............................................................................................................................. 1
BACKGROUND......................................................................................................................... 2
SUPERVISION OF SBNY AND BRIEF SUMMARY OF EVENTS .................................................................................... 2
WIDESPREAD ATTENTION ON SBNY’S FAILURE .................................................................................................. 3
OVERVIEW OF THE FDIC’S SUPERVISORY ACTIVITIES ........................................................................................... 3
CAMELS Ratings ...................................................................................................................................................4
Large Bank Supervision and the FDIC’s Continuous Examination Process ...........................................................4
Supervisory Actions ..............................................................................................................................................5
Large Insured Depository Institution Ratings and Outlooks .................................................................................6
CAUSES OF FAILURE AND MATERIAL LOSS TO THE DEPOSIT INSURANCE FUND ........ 7
INSUFFICIENT LIQUIDITY AND CONTINGENCY FUNDING MECHANISMS IMPEDED THE BANK’S ABILITY TO WITHSTAND A
RUN ON DEPOSITS......................................................................................................................................... 7
Disruption in Cryptocurrency Markets .................................................................................................................7
Bank Closures Caused Contagion Effect ...............................................................................................................8
SBNY’s Sources of Liquidity ...................................................................................................................................8
Lack of Sufficient Liquidity and Contingency Funding to Meet Deposit Withdrawal............................................9
BANK MANAGEMENT PRIORITIZED AGGRESSIVE GROWTH OVER IMPLEMENTATION OF ADEQUATE RISK MANAGEMENT
PRACTICES AND SUPERVISORY RECOMMENDATIONS NEEDED TO COUNTERBALANCE THE LIQUIDITY RISKS ASSOCIATED
WITH CONCENTRATED, UNINSURED DEPOSITS ................................................................................................... 9
Aggressive Growth Strategy ...............................................................................................................................11
Deposit Concentrations ...................................................................................................................................... 11
Insufficient Risk Management Practices and Incorrect Assumptions on the Loyalty of Depositors and
“Stickiness” of Deposits ......................................................................................................................................13
THE FDIC’S SUPERVISION OF SIGNATURE BANK OF NEW YORK ....................................15
RECENT SUPERVISORY HISTORY ..................................................................................................................... 15
Liquidity ..............................................................................................................................................................15
Corporate Governance .......................................................................................................................................16
THE FDIC MISSED MULTIPLE OPPORTUNITIES TO DOWNGRADE SBNY’S MANAGEMENT COMPONENT RATING AND
FURTHER ESCALATE SUPERVISORY CONCERNS .................................................................................................. 16
Missed Opportunities for a CAMELS Management Component Downgrade Existed with the Issuance of
Specific Supervisory Products ............................................................................................................................. 17
Additional Indicators Underscored the Need for a CAMELS Management Component Downgrade .................22
Discussion of Causes Underlying the Finding: The FDIC Employed a Strategy for Ratings Downgrades that
Warrants Reconsideration of Guidance Around Interim Downgrades ...............................................................26
Recommendations..............................................................................................................................................28
THE FDIC DID NOT ALWAYS TIMELY PERFORM SUPERVISORY ACTIVITIES AND WAS REPEATEDLY DELAYED IN ISSUING
SUPERVISORY PRODUCTS TO SBNY ................................................................................................................ 29
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Discussion of Causes Underlying the Finding: The FDIC Faced Staffing Challenges in the Supervision of Large
Banks, Which Included SBNY .............................................................................................................................. 31
Recommendations..............................................................................................................................................32
THE FDIC APPROPRIATELY DOWNGRADED THE BANK’S LIQUIDITY RATING, HOWEVER CHANGING MARKET CONDITIONS
WARRANT REVIEW AND POTENTIAL REVISION OF EXAMINATION GUIDANCE CONCERNING LIQUIDITY ....................... 33
The FDIC’s Liquidity Downgrade of SBNY ...........................................................................................................33
Federal Banking Agencies, Including the FDIC, Issued Guidance on Digital Asset-related Activities ................. 35
Perspectives on the Stability of Deposits May No Longer Hold True and the Current Environment Gives Rise to
Unexpected Velocity and Magnitude of Deposit Outflows in Times of Stress ....................................................36
The Significance of Proper Funds Management Practices .................................................................................36
Discussion of Causes Underlying the Finding: Guidance Concerning Liquidity Is Based on Past Experience......37
Recommendations..............................................................................................................................................38
COMPLIANCE WITH PROMPT CORRECTIVE ACTION (PCA) ..............................................38
APPENDIX I: OBJECTIVES, SCOPE, AND METHODOLOGY ................................................39
OBJECTIVES ................................................................................................................................................ 39
SCOPE AND METHODOLOGY ......................................................................................................................... 39
APPENDIX II: ACRONYMS AND ABBREVIATIONS ...............................................................41
APPENDIX III: MATTERS FOR FURTHER STUDY AND RECOMMENDATIONS FROM
OTHER SOURCES ...................................................................................................................42
APPENDIX IV: OPEN MATTERS REQUIRING BOARD ATTENTION AND OPEN
SUPERVISORY RECOMMENDATIONS WHEN SBNY FAILED ..............................................45
SUPERVISORY RECOMMENDATIONS (SRS) ....................................................................................................... 45
MATTERS REQUIRING BOARD ATTENTION (MRBAS) ........................................................................................ 46
TABLE OF TABLES
Table 1: SBNY’s Year-End Deposit Balances 7
Table 2: SBNY’s Declining Liquidity Position During 2022 8
Table 3: Summary of SBNY’s Uninsured Deposits 12
Table 4: SBNY’s Historical CAMELS Ratings 17
Table 5: Summary of Selected Supervisory Products Issued to SBNY 20
Table 6: SBNY’s Quarterly CAMELS and LIDI Ratings 24
Table 7: Timing of Issuances of Reports of Examination (ROEs) to SBNY 29
Table 8: FDIC OGM Report Completion for SBNY 30
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Signature Bank of New York
MATERIAL LOSS REVIEW OF SIGNATURE BANK OF NEW YORK
INTRODUCTION
The following sections present Federal Deposit Insurance (FDI) Act, 12 U.S.C. § 1831o,
requirements and our objectives for this material loss review (MLR) of Signature Bank of New
York, New York (i.e., “SBNY”, “Signature Bank”, or “the Bank”).
FDI Act Requirements
Section 38, Prompt Corrective Action, of the FDI Act requires the Inspector General (IG) of the
appropriate federal banking agency to conduct a review and issue a written report when there is
a material loss1 to the Deposit Insurance Fund (DIF) related to an insured depository institution
for which the Federal Deposit Insurance Corporation (FDIC) is appointed receiver.
Engagement Objectives
On March 12, 2023, the New York State Department of Financial Services (NYSDFS) revoked
SBNY’s charter, thereby closing the Bank, and appointed the FDIC as receiver. On April 28,
2023, the FDIC recorded a final estimated loss to the DIF of $2.4 billion. As of December 31,
2022—according to the Bank’s most-recent quarterly Consolidated Reports of Condition and
Income (Call Report)—SBNY reported approximately $110.4 billion in total assets and $88.6
billion in total deposits. Based on size of total assets, the SBNY failure was the third largest
bank failure in U.S. history at the time. By the time of this report’s issuance, SBNY became the
fourth largest failure following the failure of First Republic Bank on May 1, 2023.
The FDIC Office of Inspector General (OIG) engaged Cotton & Company Assurance and
Advisory, LLC (i.e., “Cotton”, “we”, “us”, or “our”) to conduct the SBNY MLR in accordance with
the Council of the Inspectors General on Integrity and Efficiency’s Quality Standards for
Inspection and Evaluation (commonly referred to as the Blue Book). In addition, we conducted
this engagement in accordance with the American Institute of Certified Public Accountants’
Statement on Standards for Consulting Services. The objectives of our engagement were to (1)
determine why the Bank’s problems resulted in a material loss to the DIF and (2) evaluate the
FDIC’s supervision of the Bank, including the FDIC’s implementation of the Prompt Corrective
Action (PCA) requirements of section 38 of the FDI Act, and make recommendations for
preventing any such loss in the future.
We conducted this MLR independent from other audits and evaluations of SBNY, but
sometimes refer to other audits and evaluations in this report. The information in this report was
obtained during the period April through September 2023. In conducting our work and preparing
the report, we relied primarily on supervisory records, bank documents, and other information
1 FDI Act, Section 38(k), Reviews Required When Deposit Insurance Fund Incurs Losses, defines the
term “material loss” as any estimated loss in excess of “$50,000,000, if the loss occurs on or after
January 1, 2014, provided that if the inspector general of a Federal banking agency certifies to the
Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial
Services of the House of Representatives that the number of projected failures of depository institutions
that would require material loss reviews for the following 12 months will be greater than 30 and would
hinder the effectiveness of its oversight functions, then the definition of ‘material loss’ shall be
$75,000,000 for a duration of 1 year from the date of the certification.” 12 U.S.C. § 1831o(k).
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provided by the FDIC’s Division of Risk Management Supervision (RMS). This review fulfills a
statutory mandate and does not serve any investigatory purposes. Our Objectives, Scope, and
Methodology are presented in Appendix I. Acronyms and abbreviations are presented in
Appendix II.
BACKGROUND
This section presents information on the supervision of SBNY and a brief summary of events,
the attention SBNY’s failure has received, and an overview of the FDIC’s supervisory activities,
including those pertinent to large banks such as SBNY.
Supervision of SBNY and Brief Summary of Events
The FDIC supervises insured state-chartered banks that are not members of the Federal
Reserve System, state-chartered savings associations, and insured state-chartered branches of
foreign banks. SBNY was a state-chartered nonmember commercial bank headquartered in
New York, New York, with no holding company or affiliates. The Bank was regulated jointly by
the FDIC and NYSDFS.
SBNY began operations in 2001 as a de novo bank.2 SBNY was a full-service commercial bank
and, as of December 31, 2022, had 40 branches and 136 Private Client Group (PCG) teams,
which is how SBNY managed its clients. SBNY was located in the New York metropolitan area
as well as California, Connecticut, Nevada, and North Carolina. SBNY’s main business lines
principally consisted of commercial real estate and commercial & industrial lending, funded
through uninsured deposits accumulated from mid-sized commercial companies. As part of its
growth strategy, as discussed in more detail below, the Bank expanded its business into the
Digital Asset Banking Industry3.
During 2019, the Bank launched its Signet platform which was a blockchain-based digital
payment platform that allowed SBNY’s commercial clients to make real-time payments to one
another. After launching Signet, the Bank experienced significant growth. Moreover, deposits
had increased across the banking industry related to stimulus money for the pandemic of
Coronavirus Disease 2019 (COVID-19). During 2020 and 2021, SBNY grew primarily due to
deposit growth, with total assets increasing by about $23.3 billion and $44.6 billion, respectively.
As of December 31, 2022, total assets were $110.4 billion, down from $118.4 billion at the end
of 2021, primarily as a result of deposit runoff by digital asset-related customers
contemporaneous with volatility in the digital asset-related industry. The industry had
experienced the collapse of two cryptocurrencies in May 2022 and the failure of digital asset
2 In the FDIC’s publication Applying for Deposit Insurance: A Handbook for Organizers of De Novo
Institutions (December 2019), the FDIC defines de novo institutions as, “newly established institutions
with no existing operations and new institutions that result from the conversion of an operating, non-
insured entity.”
3 According to the Financial Industry Regulatory Authority, digital assets cover a wide range of
investments. A common characteristic is that entities in the digital asset-related industry use distributed
ledger technology (blockchain) to store, record, and validate transactions. There are many types of digital
assets, including cryptocurrencies, non-fungible tokens, stablecoins, and security tokens.
2
Material Loss Review
Signature Bank of New York
exchange company, FTX,4 and its related hedge fund, Alameda Research, in November 2022.
On November 15, SBNY’s press release announced that “its deposit relationship with FTX and
their related companies is less than 0.1 percent of the Bank’s overall deposits as of November
14, 2022”. In December 2022, SBNY announced, in light of the then-current events, plans to
reduce concentration levels in deposits from the digital asset-related industry.
Widespread Attention on SBNY’s Failure
Prior to the issuance of this MLR report, the SBNY failure received much attention in the public
domain. Three reports each issued on April 28, 2023, discuss SBNY, its failure, and the
supervision of the Bank.
The U.S. Government Accountability Office (GAO) issued BANK REGULATION:
Preliminary Review of Agency Actions Related to March 2023 Bank Failures, (GAO-23-
106736).5
The FDIC’s Chief Risk Officer (CRO) issued FDIC’S Supervision of Signature Bank.6
NYSDFS issued Internal Review of the Supervision and Closure of Signature Bank.7
In addition, the FDIC’s New York Regional Director issued a Lessons Learned memorandum
dated April 12, 2023, to the New York Regional Office (NYRO) Regional Review Committee,
which included recommendations to improve bank supervision in the region.
Matters for further study from the FDIC’s CRO and recommendations from the NYSDFS and
NYRO are presented in Appendix III. The aforementioned GAO product did not make new
recommendations to the FDIC.
There also have been multiple congressional hearings related to SBNY’s failure, including by
the U.S. House of Representatives Financial Services Committee on May 16, 2023, and by the
U.S. Senate Banking, Housing and Urban Affairs Committee on May 18, 2023. The House
Financial Services Committee also held a hearing with the leadership of recently-failed banks on
May 17, 2023, including the co-founder and former Chairman of SBNY.
Overview of the FDIC’s Supervisory Activities
Responsibility for supervising and overseeing large state nonmember banks is shared between
the FDIC’s Regional Offices8 and its Large Bank Supervision Branch within the Division of Risk
Management Supervision (RMS). The FDIC’s RMS Manual of Examination Policies (the
Manual) explains that the FDIC “conducts bank examinations to ensure public confidence in the
banking system and to protect the Deposit Insurance Fund” and that Sections 10(b) and (c) of
4 On August 18, 2022, the FDIC had issued a cease and desist letter to FTX alleging potential violations
of the FDI Act stating, “…FTX US is not FDIC-insured, the FDIC does not insure any brokerage accounts,
and FDIC insurance does not cover stocks or cryptocurrency.” See https://www.fdic.gov/news/press-
releases/2022/ftx-harrison-letter.pdf.
5 See https://www.gao.gov/products/gao-23-106736.
6 See https://www.fdic.gov/news/press-releases/2023/pr23033a.pdf.
7 See
https://www.dfs.ny.gov/system/files/documents/2023/04/nydfs_internal_review_rpt_signature_bank_2023
0428.pdf.
8 The FDIC’s Regional Offices are located in Atlanta, Georgia; Chicago, Illinois; Kansas City, Missouri;
Dallas, Texas; New York, New York; and San Francisco, California.
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the FDI Act “empower examiners to make a thorough examination of a bank’s affairs”. As part of
the examination process, the FDIC rates the institutions it supervises using the Uniform
Financial Institutions Rating System (UFIRS). UFIRS contains six component ratings, described
in detail below. Those component ratings are referred to by the acronym CAMELS, which is a
commonly used term when referring to UFIRS ratings.
CAMELS Ratings
The FDIC is part of the Federal Financial Institutions Examination Council (FFIEC)9 which has
adopted the CAMELS rating system for those insured depository institutions whose primary
federal supervisory agency is represented on the FFIEC.10 Under CAMELS, the supervisory
agency, such as the FDIC, assigns each institution an overall composite rating based on the
agency’s evaluation of six component areas, which also are rated individually.
The component ratings reflect an institution’s Capital adequacy, Asset quality, Management
capabilities, Earnings sufficiency, Liquidity position, and Sensitivity to market risk (and thus are
referred to as CAMELS ratings). As explained in UFIRS:
The composite and component ratings are assigned on a 1 to 5 numerical scale. A 1
indicates the strongest performance and management practices and the lowest degree
of supervisory concern. A 5 indicates the weakest performance and management
practices and the highest degree of supervisory concern.
Each component rating is based on a qualitative analysis of certain related factors. A bank’s
composite rating generally has a close relationship to the individual component ratings.
Examiners do not, however, simply assign composite rating by averaging the individual
component ratings. In addition, examiners may give more weight to some components than to
others, depending on the perceived risk at a given institution. For example, the Manual, Section
4.1, Management, explains:
A bank’s performance with respect to asset quality and diversification, capital adequacy,
earnings performance and trends, liquidity and funds management, and sensitivity to
fluctuations in market interest rates is, to a very significant extent, a result of decisions
made by the bank’s directors and officers. Consequently, findings and conclusions in
regard to the other five elements of the CAMELS rating system are often major
determinants of the management rating.
Large Bank Supervision and the FDIC’s Continuous Examination Process
For most institutions under the FDIC’s supervision, such as community banks, full-scope
examinations are performed at a point in time. For such institutions, examiners plan the
examination, conduct examination procedures, assign CAMELS ratings, and communicate
9 FFIEC is a formal interagency body empowered, among other things, to prescribe uniform principles,
standards, and report forms for the federal examination of financial institutions by the Board of Governors
of the Federal Reserve System, the FDIC, the National Credit Union Administration, the Office of the
Comptroller of the Currency (OCC), and the Consumer Financial Protection Bureau (CFPB).
10 The FDIC’s Board approved the updated Uniform Financial Institutions Rating System developed
through the FFIEC as a policy statement of the FDIC on December 20, 1996, and it became effective on
January 1, 1997.
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findings. At the conclusion of this process, a Report of Examination (ROE) is issued to the
institution.
Alternatively, for certain institutions that are larger, more complex, or present a higher risk
profile—such as SBNY—the FDIC performs full-scope examinations continuously over the
course of a year. This is known as the Continuous Examination Process (CEP). For continuous
examinations, the planning phase describes the types of supervisory activities to be performed
and evaluation of the CAMELS components over the year. The FDIC uses a risk-based
approach when producing supervisory plans. The purpose of supervisory planning is to develop
an efficient, risk-focused examination strategy that is tailored to the institution’s business model,
risk profile, and complexity. The CEP includes onsite target reviews of areas that examiners
determine necessary to complete a full-scope examination. CEP also includes ongoing
monitoring (OGM), conducted quarterly, and assessment of the institution’s risks, policies,
procedures, and financial condition as well as frequent communication with institution
management. The Manual also explains that a dedicated Examiner-In-Charge (EIC) oversees
the CEP and may be supported by additional dedicated examination staff and other staff
depending on the size, complexity, and risk profile of the institution.
The FDIC issues supervisory letters (SLs) to the institution’s board and management after each
target review that convey the findings and can include supervisory recommendations (SRs)
when appropriate. Other written communications to the institution’s management may be issued
based on OGM activities or other intervening supervisory events. The ROE is addressed to the
institution and aggregates and summarizes findings from examination and other supervisory
activities performed throughout the cycle. It also assigns the CAMELS ratings.
Supervisory Actions
The FDIC employs various supervisory actions with respect to an institution under its
supervision. SRs are FDIC communications with an institution intended to inform the bank of the
FDIC’s views about changes needed in its practices, operations, or financial condition. When
the institution has more material issues and the FDIC issues recommendations 11 that require
the attention of the institution’s board of directors and senior management, examiners
communicate using Matters Requiring Board Attention (MRBAs), which are considered to be a
subset of SRs.12 MRBA are intended to help the board prioritize efforts to address examiner
concerns, identify emerging problems, and correct deficiencies before the bank’s condition
deteriorates.
In addition, the FDIC can escalate supervisory concerns by using both formal and informal
enforcement actions. According to the FDIC’s Formal and Informal Enforcement Actions
Manual:
Informal actions should be used when discussions with management or findings and
recommendations in the ROE will not, by themselves, accomplish the FDIC’s goal of
attaining timely corrective action from management. However, informal actions generally
11 According to the Manual, “It is FDIC policy to make supervisory recommendations in writing in the ROE,
in a transmittal letter, or in other correspondence under official FDIC letterhead. Supervisory
recommendations may not be solely verbal, but should be discussed with, and explained to bank
management.”
12 Although MRBAs are considered to be a subset of SRs, within this report, we count MRBAs and SRs
separately.
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are not appropriate when an institution’s problems present serious concerns and risks, in
which case a formal action should be pursued.
The FDIC’s informal actions include Bank Board Resolutions (BBRs) and Memoranda of
Understanding (MOUs). BBRs are informal commitments adopted by an institution’s board
(usually at the FDIC’s request) directing the institution’s personnel to take corrective action
regarding specific deficiencies. When the board’s proposed BBR does not effectively address
concerns, the FDIC may elect to pursue an MOU, which the Formal and Informal Enforcement
Actions Manual explains is an informal agreement between the institution and the FDIC and is
signed by both parties. The state regulatory agency may also be party to the MOU. In addition,
the FDIC may request that an insured depository institution submit a plan to conform to safety
and soundness standards under Section 39 of the FDI Act as an informal action.
The FDIC’s use of an informal enforcement action does not preclude it from subsequently
pursuing formal enforcement action if such formal action is legally required or if the FDIC
believes the institution’s management is unwilling or unable to take necessary corrective action.
Formal enforcement includes such actions as the termination of federal deposit insurance,
cease-and-desist orders, and civil monetary penalties.
Large Insured Depository Institution Ratings and Outlooks
For insured depository institutions with total assets of at least $10 billion, such as SBNY, the
FDIC separately assigns large insured depository institution (LIDI) Ratings. These ratings reflect
(1) the institution’s potential risk to the DIF and incorporate assessments of risk of failure
assuming stressed conditions (referred to as “Vulnerability to Stress”) and (2) FDIC losses
assuming failure (referred to as “Loss Severity”).13 Vulnerability to Stress considers both
vulnerability to asset stress and vulnerability to funding stress. The FDIC also assigns LIDI
Rating Outlooks (i.e. Positive, Stable, or Negative) which are projections of where the LIDI
Rating appears likely to be in 12 months based on current information.
13 Ratings are from “A” through “E”, where “A” rated institutions pose a low risk to the DIF under stressed
conditions and “E” rated institutions are in troubled condition and pose a pronounced risk of loss to the
DIF.
6
Material Loss Review
Signature Bank of New York
CAUSES OF FAILURE AND MATERIAL LOSS TO THE DEPOSIT INSURANCE FUND
This section details SBNY’s insufficient liquidity and contingency funding mechanisms and
SBNY management’s prioritization of aggressive growth over appropriate risk management
practices and the implementation of SRs. Collectively, these issues put the Bank in a position in
which it was unable to withstand the run on deposits from the contagion caused by the
announced self-liquidation and failure of other large similarly-situated banks. Ultimately these
issues resulted in SBNY’s failure and a material loss to the DIF.
Insufficient Liquidity and Contingency Funding Mechanisms Impeded the Bank’s
Ability to withstand a Run on Deposits
The proximate cause of SBNY’s failure was contagion from the announced self-liquidation and
failure of other large similarly-situated banks, sparking a run on deposits at SBNY on March 10,
2023. SBNY did not have sufficient liquidity and contingency funding mechanisms in place to
withstand the velocity and magnitude of the run on deposits.
Disruption in Cryptocurrency Markets
SBNY’s deposits included concentrations with cryptocurrency-related customers. The FDIC
documented in its unissued, draft 2022 Liquidity Target Review of SBNY: 14
Digital asset deposits were significant drivers of liquidity events on July 19, 2022, and
September 2, 2022. Management successfully managed these events by slowing loan
originations and revising loan and investment growth down by $3 to $4 billion. Then
again in November 2022, the bank faced a potential reputational event driven by the
FTX bankruptcy, a crypto exchange client of the bank. Management addressed the issue
with a press release to inform the public that the bank holds less than 0.01 percent of
FTX's deposits, and they prepared for potential deposit runoff by seeking an additional
$10 billion in funding from the Federal Home Loan Bank [FHLB].
The FDIC’s examination documentation shows that because SBNY developed a reputation of
having digital asset-related customers, including FTX, there was heightened negative publicity
surrounding SBNY, even though SBNY did not hold cryptocurrencies. As the concern spread
through mainstream and social media, the outflows of deposits during 2022 persisted. Table 1
presents SBNY’s year-end deposit balances for the past five years, including the decline from
2021 to 2022.
Table 1: SBNY’s Year-End Deposit Balances
Historical SBNY Deposits as of December 31 ($s in Millions)
2022 2021 2020 2019 2018
Total Deposits $88,613 106,154 63,323 40,386 36,382
Source: Summary of data for Signature Bank of New York (SBNY) from the Uniform
Bank Performance Report (UBPR) Schedule, Balance Sheet $.
The Bank’s stock price also reflected the negative publicity. During January 2022, the stock
reached a high of $366 per share, which declined through March 2023 when the stock reached
a 1-year low of $103 on Wednesday, March 8, 2023, prior to the significant deposit outflows.
14 The 2022 Liquidity Target Review was not completed before SBNY failed.
7
Material Loss Review
Signature Bank of New York
Bank Closures Caused Contagion Effect
Silvergate Bank announced on March 8, 2023, that it would voluntarily wind down operations
and liquidate itself. Additionally, the California Department of Financial Protection & Innovation
closed Silicon Valley Bank (SVB) and named the FDIC as receiver on Friday, March 10, 2023.
Subsequent to the closure of SBNY, an NYSDFS official explained to us that there was a panic
created in the banking market. The official said that after the SVB collapse, investors speculated
that SBNY would be the next institution to collapse due to similarities between the banks. Like
SVB, SBNY had significant concentrations in uninsured deposits. Additionally, the official
explained, there was a belief in the market that SBNY was similar to these other banks given
assumptions that SBNY was a “crypto bank” even though the Bank’s business model differed
from Silvergate Bank and SVB.
SBNY’s Sources of Liquidity
Similar to other institutions, SBNY experienced erosion in its liquidity position during 2022. As of
December 31, 2022, the FDIC assessed that SBNY had $10.3 billion in highly-liquid assets and
$1.6 billion in marginally-liquid assets, as shown in Table 2:15
Table 2: SBNY’s Declining Liquidity Position During 2022
Quarterly Liquidity Position ($s in Millions) 12/31/2022 9/30/2022 6/30/2022 3/31/2022 12/31/2021
Assets:
Highly Liquid Assetsa $ 10,324 $ 31,082 $ 34,591 $ 46,609 $ 44,878
Marginally Liquid Assetsb 1,578 1,680 1,759 1,775 1,650
Illiquid Assetsc 98,952 82,172 80,063 73,925 72,392
Total Assets (gross of Allowance for Credit
Losses (ACL)) $ 110,854 $ 114,934 $ 116,413 $ 122,309 $ 118,920
Liabilities:
Unstable Funding (Level 1) $- $- $- $- $-
Unstable Funding (Level 2) d 76,703 90,381 91,925 97,794 94,770
Stable Fundinge 34,150 24,552 24,487 24,514 24,150
Total Liabilities and Capital $ 110,853 $ 114,933 $ 116,412 $ 122,308 $ 118,920
Liquidity Ratio Analyses (%) 12/31/2022 9/30/2022 6/30/2022 3/31/2022 12/31/2021
Total Liquid Assets / Total Unstable Funding 15.5 36.2 39.5 49.5 49.1
Highly Liquid Assets / Total Assets (Gross of
ACL) 9.3 27.0 29.7 38.1 37.7
Total Liquid Assets / Total Assets (Gross of
ACL) 10.7 28.5 31.2 39.6 39.1
Source: The FDIC’s 2022 Quarterly Large Insured Depository Institution (LIDI) Reports for Signature Bank of New
York (SBNY).
a
Includes cash and due from banks; Loans Held-for-Sale; U.S. Treasury, Agencies, and Government-Sponsored
Enterprise securities (market value) excluding pledged securities and trading assets.
b
Includes corporate bonds (market value) and municipal securities, excluding pledged securities.
c
Includes all other loans and securities (e.g., illiquid and pledged), and other assets.
d
Includes uninsured deposits (excluding pledged uninsured deposits) and brokered deposits.
e
Includes core/other deposits not reflected above (including FDIC insured deposits), unsecured long-term debt > 3
years, secured borrowings (including repurchase agreements), total equity capital + ACL, and other liabilities.
SBNY had established secondary liquidity sources with the Federal Reserve Bank of New York
(FRBNY), FHLB, and other institutions. As of December 31, 2022, FDIC documentation shows
15 As demonstrated in Table 2, highly-liquid assets decreased significantly in Q4 2022. Illiquid assets
increased by more than $16 billion, largely due to loan and securities growth.
8
Material Loss Review
Signature Bank of New York
that SBNY had pledged loans and securities for $23.5 billion in remaining borrowing capacity at
the FRBNY and FHLB. FDIC documentation also shows that SBNY established unsecured and
repurchase agreement credit lines of $4.6 billion with other institutions.
Lack of Sufficient Liquidity and Contingency Funding to Meet Deposit Withdrawal
Facing insufficient liquidity, SBNY lacked the contingency funding mechanisms needed to gain
access to additional liquidity. On Friday, March 10, 2023, customers withdrew $18.6 billion,
comprising 20 percent of SBNY’s total deposits. After SBNY depleted its liquid assets, the FHLB
subordinated its interest in SBNY collateral in favor of borrowings from the FRBNY Discount
Window16 to cover a $3.4 billion shortfall in SBNY’s end-of-day settlement.17
Over the weekend, the amount of outgoing wire transfers expected for Monday, March 13,
2023, grew to as much as $7.9 billion. SBNY struggled to identify and pledge assets to raise
needed liquidity to meet both outstanding and new deposit withdrawal requests to be able to
open in a safe and sound manner on Monday. SBNY’s efforts to raise liquidity were hampered
by its lack of pre-approved collateral to pledge with the FRBNY given Discount Window
collateral eligibility and diligence requirements, which the Bank was unable to satisfy. As such, it
was unable to obtain sufficient additional liquidity.
Minutes before NYSDFS revoked SBNY’s charter on Sunday, March 12, 2023, the FDIC’s best
case estimate of SBNY’s available liquidity was $3.0 billion (or 4% of deposits). At 5:30 p.m.
EDT on Sunday, March 12, 2023, the NYSDFS closed SBNY and appointed the FDIC as
receiver.
The NYSDS report, Internal Review of the Supervision and Closure of Signature Bank, and the
FDIC report, Supervision of Signature Bank, explain in further detail SBNY’s struggle to identify
and pledge collateral to meet deposit outflows.
Bank Management Prioritized Aggressive Growth over Implementation of Adequate
Risk Management Practices and Supervisory Recommendations Needed to
Counterbalance the Liquidity Risks Associated with Concentrated, Uninsured
Deposits
SBNY management adopted a strategy that embraced rapid growth among its various PCGs
and expansion of its customer base to include those in the digital asset-related industry without
concurrently prioritizing the establishment of internal controls, modeling, or stress testing
mechanisms necessary to keep pace with the Bank’s rapidly-changing size and complexity. The
16 The Discount Window refers to Federal Reserve lending to depository institutions to help them manage
liquidity risk. Depository institutions have access to discount window credit from their regional Federal
Reserve Bank. Discount window loans need to be collateralized to the satisfaction of the lending Reserve
Bank.
17 According to the FRBNY, “In a banking transaction, settlement in (sic) the process of recording the
debit and credit positions of the parties involved in a transfer of funds; in a financial instrument
transaction, settlement includes both the transfer of securities by the seller and the payment by the
buyer.” See https://www.newyorkfed.org/banking/payment_glossary.html.
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Material Loss Review
Signature Bank of New York
FDIC’s examination documentation from the 2022 Corporate Governance Target Review, which
focused on SBNY’s Digital Assets Bank Group PCG,18 notes:
The Board and executive management have adopted a strategic position of rapid growth
and expansion into digital asset markets; a strategy that creates greater susceptibly to
liquidity, reputation, and regulatory risk as the digital asset markets and any related
contagions can impact access to needed capital and funding markets. Recent volatility in
the crypto markets and the bank’s related stock performance is evidence of the
reputation risk Signature Bank is willing to accept to pursue its strategy.
SBNY’s growth strategy yielded a reliance on relationships with large depositors, resulting in
concentrations of uninsured deposits and concentrations specific to a small number of large
depositors and deposits from digital asset-related customers, as discussed in the subsections
that follow.
In a Confidential Problem Memorandum19 dated March 11, 2023, the day before the Bank’s
failure, the FDIC’s NYRO noted:
SBNY's vulnerability to funding stress is high due to declining asset liquidity over the
past year, funding concentrations, and elevated off-balance sheet exposure. Over the
past week, the bank has been exposed to significant funding volatility and reputation
risk. Management's response to these emerging risks has been insufficient and
hampered by wholly inadequate management information systems and contingency
funding plans. Although management states that it enacted its contingency funding plan
in mid-2022, management did not establish sufficient daily cash flow and liquidity metric
reporting, develop and test a comprehensive asset pledging and sales plan, or perform
adequate stress testing of uninsured deposits. Many of the weak practices can be
attributed to management's failure to adequately remediate several longstanding liquidity
risk management deficiencies.
SBNY’s Board and management pursued their strategy without ample regard for the requisite
risk management practices necessary to protect the Bank and counterbalance the exposures
relating to its deposit concentrations that resulted from the Bank’s growth. The following
subsections detail SBNY’s aggressive growth strategy, deposit concentrations, and the
insufficient risk management practices that accompanied the Bank’s incorrect assumptions
about the loyalty of its depositors.
18 The FDIC’s documentation lists the on-site dates for the 2022 Corporate Governance Target Review as
March 26 through May 13, 2022. The FDIC issued the resultant SL on January 23, 2023. SBNY had
announced on December 6, 2022, that it was reducing its exposure to the digital assets market.
19 According to the FDIC’s Case Manager Procedures, “A problem bank memorandum documents the
FDIC’s concerns with an institution and the corrective action in place or to be implemented. While an
institution assigned a composite rating of “3” is not formally considered a problem financial institution, the
potential risk to the deposit insurance fund is such that a problem bank memorandum is required on
larger institutions assigned a composite rating of “3” as a means to document our concerns and plans.
The problem bank memorandum is also used to effect interim rating changes on the FDIC’s systems;
therefore, a problem bank memorandum may be required in situations that do not involve problem
banks.”
10
Material Loss Review
Signature Bank of New York
Aggressive Growth Strategy
SBNY management adopted a strategy that embraced rapid deposit and loan growth and
expansion. This included deposit growth due to expansion among a customer base involved in
the digital asset-related industry and from an increase in deposits related to COVID-19 stimulus
funding. The growth also included loans related to private equity firms.
For example, as noted above, SBNY expanded its business into the digital asset-related
industry. During 2019, the Bank launched its proprietary Signet platform which was a
blockchain-based digital payment platform that allowed SBNY’s commercial clients to make
real-time payments to one another 24 hours per day, 365 days per year. Subsequent to the
launch of Signet, the Bank experienced significant growth in its Digital Assets Bank Group PCG,
which was responsible for handling SBNY’s digital asset-related deposits and clients. The
FDIC’s examination documentation notes that in the period June 2020 to June 2021, deposits
from digital asset-related customers increased by more than 800% to about $15 billion.
Moreover, deposits had increased across the banking industry related to stimulus money for
COVID-19. SBNY’s significant growth was primarily due to the overall deposit growth of about
$23 billion and $43 billion in 2020 and 2021, respectively. Total assets increased by about $23
billion and $45 billion, respectively.
In addition, SBNY had established its Fund Banking Group during 2018, and this division of the
Bank experienced significant growth during 2020 and 2021. Substantially all of the Fund
Banking Group’s portfolio consisted of loans to private equity firms and their general partners.
SBNY had noted the Fund Banking Group as being the largest driver of loan growth in 2021,
three years in a row, with Fund Banking Group loans totaling about $26 billion as of December
31, 2021.
Deposit Concentrations
As noted, SBNY experienced significant growth leading up to the Bank’s failure. That growth
was accompanied by a continued concentration of uninsured deposits as well as concentrations
specific to a small number of large depositors and deposits from digital asset-related customers.
Concentrations of Uninsured Deposits
SBNY had a longstanding reliance on uninsured deposits. In the years leading up to the Bank’s
failure, SBNY’s liabilities primarily consisted of demand deposits, money market deposits, and
other savings deposits. High percentages of the deposits were uninsured—89.2 and 89.7
percent as of December 31 2021 and 2022, respectively. Based on data provided by the FDIC,
as of December 31, 2022, Signature Bank ranked first in the proportion of uninsured deposits to
total deposits amongst U.S. banks with at least $100 billion in assets. The average proportion
for this group at that time was about 44 percent. Uninsured deposits inherently present a higher
risk to banks during times of actual or perceived stress because depositors are more likely to
withdraw funds because their balance exceeds the FDIC’s statutory $250,000 insurance limit.
11
Material Loss Review
Signature Bank of New York
Table 3 demonstrates the high levels of SBNY’s uninsured deposits from the completion of
2019 through 2022:
Table 3: Summary of SBNY’s Uninsured Deposits
$s in Millions
Uninsured Uninsured
Estimated Deposits as a Deposits as a
Call Report Uninsured Total % of Total % of Total
Date Depositsa Depositsb Deposits Total Assetsb Assets
12/31/2022 $ 79,459 $ 88,613 89.7 $110,364 72.0
9/30/2022 93,561 102,800 91.0 114,469 81.7
6/30/2022 95,172 104,140 91.4 115,967 82.1
3/31/2022 100,669 109,176 92.2 121,847 82.6
12/31/2021 97,642 106,154 92.0 118,445 82.4
9/30/2021 87,443 95,587 91.5 107,851 81.1
6/30/2021 77,647 85,571 90.7 97,210 79.9
3/31/2021 66,045 73,983 89.3 85,382 77.4
12/31/2020 55,897 63,323 88.3 73,888 75.7
9/30/2020 47,207 54,347 86.9 63,760 74.0
6/30/2020 42,566 50,235 84.7 60,350 70.5
3/31/2020 34,857 42,244 82.5 53,075 65.7
12/31/2019 33,292 40,386 82.4 50,621 65.8
Source: Summary and analysis of Consolidated Reports of Condition and Income (Call Report) data for
Signature Bank of New York (SBNY).
a
Call Report Schedule RC-O, Other Data for Deposit Insurance and FICO Assessments.
b
Call Report Schedule RC, Balance Sheet
Small Number of Large Depositors
The FDIC noted in the SBNY ROE as of December 31, 2021, the concentration of a relatively
small number of very large depositors, primarily clients in New York, New Jersey, and
California. The ROE stated:
In addition to having a high volume of uninsured deposits, there is also a concentration
of very large depositors. Approximately 60 clients hold a deposit account balance (sic)
that exceed $250 million, which represents approximately 40 percent of total deposits. In
addition, there are currently 290 clients with deposit account balances exceeding $50
million for a total of $65 billion which represent 61 percent of total deposits.
In the industry funding concentration section of the same ROE, the FDIC documented that there
were four clients—three of which being in digital asset-related industries—with aggregate
balances exceeding two percent of SBNY’s total assets each. When combined, the deposits of
these four clients represented 14 percent of total assets.
Concentration in Deposits from Digital Asset-Related Customers
As of December 31, 2021, deposits at SBNY related to the digital asset industry totaled about
$29 billion. According to FDIC examination documentation, this constituted 22 percent of
uninsured deposits and represented 24 percent of total assets. These deposits had grown by
$21 billion during 2021, or about 263 percent, resulting in a funding concentration. Digital asset-
related depositors included digital asset exchanges, digital custody platforms, mining
operations, digital lenders, stable coin issuers, and other related businesses, many of which
used SBNY’s Signet platform.
12
Material Loss Review
Signature Bank of New York
As of December 31, 2022, deposits included $17.79 billion from SBNY customers in the digital
asset industry. Based on the total asset balance of $110.4 billion as of December 31, 2022,
deposits related to the digital asset industry represented about 16 percent of total assets.
Although the percentage of SBNY’s deposits from digital asset-related customers declined in
2022 amidst disruption in the market and SBNY management’s announced plans to reduce that
exposure20, a concentration risk remained.
Insufficient Risk Management Practices and Incorrect Assumptions on the Loyalty
of Depositors and “Stickiness” of Deposits
SBNY lacked sufficient risk management practices and incorrectly assumed its deposits were
stable. We found that SBNY’s strategy documents indicated, for example, that onboarding
clients to the Signet platform has “enhanced the user experience” and brought a “stickiness” to
deposits. NYSDFS officials told us the majority of SBNY’s new deposits during its growth period
were large and uninsured, and that SBNY did not have a formal process in place to analyze risk.
Going back to at least the 2018 ROE, the FDIC documented concerns with risks related to
uninsured deposits. The FDIC’s ROE as of December 31, 2021, noted:
Management believes that the deposits base is considerably stable based on the length
of time of relationships, the volume of client accounts, and the various types of products
that clients utilize at the Bank. However, management’s assumptions are not well
documented and have not been substantiated. As such, improved liquidity stress testing
and contingency funding planning is needed to provide sufficient identification,
measurement, monitoring, and control of the uninsured deposits concentration.
SBNY assumptions around the stability of its deposits continued up to the point NYSDFS
revoked the Bank’s charter. FDIC officials met with SBNY’s Board on Saturday, March 11, 2023,
when the Board blamed the FHLB for the Bank’s liquidity situation. The FDIC’s meeting minutes
documented that FDIC officials told the Bank’s Board that the FDIC disagreed and that SBNY
management had not taken seriously the conversations and SLs identifying the Bank’s
concentration in uninsured deposits and the supervisory findings around liquidity risk
management. Both FDIC and NYSDFS officials independently informed us that, in the days
leading up to the Bank’s failure, it was difficult to obtain accurate liquidity information from the
Bank and that they found the Bank’s assumptions were not realistic. The events of March 2023
proved assumptions around the “stickiness” of deposits ultimately were unfounded.
SBNY’s risk management processes were not commensurate with the liquidity, funding, and
reputational risks that accompanied the Bank’s growth. This is demonstrated by SBNY having
one MRBA (related to liquidity contingency planning) and 11 liquidity SRs from the 2019
examination cycle still open at the time of SBNY’s failure. Examiners had warned SBNY’s Board
and management that liquidity risk management required improvement years prior to the Bank’s
demise.
In a July 6, 2020, Liquidity SL, an outcome of the 2019 examination cycle, the FDIC and
NYSDFS downgraded SBNY’s CAMELS Liquidity component rating to a “3”, concluding:
20 SBNY had announced on December 6, 2022, that it was reducing its exposure to the digital assets
market.
13
Material Loss Review
Signature Bank of New York
Funds management practices need improvement. Current practices are not
commensurate with the institution’s complexity, risk profile, and scope of operations due
to weaknesses with liquidity contingency planning, liquidity stress testing (LST), and
internal controls. While the Board and management adequately monitor the daily liquidity
position of the bank, identified weaknesses prevent the bank from appropriately
understanding the potential effects of adverse liquidity events and emergency cash flow
needs.
In addition, at that same time, regulators issued a new MRBA (related to liquidity contingency
planning) calling for a well-developed and supported liquidity stress testing (LST) framework as
well as a comprehensive contingency funding plan. There were two open MRBAs (one existing
MRBA related to compliance with the Board-approved risk liquidity appetite and the new MRBA
concerning liquidity contingency planning) and 22 open liquidity SRs as of the issuance of this
SL. In the same SL, the regulators updated a 2017 SR as a 2019 SR, providing a broader
discussion of material assumptions behind SBNY’s LST. Regulators also updated a 2018 SR
which originally recommended that bank management ensure that funding shortfalls are fully
resolved in the LSTs with an expanded discussion of the LST model. The FDIC had
documented that LST assumptions lacked appropriate support; these assumptions pertained to
deposit run-offs, deposit growth, and the value of liquid assets in the Bank’s stressed cash close
forecast.
Subsequently, in the 2021 ROE, in the area of liquidity, there was one open MRBA (related to
liquidity contingency planning) and 11 SRs all stemming from the 2019 examination cycle. The
reduction in the number of open findings demonstrated that SBNY had made some progress in
this area.
Nonetheless, although the 2022 Liquidity Target Review was still in process and was not issued
prior to the Bank’s failure, the draft SL continued to note problems with the Bank’s liquidity risk
management practices. It noted that the “liquidity risk appetite statement is incongruent with the
liquidity risk tolerance of the bank”. The SL also contained a new MRBA around Independent
Review, noting “The Board and Examining Committee must ensure that the Audit Program for
liquidity and funds management is commensurate with the size, complexity, and liquidity risk
profile of the bank”.
Overall, we found that SBNY’s assumptions around the liquidity of deposits were disproved.
Moreover, the duration of open findings—in addition to new findings—demonstrated an
insufficiency on the part of the Bank’s management to address examiners’ concerns related to
liquidity risk management practices.
14
Material Loss Review
Signature Bank of New York
THE FDIC’S SUPERVISION OF SIGNATURE BANK OF NEW YORK
In this section, we provide an overview of the recent supervisory history of SBNY. We also
present our findings related to the FDIC’s supervision of SBNY, including the underlying causes
of the findings and our recommendations to the FDIC intended to help prevent future losses to
the DIF.
Recent Supervisory History
Leading up to the failure of SBNY, there were supervisory findings across a variety of areas with
a total of 49 open SRs and 3 open MRBAs.21 Although we discuss what we determined to be
the most relevant SRs and MRBAs, a list of outstanding SRs and MRBAs is summarized in
Appendix IV. Findings pertained to Liquidity, Model Risk Management, Sensitivity to Market
Risk, Credit Risk Management, Enterprise Risk Management, the Bank Secrecy Act (BSA),
Current Expected Credit Loss, Commercial & Industrial Lending, Information Technology,
Strategic Planning and several aspects of corporate governance. The earliest SRs dated back
to the 2018 examination cycle. Most notable among these were longstanding supervisory
concerns related to the Bank’s liquidity as well as newly-identified concerns pertaining to
corporate governance (part of the CAMELS Management component) from a target review
focused on the Digital Assets Bank Group PCG, as discussed in more detail below.
Liquidity
The FDIC’s examination documentation demonstrates a longstanding pattern of examiner
concerns around liquidity raised continuously since at least 2017 and a clear pattern of
outstanding recommendations unresolved by bank management through the time of SBNY’s
failure.
For example, a July 2019 Asset and Liability Management SL (pertaining to the 2018
examination cycle) communicated one MRBA and four SRs concerning the Liquidity
component. The MRBA indicated that SBNY’s Board had a “low” risk appetite related to liquidity;
however, there were several on-going breaches of Board-approved risk metrics. Examiners
communicated to SBNY’s Board that it should institute processes to help ensure that liquidity
strategies align with the Board’s risk appetite. Examiners also communicated that, “…an
analysis of the impact should be completed at shorter intervals, so that the [Bank’s] true survival
horizon can be observed.” In the 2018 ROE, examiners reported that SBNY management had
developed a satisfactory LST policy, but reported that material assumptions used in stress
testing required further development, calling for additional documentation to support
assumptions such as deposit outflow projections.
A July 2020 Liquidity SL (pertaining to the 2019 examination cycle) downgraded the CAMELS
Liquidity component rating to “3” and introduced a new MRBA related to liquidity contingency
planning along with new SRs related to documentation of liquidity stress testing assumptions,
the deposit modeling framework, liquidity stress test model, contingency funding planning, the
21 There were 42 SRs as of the 2021 ROE plus four new SRs from the 2022 Corporate Governance SL,
and five new SRs and one closed SR from the 2022 Information Technology Target Review. In addition,
one of the SRs open in the 2021 ROE was elevated to become an MRBA in the 2022 Corporate
Governance SL. Therefore, there were three open MRBAs (one as of the 2021 ROE, plus one new
MRBA from the 2022 Liquidity Target Review, and the one elevated from SR status). The 2022 ROE was
never issued to SBNY because the bank failed before the report’s completion and issuance.
15
Material Loss Review
Signature Bank of New York
system of effective challenge for the liquidity stress modeling methodology, and internal
controls. This MRBA was still outstanding as of SBNY’s failure on March 12, 2023.
One year later, a Liquidity SL (pertaining to the 2020 examination cycle) communicated the
need for improvement of the Bank’s funds management practices and stated, “Weaknesses in
liquidity contingency planning and internal controls continue to hinder management’s ability to
identify adverse liquidity events and establish appropriate mitigating actions”. The liquidity
MRBA from the 2019 examination cycle and 15 liquidity SRs from the 2019 examination
remained open.22
A July 2022 Liquidity Risk Management SL (pertaining to the 2021 examination cycle) reported
that SBNY management had not updated its contingency funding plan since the 2019 Liquidity
Target Review. Ultimately, the 2021 ROE issued in December 2022 reported that one liquidity
MRBA and 11 liquidity SRs remained open from the 2019 examination cycle. These
recommendations remained open at the time of SBNY’s failure.
Although the FDIC completed a Liquidity Target Review in November 2022, it did not complete
and issue the corresponding SL or hold an exit meeting with the Bank prior to the SBNY’s
failure. We reviewed the FDIC’s internal documentation and found that the FDIC’s Summary
Conclusion Memorandum for this target review indicated that the liquidity MRBA from the 2019
examination cycle would have remained open. The memorandum also identified a new, related
MRBA.
Corporate Governance
An SL issued in January 2023 communicated findings from the March 2022 Corporate
Governance Target Review which was designed as a “bottom-up” approach to determine the
effectiveness of SBNY management’s governance over operations and products offered within
the Bank’s Digital Assets Bank Group PCG. The SL contained two new MRBAs and four new
SRs. These weaknesses were in the areas of issues and event management,23 organizational
structure and decision-making processes, product implementation processes, key risk indicators
and risk monitoring metrics, operational risk management oversight, and risk and control self-
assessments and control environment. The SL noted, “The Board’s decision to allow a strategic
position of rapid growth and concentrated expansion into digital asset markets has brought
increased susceptibility to liquidity, reputation, and regulatory risks.”
The FDIC Missed Multiple Opportunities to Downgrade SBNY’s Management
Component Rating and Further Escalate Supervisory Concerns
The FDIC missed opportunities to downgrade SBNY’s CAMELS Management component rating
and further escalate supervisory concerns. Missed opportunities occurred with the issuance of
22 The SL had reported the closure of the liquidity MRBA from the 2018 examination cycle along with
several other SRs.
23 The SL noted that “The Board has not implemented a sufficient Issues and Event Management process
that elicits accountability for management’s long-term lack of issues remediation. The outstanding Issues
Tracking SR #04-2018 is being elevated to an MRBA. Management’s inability to implement sufficient
issues tracking has 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.”
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specific FDIC supervisory products and were underscored by concurrent risk indicators and
identified weaknesses.
Missed Opportunities for a CAMELS Management Component Downgrade Existed
with the Issuance of Specific Supervisory Products
The FDIC missed multiple opportunities to downgrade SBNY’s CAMELS Management
component rating. After SBNY’s failure, as detailed below, the FDIC’s own analysis concluded
there were opportunities for a more-timely downgrade.
UFIRS describes the Management component rating. In part it says:
The capability of the board of directors and management, in their respective roles, to
identify, measure, monitor, and control the risks of an institution’s activities and to
ensure a financial institution’s safe, sound, and efficient operation in compliance with
applicable laws and regulations is reflected in this rating…. Sound management
practices are demonstrated by: active oversight by the board of directors and
management; competent personnel; adequate policies, processes, and controls taking
into consideration the size and sophistication of the institution; maintenance of an
appropriate audit program and internal control environment; and effective risk monitoring
and management information systems.
As shown in Table 4, the FDIC’s CAMELS Management component and composite ratings for
SBNY remained at “2” until the day before the Bank failed on March 12, 2023. The FDIC
maintained the “2” ratings despite longstanding liquidity findings without sufficient management
remediation and emerging corporate governance concerns from a 2022 target review focused
on the Digital Assets Bank Group PCG. Nonetheless, these ratings—unchanged until just
before the Bank’s failure—were contrary to the FDIC’s forward-looking approach to supervision.
Table 4: SBNY’s Historical CAMELS Ratings
March 10, March 11,
Rating Type 2018 2019 2020 2021 2022
2023 2023
Capital Adequacy 2 2 2 2 2 2 3
Asset Quality 2 2 2 2 2 2 2
Management Capabilities 2 2 2 2 2 2 5
Earnings Sufficiency 2 2 2 2 2 2 2
Liquidity Position 2 3 3 3 3 3 5
Sensitivity to Market Risk 2 2 2 2 2 2 2
Composite 2 2 2 2 2 2 5
Source: The FDIC’s examination documentation for Signature Bank of New York (SBNY).
The concept of forward-looking supervision is explained in the Manual which states:
Forward-Looking Supervision Risk-focused supervision employs a 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.
… For more significant problems, examiners should discuss the deficiencies with
management and the board of directors during the examination and at subsequent exit
meetings, and address the problems in the ROE. Such discussions and written
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commentary should clearly convey the issue that is cause for concern and explain the
risks to the institution’s operations or financial performance if not addressed in a timely
manner. Significant issues that require immediate attention should be identified as
[MRBA] in the ROE. If circumstances warrant and after discussing with appropriate FDIC
regional management, examiners should make recommendations for informal or formal
agreements or actions if they identify unacceptable risk levels or risk management
practices, even in 1 or 2 rated institutions.
A forward-looking supervisory approach that identifies and seeks to correct objectionable
conditions requires serious thought and a balanced response by examiners. Critical
comments must be well supported and based on facts, logic, and prudent supervisory
standards. Although examiners cannot predict future events, they should consider the
likelihood that identified weaknesses will cause material problems in the future, and
consider the severity of damage to an institution if conditions deteriorate. In
circumstances where formal action is considered, examiners should consult with the
regional office while the examination is in progress regarding the material needed to
support a potential action.
We believe the Management component rating UFIRS provides the following composite rating
could have been downgraded to a “3” as early descriptions:
as the 2021 examination cycle which ultimately
concluded in late 2022. A more-timely Composite 2: Financial institutions in this group are
fundamentally sound. For a financial institution to
downgrade to the Management component receive this rating, generally no component rating
rating to “3”, in addition to the already “3” rated should be more severe than 3. Only moderate
Liquidity component, likely would have weaknesses are present and are well within the
prompted the FDIC to consider downgrading board of directors’ and management’s
capabilities and willingness to correct. … Overall
the Bank’s composite rating. risk management practices are satisfactory
relative to the institution’s size, complexity, and
However, the FDIC did not downgrade SBNY’s risk profile. There are no material supervisory
CAMELS Management component rating concerns and, as a result, the supervisory response
timely or consistent with its forward-looking is informal and limited.
approach to supervision, thereby missing the Composite 3: Financial institutions in this group
opportunity to lower SBNY’s Composite rating. exhibit some degree of supervisory concern in one
Our assessment is that such action would have or more of the component areas. … Management
better positioned the FDIC to consider informal may lack the ability or willingness to effectively
address weaknesses within appropriate time
and formal enforcement actions. According to
frames. Financial institutions in this group generally
the FDIC’s Formal and Informal Enforcement are less capable of withstanding business
Actions Manual, if an institution has a fluctuations and are more vulnerable to outside
composite rating of “3” or higher, the FDIC influences than those institutions rated a composite
generally initiates some type of formal or 1 or 2. ... Risk management practices may be
less than satisfactory relative to the institution’s
informal enforcement action. A more-timely and size, complexity, and risk profile. These financial
more-forceful supervisory response would have institutions require more than normal supervision,
placed increased pressure on SBNY to rectify which may include formal or informal enforcement
its liquidity and management weaknesses actions. Failure appears unlikely, however, given the
overall strength and financial capacity of these
which may have better positioned the Bank to institutions (emphasis added).
address the deposit withdrawals thereby
reducing or eliminating the loss to the DIF.
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Opportunities for Downgrading Management
Leading up to the March 2023 failure of SBNY, there were longstanding supervisory concerns
related to the Bank’s liquidity as well as emerging concerns pertaining to corporate governance
from a target review focused on the Digital Assets Bank Group PCG. Collectively, if not
individually, these areas of supervisory concern warranted a downgrade to SBNY’s CAMELS
Management component rating.
UFIRS specifies that:
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 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.…
Responsiveness to recommendations from auditors and supervisory authorities;…
The FDIC’s examination documentation demonstrated a longstanding pattern of examiner
concerns and communication of liquidity matters raised continuously since at least 2017, and a
clear pattern of outstanding SRs and a MRBA unresolved by bank management through the
time of SBNY’s failure. Specifically, the MRBA and numerous SRs related to the CAMELS
Liquidity component rating remained open for as many as three consecutive examination
cycles, demonstrating untimely resolution of supervisory findings and a management weakness
at SBNY. Additional emerging weaknesses were communicated to SBNY in two new MRBAs
and four new SRs in corporate governance from the target review focused on the Digital Assets
Bank Group PCG which the FDIC issued in January 2023.
Table 5 summarizes selected concerns documented in certain supervisory products that were
communicated by the FDIC to SBNY, which demonstrates the repeated communication to the
Bank of supervisory concerns over liquidity.
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Table 5: Summary of Selected Supervisory Products Issued to SBNY
Exam Information Communicated to SBNY Relevant
Supervisory Product Issuance Date
Cycle to this MLR
Report of Examination (ROE) October 2, 2020 2019 Liquidity: 2 Matters Requiring Board Attention
(MRBAs) and 18 Supervisory Recommendations
(SRs)
November 30, 2020 July 9, 2021 2020 Liquidity: 1 MRBA and 15 SRs open from 2019
Liquidity Supervisory Letter exam cycle
(SL)
ROE November 19, 2021 2020 Liquidity: 1 MRBA and 15 SRs open from 2019
exam cycle
November 8, 2021 July 28, 2022 2021 Liquidity: 1 MRBA and 14 SRs open from 2019
Liquidity Risk Management exam cycle
SL
ROE December 13, 2022 2021 Liquidity: 1 MRBA and 11 SRs open from 2019
exam cycle
March 21, 2022 January 23, 2023 2022 Management: Reported two new MRBAs and
Corporate Governance SL four new SRs
Source: Summary of selected FDIC supervisory products issued to Signature Bank of New York (SBNY) during the
four previous examination cycles.
Senior RMS and NYRO officials discussed the CAMELS Management component rating to be
reported in the 2021 ROE in December 2022, and agreed to maintain the CAMELS component
rating of “2” in the 2021 ROE, which was issued December 13, 2022. FDIC officials explained
that, ultimately, the FDIC did not downgrade the Management component rating in the 2021
ROE because SBNY was raising capital, holding new deposit growth in cash, improving the
Bank’s liquidity position, and addressing other recommendations. Additionally, the FDIC was
finalizing target reviews in late 2022 that they expected would give rise to ratings downgrades
and supervisory actions. The officials noted that those examination activities were not part of the
2021 ROE.
A Senior Examination Specialist from the Large Bank Supervision (LBS) Branch of RMS
advocated for the CAMELS Management component rating to be downgraded. Regarding the
draft 2021 ROE, which was issued in late 2022, the Specialist provided feedback which stated:
The draft ROE review was completed by the [Washington Office] WO. The CAMELS ratings
of 222232/2 and IT - 2, remain unchanged from the 2020 Roll-up examination, and seems
appropriate, except for the Management component. Bank management has significantly
grown the bank, introducing new products and funding sources, without adequate risk
management practices. Numerous Supervisory Recommendations remain outstanding from
the 2018-2019 examination cycle and additional new concerns (e.g. corporate governance,
credit risk rating, and model validations) were identified as part of the 2021 examination.
These concerns question management’s commitment to address these weaknesses as well
as their ability to keep up with the bank’s rapid growth. At this time, it seems that the
Management assessment is more aligned with a “3” rating as opposed to a “2.”
The Senior Examination Specialist’s perspective was that SBNY management had not
maintained its risk management practices commensurate with the Bank’s growth, and there
were deficiencies in the Bank’s internal controls. Senior RMS and NYRO officials held a
discussion considering the possibility of a CAMELS Management component rating downgrade
in December 2022. Ultimately, anticipating the issuance of upcoming supervisory products for
the 2022 examination cycle, the FDIC maintained the CAMELS Management component rating
of “2” in the 2021 ROE which was issued December 13, 2022.
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UFIRS presents criteria for “2” and “3” ratings for the Management component:
A rating of 2 indicates satisfactory management and board performance and risk
management practices relative to the institution’s size, complexity, and risk profile. Minor
weaknesses may exist, but are not material to the safety and soundness of the institution
and are being addressed. In general, significant risks and problems are effectively
identified, measured, monitored, and controlled.
A rating of 3 indicates management and board performance that need improvement or
risk management practices that are less than satisfactory given the nature of the
institution’s activities. The capabilities of management or the board of directors may be
insufficient for the type, size, or condition of the institution. Problems and significant risks
may be inadequately identified, measured, monitored, or controlled.
The Manual states that “…findings and conclusions in regard to the other five elements of the
CAMELS rating system are often major determinants of the management rating”. In addition:
…at a minimum, the assessment of management should include the following
considerations:
Past compliance with supervisory agreements, commitments, orders, etc.; and
Capability of management to develop and implement acceptable plans for problem
resolution.
In addition to the 2021 ROE, the 2022 Corporate Governance SL did not contain any
downgrades in SBNY’s ratings. FDIC CEP Procedures require sharing SLs with the LBS Branch
if there is any CAMELS component or composite rating presented therein. Since the 2022
Corporate Governance SL did not present ratings, there was no requirement for LBS Branch
review.
The LBS Branch Senior Examination Specialist had asked to review the Corporate Governance
SL because the 2021 ROE did not include a downgrade to the Management component rating
and because it was his understanding that, in this SL, the CAMELS Management component
rating would have been reassessed. Ultimately, the Specialist did not see the SL before
issuance to the Bank. Although not required to submit the SL to the LBS Branch because of the
absence of ratings information, NYRO officials said that this situation may have been an
oversight.
Post-Failure Perspectives on Downgrading Management
Internal FDIC reviews support the position that the FDIC should have downgraded the CAMELS
Management component rating sooner. First, the FDIC’s Chairman commissioned the CRO to
conduct the internal review of the FDIC’s supervision of SBNY. As noted previously, on April 28,
2023, the FDIC issued the CRO’s report titled FDIC’S Supervision of Signature Bank, which
stated:
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
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Signature Bank of New York
the Composite rating to “3” as well, which would have supported consideration of an
enforcement action.
Second, a NYRO official told us that, ultimately, an interim downgrade could have been
instigated related to the Corporate Governance SL. The FDIC’s NYRO Lessons Learned
memorandum stated, “If not the 2020 Liquidity Target Review, the November 8, 2021 Liquidity
Risk Management Review provides a strong case for a Management and Composite
downgrade.” In addition, the NYRO Lessons Learned memorandum stated:
Given the longstanding theme, the slow management response, and the lack of
demonstrated progress in addressing the issues, a timelier downgrade to the
Management and Composite ratings, along with a commensurate enforcement action,
could have been supported.
The FDIC’s Case Manager Procedures state:
As a general policy, a [MOU] should be considered for all institutions rated a CAMELS
Composite 3. A [BBR] may be considered for institutions with specific noted deficiencies
that may or may not have resulted in the institution receiving a CAMELS composite 3
rating. Formal corrective action pursuant to Section 8 of the FDI Act should be
considered for all CAMELS Composite 4- or 5- rated institutions. Any deviation from
general policy guidelines should be fully supported in the Problem Bank Memorandum or
[Summary Analysis of Examination Report] SAER comments.
Also, according to the FDIC’s Formal and Informal Enforcement Actions Manual:
Informal actions should be used when discussions with management or findings and
recommendations in the ROE will not, by themselves, accomplish the FDIC’s goal of
attaining timely corrective action from management. However, informal actions generally
are not appropriate when an institution’s problems present serious concerns and risks, in
which case a formal action should be pursued.
Additional Indicators Underscored the Need for a CAMELS Management
Component Downgrade
Notwithstanding missed opportunities to downgrade the SBNY’s CAMELS Management
component rating when issuing individual supervisory products such as SLs and ROEs, the
FDIC could have issued an interim downgrade rather than waiting to issue formal supervisory
products. The FDIC’s Continuous Examination Process Procedures state, “The ROE will be
prepared annually at the end of the FDIC examination cycle. However, interim composite and
component rating changes, including specialty exam ratings, should be initiated during the
examination cycle when circumstances indicate such a change is appropriate”. As detailed
below, in addition to the longstanding supervisory concerns related to the Bank’s liquidity and
emerging concerns pertaining to corporate governance from the target review focused on the
Digital Assets Bank Group PCG, two additional factors highlighted the support for a CAMELS
Management component downgrade: (1) SBNY Board and management responsiveness to the
FDIC’s supervision and (2) the downward trends in LIDI ratings.
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SBNY Board and Management Sometimes Demonstrated a Lack of
Responsiveness to Supervision
FDIC officials described to us their overall experience working with SBNY’s Board and
management and an insufficient demonstration of receptiveness towards the FDIC’s
supervision. We find a lack of receptiveness to supervision to speak to the “tone at the top” at
SBNY, further demonstrating the need for downgrading the CAMELS Management rating given
Bank management’s responsibility for internal control.
While “tone at the top” is not explicitly listed as a factor within the Management component
UFIRS rating criteria, we find it to be relevant to maintaining an appropriate internal control
environment and pertinent to the assessment of bank management’s responsiveness to the
FDIC’s supervision. In particular, responsiveness to recommendations from supervisory
authorities is part of the Management component rating. GAO’s Standards for Internal Controls
in the Federal Government (September 2014) states:
The oversight body and management lead by an example that demonstrates the
organization’s values, philosophy, and operating style. The oversight body and
management set the tone at the top and throughout the organization by their example,
which is fundamental to an effective internal control system. In larger entities, the various
layers of management in the organizational structure may also set “tone in the middle”.
NYRO officials explained to us that Bank management viewed FDIC officials as academic in
that they could read bank examination guidance and make recommendations. To the officials,
there was the impression that the SBNY Board believed the FDIC did not understand the Bank’s
customers as well as the Bank because its personnel were in direct contact with large
depositors and the FDIC officials were not. The FDIC officials also had the impression that the
Bank’s Board members were critical or dismissive of examiner findings, but had to appease the
FDIC because supervisory concerns would show up in CAMELS ratings.
In addition, FDIC officials told us that, on several occasions, they had to dictate who from SBNY
management needed to attend meetings with the FDIC. Otherwise, bank management would
send lower-level employees; FDIC officials had to make sure they had proper representation
from the Bank’s senior management. Given the Board and management’s responsibility for the
Bank’s internal control and for responding to risks from changing business conditions and new
activities and products, we find this to be demonstrative of SBNY not taking risks and
communications from the FDIC with enough seriousness. We also find that the FDIC needing to
prescribe attendance at meetings to be indicative of a problem that Bank management was not
affording itself the opportunity to hear risks first hand. In addition, FDIC officials told us of their
perception and examination documentation demonstrates that SBNY management at times
miscommunicated supervisory findings and the FDIC’s tone to the Board. Based on the factors
described above and the criteria described in GAO’s Standards for Internal Control in the
Federal Government, Management did not establish a strong “tone at the top” in response to the
FDIC’s supervision and recommendations.
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Signature Bank of New York
Trends in LIDI and CAMELS Ratings
A bank’s LIDI rating does not necessarily align with its CAMELS ratings. We noted, however,
downward trends in LIDI Ratings24 for multiple periods while the CAMELS ratings remained
unchanged. In Table 6, we summarize information from the Executive Summaries of the LIDI
reports for the quarters leading up to SBNY’s failure.
Table 6: SBNY’s Quarterly CAMELS and LIDI Ratings
CAMELS Ratings
Composite / LIDI Rating / LIDI Other Stresses:
As of Date Components Outlook Assess / Trend
Q4 2021 2/222232 C / Stable Moderate / Stable
Q1 2022 2/222232 C / Negative Moderate / Increasing
Q2 2022 2/222232 C / Negative Moderate / Increasing
Q3 2022 2/222232 D / Stable Elevated / Stable
* 2/222232
Q4 2022 D / Stable Elevated / Increasing
*The Q4 2022 LIDI was never officially issued because the Bank failed.
Source: The FDIC’s Quarterly Large Insured Depository Institution (LIDI) Reports for Signature Bank of
New York (SBNY).
Note: The bold text denotes CAMELS Management component ratings.
We inquired about the differences in CAMELS and LIDI ratings. The RMS officials with whom
we spoke referred to the FDIC’s LIDI Report Instructions, which explain that:
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). 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. A bank’s LIDI rating will not necessarily ‘align’ with
the UFIRS Composite rating.
We specifically note that LIDI ratings include consideration of “inherent risks such as rapid
growth, funding concentrations, asset concentrations, and identified risk management
weaknesses.” As discussed earlier in this report, SBNY had experienced rapid growth, funding
concentrations, and risk management weaknesses. These concepts overlap with certain
elements of the UFIRS ratings definitions for Management and Liquidity. For example, as
discussed above, the definition of a CAMELS Management component rating of “3” includes,
“risk management practices that are less than satisfactory given the nature of the institution’s
activities.” In addition, the definition of a CAMELS Liquidity component rating of “3” states that
an institution, “may lack ready access to funds on reasonable terms or may evidence significant
weaknesses in funds management practices.” In addition, “A rating of 4 indicates deficient
24 The FDIC’s LIDI Report Instructions outline the supervision and evaluation of insured depository
institutions with total assets of at least $10 billion. LIDI ratings are designed to reflect a large bank’s
potential risk to the DIF and incorporate assessments of vulnerability to stress and loss severity. Banks
are assessed a rating of “A” through “E” with “A” being the most positive rating with the lowest risk to the
DIF. They are also assessed an outlook (i.e. Positive, Stable, or Negative) which are projections of where
the LIDI Rating appears likely to be in 12 months based on currently available information.
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Material Loss Review
Signature Bank of New York
liquidity levels or inadequate funds management practices. Institutions rated 4 may not have or
be able to obtain a sufficient volume of funds on reasonable terms to meet liquidity needs.”
We find there to be some overlap between the LIDI considerations and UFIRS. Within the
Management criteria, the following UFIRS factors affect the assessment of the Management
component rating:
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 overall performance of the institution and its risk profile.
The Q3 2022 LIDI Report contained a downgrade of the rating from “C Negative” to “D Stable”
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 is 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. Other Stresses is now Elevated as the bank’s corporate governance
structure appears to have not fully kept pace with the recent rapid growth in size and in
operational complexity.
The weaknesses outlined in the LIDI overlap with the previously-mentioned Management
component rating criteria under CAMELS, specifically with factors such as “risks that may arise
from changing business conditions,” “controls addressing the operations and risk of significant
activities,” and “accuracy, timeliness, and effectiveness of management information and risk
monitoring systems”. Therefore, we conclude there is a relationship between the risks identified
in the LIDI and the factors described in the CAMELS Management component rating guidance.
One EIC explained to us that when performing a target review, examiners are not looking at
LIDI reports and that LIDI reports are not a major part of the examination process. The EIC
explained that, rather, examiners are looking at risk and management processes to mitigate
risk. The EIC did acknowledge, however, that it is reasonable to expect some directional
correlation between the LIDI and CAMELS ratings.
Our assessment is that the LIDI trends, taken together with SBNY’s insufficient responsiveness
to supervision, further supported that a more-timely downgrade to the Management component
rating was appropriate.
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Discussion of Causes Underlying the Finding: The FDIC Employed a Strategy for
Ratings Downgrades that Warrants Reconsideration of Guidance Around Interim
Downgrades
As noted above, the FDIC identified numerous risk management weaknesses at SBNY. We
found, however, the downgrade of the CAMELS Management component rating to be untimely.
As described below, the FDIC prioritized completing examination products over issuing rating
downgrades to the Bank. In addition, the FDIC had a backlog in the completion and issuance of
certain supervisory products, which it attributed to the staffing challenges we discuss later in this
report. We found that FDIC guidance around when to issue interim downgrades does not
specify the conditions or circumstances that give rise to interim downgrades.
The FDIC’s Strategy for Issuing Ratings Downgrades to SBNY
We determined that the FDIC prioritized completing examination products with formalized
results over issuing interim-downgrades which would have been warranted under a forward-
looking approach to supervision. FDIC officials said that for 2022, they were planning to issue
target reviews with “serious issues” and then culminate with a downgrade to the CAMELS
Management component rating to “3” in the 2022 ROE, if not sooner. However, the 2022 ROE
was never issued to SBNY due to the timing of the Bank’s failure.
The FDIC officials’ plan was to issue SLs for the BSA, Liquidity, and Fund Banking Target
Reviews, which would have presented serious issues. The BSA Target Review had resulted in
significant findings including 8 MRBAs and 12 SRs.25 FDIC officials told us they were also
discussing how to escalate these matters and what type of enforcement action to take, including
use of a consent order. Nevertheless, those supervisory products were in various stages of
completion prior to the Bank’s failure. Most relevant to SBNY’s failure, the unissued Liquidity
Target Review memorandum indicated:
Funds management practices continue to require improvement. The underlying
assumptions for the LST and deposit outflow methodology are not fully developed and
documented to provide reliable model output and sufficient model documentation. … An
adequate system of internal controls is required to provide assurance to the Board that
management can accurately identify, measure, monitor, and control liquidity risk. This is
of heightened importance given high reliance on uninsured deposits and the elevated
level of digital asset deposits that drive the high risk liquidity profile of the bank.
In discussing the FDIC’s strategy, FDIC officials told us the examination team and the NYRO
were having constant conversations about downgrading Management and how to best
communicate the anticipated downgrade. Nevertheless, the FDIC did not communicate the
anticipated downgrade to SBNY management or its Board.
The FDIC did issue the 2022 Corporate Governance SL specifically focused on SBNY’s Digital
Assets Bank Group PCG. The SL did not include any component or composite CAMELS rating
changes and communicated two new MRBAs and four new SRs. As noted previously, identified
25 The scope of this target review included an assessment of the overall adequacy of SBNY’s Anti-Money
Laundering/Countering the Financing of Terrorism (AML/CFT) and Office of Foreign Asset Control
compliance programs. The draft SL stated, “The AML/CFT program needs improvement and the overall
AML/CFT and OFAC risk profile is high. The Board and senior management have not provided
appropriate oversight of the internal control structure, which has led to numerous new and repeat
findings.” The draft SL also discussed apparent violations of FDIC Rules and Regulations.
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Signature Bank of New York
weaknesses were in the areas of issues and event management, organizational structure and
decision-making processes, product implementation processes, key risk indicators and risk
monitoring metrics, operational risk management oversight, and risk and control self-
assessments and control environment. The SL noted, “The Board’s decision to allow a strategic
position of rapid growth and concentrated expansion into digital asset markets has brought
increased susceptibility to liquidity, reputation, and regulatory risks”.
When asked why the Corporate Governance SL did not result in a downgrade, FDIC officials
explained to us that the SL had a specific focus on SBNY’s Digital Assets Bank Group PCG and
that evidence the examiners obtained was specific to that PCG. FDIC officials also pointed to
the Bank’s announcement that it was reducing its exposure to deposits from digital asset-related
customers. NYRO officials told us that the FDIC developed the MRBA so the Bank’s
management would understand that the corporate governance recommendations spanned the
entire institution and were not limited to digital assets.
Even with the specific focus on the Bank’s Digital Assets Bank Group PCG, our assessment is
that the areas in the SL were broadly applicable to the Bank and its governance practices. The
discussion in the SL included information about issues tracking throughout the organization,
management’s organizational structure, the Bank’s Operational Risk Management Committee,
and the broader internal control environment, as demonstrated below:
Management’s inability to implement sufficient issues tracking has 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.
Management’s organizational structure, decision-making processes, and overall
governance need improvement. …The Board should define and maintain clear lines
of authority and provide the appropriate decision-making processes for committees
and senior management so that members of the Board can effectively supervise the
affairs of the institution and hold management accountable for their decisions.
The Board should ensure that the Operational Risk Management Committee
…Charter, policies, and procedures provide clarity over the Committee’s decision-
making processes and ensure independence between first and second line
responsibilities.
The [Risk and Control Self Assessment and Control Environment] processes and
control environment need improvement.
While we understand the FDIC’s specific focus of this target review, we consider these
governance findings in concert with the other information presented in this MLR—such as the
longstanding findings around liquidity—in formulating our assessment of the need for an earlier
downgrade.
In addition to broader applicability of the findings to SBNY, we also note that this particular PCG
was significant to the Bank’s asset growth and operational decline. The SL itself stated, “Over
the past two years, the [Digital Assets Bank Group PCG] has significantly contributed to
unprecedented asset growth, which has more than doubled the size of the institutions, from $51
billion as of December 31, 2019 to $118 billion at December 31, 2021. … As of December 31,
2022, total assets declined to $114 billion primarily as a result of digital asset deposit runoff”.
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Supervisory Products Awaiting Completion and Issuance
There was a backlog in the FDIC’s completion and issuance of supervisory products, as
discussed later in this report. An EIC with whom we spoke explained that based on historical
precedence, the FDIC does not issue a target review of the next examination cycle before the
ROE of the prior cycle is issued. This perspective on the approach to supervision is
corroborated by the FDIC’s analysis. Specifically, the CRO’s report stated:
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.
Collectively, we find that the strategy employed by the FDIC as well as the backlog of
completion and issuance of supervisory products did not align with a forward-looking approach
to supervision.
Guidance Around Interim Downgrades
We determined there is opportunity to increase the specificity in the FDIC’s guidance regarding
when interim CAMELS ratings downgrades are appropriate. As noted above, the FDIC’s
Continuous Examination Process Procedures state, “The ROE will be prepared annually at the
end of the FDIC examination cycle. However, interim composite and component rating
changes, including specialty exam ratings, should be initiated during the examination cycle
when circumstances indicate such a change is appropriate”. In addition, the Manual states:
A [Target Review] TR is examination work that is risk-focused and tailored to provide a
sufficient assessment of the risk profile of a Risk Area. TR findings are used in
conjunction with [Ongoing Monitoring] OGM and other supervisory activities to assign
CAMELS and specialty ratings at the conclusion of the examination cycle, and when
appropriate, on an interim basis.
FDIC officials explained that ratings should be changed when rating changes are warranted and
that downgrades require documentation. We found that the guidance we reviewed does not
provide, however, examples or information on what types of circumstances would be indicative
of when it would be appropriate to issue an interim rating change, such as a downgrade.
Recommendations
We recommend that the Director, Division of Risk Management Supervision:
1. Emphasize to examiners in the form of training and other internal communications the
requirements around timely escalation of supervisory concerns in line with the FDIC’s
forward-looking approach to supervision.
2. Reiterate to examiners requirements around prompt communication of risk and
supervisory results to bank management, emphasizing the significance of prompt
communication over linear or chronological issuance of supervisory products.
3. Conduct and document an evaluation of existing examination guidance to determine
whether updates are warranted for:
a. The need to timely communicate findings to bank board and management even
when not all supervisory findings are finalized.
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b. Escalation of supervisory concerns and ratings downgrades when SRs and
MRBAs have been outstanding for multiple examination cycles.
c. Specific circumstances that give rise to interim rating changes, including when
concerns are known in advance of the issuance of ROEs and other supervisory
products.
d. The effect of bank management’s and board’s lack of receptiveness and
responsiveness towards the supervisory process on the rating for the CAMELS
Management component.
e. Permitting the LBS Branch to review all supervisory products prior to issuance to
the bank when requested, regardless if the products contain ratings information.
f. Resolution of situations in which trends between UFIRS and LIDI ratings trend
differently for multiple quarters.
The FDIC Did Not Always Timely Perform Supervisory Activities and Was Repeatedly
Delayed in Issuing Supervisory Products to SBNY
The FDIC often did not timely complete supervisory activities, and often did not timely
communicate the results of examinations to SBNY. For example, the FDIC took increasing
amounts of time to meet with bank management and issue ROEs leading up to SBNY’s failure,
as shown in Table 7.
Table 7: Timing of Issuances of Reports of Examination (ROEs) to SBNY
Prescribed Completion of
ROE Internal Review and Exit Meeting with
As of Issuance to SBNY: Signature Bank of Days In
December 150 Days from the ROE New York (SBNY) Excess
31 As of Date Management ROE Issuance Date of 150
2022 May 30, 2023 Not Completed Not Completed n/a
Bank Failed March 12, 2023
2021 May 30, 2022 November 15, 2022 December 13, 2022 197
2020 May 30, 2021 November 19, 2021 November 19, 2021 173
2019 May 30, 2020 September 23, 2020 October 2, 2020 125
2018 May 30, 2019 July 30, 2019 July 31, 2019 62
Source: Analysis of FDIC documentation. According to the FDIC’s Continuous Examination Process (CEP)
Procedures, “The ROE is submitted to the Case Manager for review generally within 120 days of the financial as of
date. [Consumer Financial Protection Bureau] CFPB and Large Bank Supervision (LBS) have 30 days to provide
comments prior to Regional Office approval and issuance to the bank.” This equals 150 days.
We noted that in the case of the 2021 ROE, the LBS Branch did not receive the ROE for review
until November 4, 2022, which was substantially after the April 2022 deadline for LBS Branch
receipt and comment in advance of NYRO approval and issuance to the Bank. RMS and NYRO
noted that ROEs summarize information provided to the Bank in other supervisory
communications, such as SLs.
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Consistent with our findings, the FDIC self-identified and further explored timeliness matters in
the report prepared by the CRO, FDIC’s Supervision of Signature Bank. Specifically, the CRO
identified:
14 canceled or postponed target reviews during the 2017–2021 examination cycles.
13 target reviews where 200 or more days elapsed between the start date and exit
meeting during the 2017 – 2022 examination cycles.
18 of 36 target review SLs exceeded the 45-day benchmark for transmittal to SBNY.
ROE issuance dates exceeded CEP medians in each of the 2017–2022 examination
cycles.
The FDIC’s Continuous Examination Process Procedures specify that:
The exit meeting is generally conducted within 20 days of concluding examination work.
During the exit meeting, the lead examiner should get a commitment from management
to correct SRs.
Target Conclusion Letter known as SLs should be transmitted to the bank’s Chief
Executive Officer and board within 45 days of the exit meeting.
The ROE is submitted to the Case Manager for review generally within 120 days of the
financial as of date. The Consumer Financial Protection Bureau (CFPB) and the LBS
section have 30 days to provide comments prior to Regional Office approval and
issuance to the bank.
Additionally, the FDIC’s NYRO periodically waived Large Bank Supervision Procedures
requirements for quarterly OGM, including waiving quarterly OGM Reports four consecutive
times prior to the SBNY’s failure, as shown in Table 8. The FDIC’s procedures call for OGM
Reports to be prepared by the examination team within 45 days of quarter end.
Table 8: FDIC OGM Report Completion for SBNY
Ongoing Monitoring
Completed or Waived?
Date
3/31/2023 Waived on March 8, 2023
12/31/2022 Waived on January 18, 2023
9/30/2022 Waived on October 27, 2022
6/30/2022 Waived on August 21, 2022
3/31/2022 Completed
12/31/2021 Waived on January 21, 2022
9/30/2021 Completed
6/30/2021 Completed
3/31/2021 Completed
12/31/2020 Waived on February 4, 2021
9/30/2020 Completed
6/30/2020 Completed
3/31/2020 Completed
Source: Analysis of the FDIC’s Quarterly Ongoing Monitoring
(OGM) Reports and waivers issued for Signature Bank of New
York (SBNY).
When we asked about the effect of waivers related to OGM Reports, NYRO officials told us that
it was well documented that there were resource challenges on the SBNY examination team,
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and that monitoring of the institution was being conducted and its activities were being
discussed even though the requirement for the formal report was waived.
Consistent with our earlier discussion, we note that these OGM Reports were another
opportunity for the FDIC to formally document emerging risks regarding the Bank and provide
considerations for interim downgrades to CAMELS component ratings. Delays in supervisory
activities and resulting communications of findings to the Bank may result in untimely corrective
action. This impact was elevated as SBNY demonstrated a pattern of not remediating liquidity
findings in a timely manner.
Discussion of Causes Underlying the Finding: The FDIC Faced Staffing
Challenges in the Supervision of Large Banks, Which Included SBNY
Personnel from RMS, from NYRO, and past EICs identified both staffing limitations and quality
issues with examination work products as primary causes for delays in supervisory activities. In
particular, NYRO officials explained to us that there were quality control issues with SBNY work
products prior to 2022, given that target reports were not properly assessing risk at the
institution. The officials said that they prioritized arriving at accurate assessments over issuing
products timely.
In addition, according to RMS and NYRO officials, the FDIC’s ability to attract and retain
qualified personnel in the region was affected by the high cost of living in New York City, and
competition for talent with other regulators, private industry, and within the FDIC itself.
Additionally, the pandemic affected the talent pipeline across the FDIC, with an amplified effect
on the New York region. RMS officials explained to us that, uncertain of the future state of
telework arrangements, people were not willing to make career changes during the pandemic
and that people did not want to move to New York given it was the pandemic’s “ground zero.”
The FDIC used 97 percent or more of planned hours in each of the 2020-2022 examination
cycles. However, the dedicated team experienced frequent turnover, and vacancies were filled
with temporarily-assigned personnel. NYRO officials and EICs said that temporary personnel
did not always have experience with large banks, did not possess the specific skillsets required
to perform planned supervisory activities, and did not meet the need for consistency on
examinations. This resulted in increased level of effort to bring work and reports up to quality
expectations, contributing to delays.
RMS officials explained that the FDIC has taken a nationwide approach to filling positions,
including certain contingency measures which were especially necessary during the pandemic.
The officials expressed a preference to examine banks where they are located with a
sufficiently-staffed team focused on the local market and with specific knowledge of the
institution. In addition, RMS officials explained that there is a team of approximately 30
examiners in the Washington Office who work across the United States, providing a horizontal
perspective on bank supervision and support a given region with oversight from the Washington
Office.
EICs with whom we spoke emphasized the need for assigned examiner resources to have
experience commensurate with the risks and complexity of the institution, particularly for large,
complex institutions. Further, the contagion effects experienced by SBNY were not localized to
the New York Region, given the effects from Silvergate Bank and SVB which were located on
the west coast. The contagion effects and resulting liquidity impacts were largely a result of
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similarities—or perceptions of similarities—among the institutions’ business models, industry
connections, and balance sheet structures. As a result, the complexities and certain shared
circumstances among institutions subject to the FDIC’s LBS Branch, regardless of their
locations, warrant further consideration on revised approaches to staffing, which currently are
underway at the FDIC.
NYRO officials explained that they have dashboard reports and other forms of monitoring that
they use for banks subject to the CEP. However, the NYRO officials said they have not always
monitored target exams’ turn-around times as closely as point-in-time examinations and need to
focus more on such monitoring activities prospectively. The officials also pointed to the NYRO
Lessons Learned memorandum and the need to formalize the monitoring process.
Recommendations
We recommend that the Director, Division of Risk Management Supervision:
4. Reevaluate the FDIC's strategy to attract, retain, and allocate staffing, including how to
enhance the supervision of large, complex financial institutions.
a. This evaluation should be documented and submitted to the FDIC’s Chairman for
review and approval.
5. Implement target metrics and monitor variances for key supervisory outputs consistent
with requirements contained in CEP Procedures, such as:
a. Supervisory Plan percentage completed to actual percentage completed to
identify and take timely corrective action when examination teams are not on
track to achieve objectives detailed in annual supervisory plans.
b. Target review start date to actual review start date to identify and take timely
corrective action when examination teams are not on track to achieve objectives
detailed in annual supervisory plans.
c. Number of days elapsed between target review start date and exit meeting to
expectation to identify and take corrective action when reviews are not being
completed and informal results communicated to the bank timely.
d. Number of days elapsed between target review start date and issuance of
Supervisory Letter to expectation to identify and take corrective action when the
results of reviews are not being completed and results communicated to the
bank timely.
e. Number of days elapsed between year-end and ROE issuance to expectation to
identify and take corrective action when ROEs are not being completed and
results communicated to the bank timely.
f. Number of days elapsed between quarter-end and issuance of Ongoing
Monitoring Reports to expectations to identify and take corrective action when
ongoing monitoring is not being completed timely.
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The FDIC Appropriately Downgraded the Bank’s Liquidity Rating, However Changing
Market Conditions Warrant Review and Potential Revision of Examination Guidance
Concerning Liquidity
The FDIC appropriately downgraded the CAMELS Liquidity component rating. SBNY was
unable to respond, however, to rapidly changing market conditions and to withstand the run by
the Bank’s depositors. Changing market conditions support that the FDIC revisit its guidance
around the stability of deposits and supervision of modeling for the velocity and magnitude of
potential deposit outflows.
GAO’s Standards for Internal Control in the Federal Government states that “An effective
internal control system helps an entity adapt to shifting environments, evolving demands,
changing risks, and new priorities”. Absent enhanced guidance, the FDIC may reduce its ability
to apply a forward-looking approach to supervision, improve the supervision of banks within its
purview, and identify and elevate risk, where appropriate.
The FDIC’s Liquidity Downgrade of SBNY
We considered whether the CAMELS Liquidity component rating warranted further downgrading
given the considerations in examination guidance around both the institution’s liquidity levels
and its funds management practices. NYRO officials explained that, as of year-end 2021,
SBNY’s liquidity risk profile had improved significantly given a large increase in on-balance
sheet liquidity. Significant deposit growth was placed into cash and other liquid assets. At that
time, the liquidity posture looked better than in prior years. Despite the improvement in posture,
SBNY continued to have funds management weaknesses—which is evident in the nature of the
open liquidity-related MRBA and SRs summarized in the 2021 ROE. This is why the regulators
maintained the “3” rating for the CAMELS Liquidity component. We agree with this
determination. In Q2 2022, the posture began to change as liquidity was decreasing and as
amounts were being placed into less-liquid assets; however, funds management practices
continued to need improvement.
The NYRO’s Lessons Learned memorandum further explains:
Since the initial identification of funds management weaknesses, the team escalated its
supervisory response from the issuance of [SR]s to MRBAs in 2018 to a ratings
downgrade in 2019. In 2020 and 2021, SBNY experienced a significant increase in on-
balance sheet liquidity, which alleviated some of the Region’s concerns. The less than
satisfactory 3 rating was maintained due to the funds management practices
weaknesses. At the time of SBNY’s failure, the dedicated team was preliminarily
discussing further downgrades and a potential enforcement action given the
developments and findings during 2022.
According to UFIRS:
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.
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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…. 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 quickly liquidate assets with minimal loss. In addition, funds management
practices should ensure that liquidity is not maintained 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.
Also according to UFIRS:
Liquidity is rated based upon, but not limited to, an assessment of the following
evaluation factors:
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.
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.
In addition:
A rating of 3 indicates liquidity levels or funds management practices in need of
improvement. Institutions rated 3 may lack ready access to funds on reasonable terms
or may evidence significant weaknesses in funds management practices. A rating of 4
indicates deficient liquidity levels or inadequate funds management practices. Institutions
rated 4 may not have or be able to obtain a sufficient volume of funds on reasonable
terms to meet liquidity needs.
The 2021 Liquidity Risk Management SL noted that SBNY management had not developed
comprehensive deposit assumptions, and that lack of well-supported assumptions for bank
depositor behavior raised concerns about the reliability of model outputs, which related back to
several SRs issued as part of the 2019 examination cycle.
The 2021 ROE for SBNY documented uninsured deposits funding concentration risk as well as
industry-based funding concentration risk. With respect to uninsured deposits, the ROE noted
“The majority of uninsured depositors are clients in New York, New Jersey, and California. Fifty-
eight percent of uninsured deposits are diversified across various industries and businesses;
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however, the remaining deposits are more concentrated. Specifically, 22 percent are related to
the digital asset industry; 10 percent are mortgage related escrow accounts; and 10 percent are
real estate agents and brokers”. With respect to industry-based funding concentration risk, the
ROE noted that digital asset-related deposits had grown rapidly by $21 billion during 2021. As
noted above, SBNY’s portfolio of digital asset-related deposits consisted of digital asset
exchanges, digital custody platforms, mining operations, digital lenders, stable coin issuers, and
other related businesses. The ROE noted that SBNY did not hold cryptocurrencies.
The EICs with whom we spoke explained that while SBNY had elevated levels of uninsured
deposits going into the end of 2021, the ROE is based on year-end numbers which
demonstrated SBNY was flush with liquidity. Accordingly, the CAMELS Liquidity component
rating was already a “3”. The EICs’ position was that any further downgrade would have been
difficult given the Bank’s liquidity position. With the velocity of rate increases heading into year-
end 2022, SBNY used its on-book liquidity and some borrowings to fund continued lending.
Deposits started declining in Q2 2022, attributable in part to movement of funds by digital asset-
related customers and interest rate changes. The Bank had announced a reduction in digital
asset-related deposits in Q4 2022.
Federal Banking Agencies, Including the FDIC, Issued Guidance on Digital Asset-
related Activities
SBNY experienced a run on deposits given its concentration in uninsured deposits. In addition,
SBNY had a deposit concentration related to customers involved in the digital asset industry
and was perceived as a crypto-bank, even though FDIC documentation shows that it held no
digital assets. Leading up to SBNY’s failure, regulators demonstrated an awareness of
emerging risks and had issued various sources of guidance specifically around cryptocurrency
and cryptocurrency-related activities. The new guidance illustrated the changing nature of the
environment and included:
In an April 7, 2022, Financial Institution Letter, the FDIC warned banks that:26
Crypto-related activities present new, heightened, or unique credit, liquidity, market,
pricing, and operational risks that could present safety and soundness concerns. For
example, there are fundamental ownership issues, including whether it is possible for
ownership to be clearly validated and confirmed.
On January 3, 2023, the Board of Governors of the Federal Reserve System, the FDIC,
and the OCC issued a statement on crypto-asset risks to banking organizations,
highlighting key risks associated with crypto-assets and crypto-asset sector participants.
In the statement, the agencies specifically noted that “Through the agencies’ case-by-
case approaches to date, the agencies continue to build knowledge, expertise, and
understanding of the risks crypto-assets may pose to banking organizations, their
customers, and the broader U.S. financial system”.
26 The FDIC explained that “crypto-asset” refers generally to any digital asset implemented using
cryptographic techniques, and includes “crypto-related activities” such as acting as crypto-asset
custodians; maintaining stablecoin reserves; issuing crypto and other digital assets; acting as market
makers, or exchange or redemption agents; participating in blockchain- and distributed ledger-based
settlement or payment systems; as well as related activities such as finder activities and lending.
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On February 23, 2023, the Federal Reserve, FDIC, and OCC issued another joint
statement on the liquidity risks presented by certain sources of funding from crypto-
asset-related entities. It stated, “The statement reminds banking organizations to apply
existing risk management principles; it does not create new risk management principles”.
Even though SBNY was not actually a “crypto bank”, it failed. As discussed previously in the
Causes of Failure and Material Loss to the Deposit Insurance Fund section of this report, SBNY
experienced contagion risk from the self-liquidation of Silvergate on March 8, 2023, and the
failure of SVB on March 10, 2023, as the banks were considered by some to be similar in
nature, even though SBNY's business model differed. There were marketplace perceptions that
SBNY was a “crypto bank”, certain of which were propagated through social media. This
contributed to the run on the Bank, demonstrating the Bank’s deposits were not as stable as the
Bank’s management had thought.
Perspectives on the Stability of Deposits May No Longer Hold True and the
Current Environment Gives Rise to Unexpected Velocity and Magnitude of Deposit
Outflows in Times of Stress
Longstanding perspectives on the durability of bank customer relationships, and the velocity and
magnitude of deposit outflows in times of stress have proven to be untrue in recent market
conditions and with the enhancements in banking technology. The FDIC’s examination
documentation supports that SBNY management believed the Bank’s depositor base was
considerably stable based on the length of time of relationships, the volume of client accounts,
and the various types of bank products used by clients. Nevertheless, the events surrounding
SBNY’s failure challenge these premises.
In addition, current technological capabilities and the speed at which depositors can move their
money has evolved, as seen by the impact and rapid occurrence of deposit outflows with both
SVB and SBNY. Officials from the NYSDFS told us they learned that assumptions about
depositors have changed. With the evolution of online banking, depositors have more flexibility
to change institutions and a wider market in which to invest their money, requiring institutions to
improve risk management. Referring to SBNY, an official from the LBS Branch of RMS with
whom we spoke explained that, previously, no one had modeled for this catastrophic of an
event.
The Significance of Proper Funds Management Practices
One NYSDFS official with whom we spoke emphasized that processes need to be implemented
to ensure that, if an institution needs liquidity (e.g., from the Federal Reserve Discount Window
or the FHLB), all documentation and mechanisms are in place to ensure the institution has
access to the liquidity. This was not the case for SBNY. While at one point SBNY had a large
amount of on-balance-sheet liquidity, it had not addressed weaknesses identified in 2019
related to stress testing and contingency funding plans. FDIC documentation shows that in the
week leading up to SBNY’s failure, as discussed above, the Bank’s efforts to raise liquidity were
hampered by its lack of pre-approved collateral to pledge with the FRBNY. This was because of
the Bank’s inability to satisfy Discount Window collateral eligibility and diligence requirements.
As such, SBNY was unable to obtain additional liquidity.
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Discussion of Causes Underlying the Finding: Guidance Concerning Liquidity Is
Based on Past Experience
The FDIC’s existing guidance related to examining liquidity is based on historic experience and
traditional banking products. However, the recent events around SBNY and other banks were
largely unexpected. The Manual, Section 6.1, Liquidity and Funds Management, currently
explains there may be situations in which certain deposit accounts may not be stable in times of
stress. It states:
While some deposit relationships over $250,000 remain stable when the institution is in
good condition, such relationships might become less stable due to their uninsured
status if the institution experiences financial problems. Additionally, deposits identified as
stable during good economic conditions may not be reliable funding sources during
stress events. Therefore, examiners should consider whether institutions identify deposit
accounts likely to be unstable in times of stress and appropriately reflect such deposits
in its liquidity stress testing.
Although RMS’s guidance calls for examiners to consider the stability of uninsured deposits, the
guidance also states that large deposits might be more stable if the deposit is difficult to move,
or if the depositor has a longer history with the institution. Specifically, the Manual explains:
A large deposit account might be considered stable if the customer has ownership in the
institution, has maintained a long-term relationship with the bank, has numerous
accounts, or uses multiple bank services. Conversely, a large depositor that receives a
high deposit rate, but maintains no other relationships with the institution, may move the
account quickly if the rate is no longer considered high for the market. Therefore,
examiners should consider the overall relationship between customers and the institution
when assessing the stability of large deposits.
The recent events surrounding SBNY’s and other failures call for reconsideration and possible
amendment to, or expansion of, this guidance. One of the SBNY EICs we interviewed said there
needs to be more explicit guidance around uninsured deposits. RMS officials noted that
regulators saw how quickly liquidity evaporated and that circumstances changed related to
some fundamental concepts that were historically “tried and true” such as the duration and
product number in depositor relationships and the ability of depositors to move their funds from
one institution to another. On Friday, March 10, 2023, customers withdrew $18.6 billion,
comprising 20 percent of SBNY’s total deposits. In addition, the amount of outgoing wires was
as much as $7.9 billion expected for Monday, March 13, 2023. RMS officials told us that
historical beliefs about the “stickiness” of deposits are being discussed in the regulatory
community, but that it was too early to determine what outcomes will occur. In addition, an EIC
told us there now is a need to consider intra-day liquidity stress testing, including a one- to two-
day survival period for an institution.
Related to liquidity stress testing, the Manual states:
Liquidity stress tests are typically based on existing cash-flow projections that are
appropriately modified to reflect potential stress events (institution-specific or market-
wide) across multiple time horizons. Stress tests are used to identify and quantify
potential risks and to analyze possible effects on the institution’s cash flows, liquidity
position, profitability, and solvency. For instance, during a crisis an institution’s liquidity
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needs can quickly escalate while liquidity sources can decline (e.g., customers may
withdraw uninsured deposits, or lines of credit may be reduced or canceled). Stress
testing allows an institution to evaluate the possible impact of these events and plan
accordingly.
The Manual also calls for examiners to:
review documented assumptions regarding the cash flows used in stress test scenarios
and consider whether they incorporate:
Customer behaviors (early deposit withdrawals, renewal/run-off of loans, exercising
options);
Prepayments on loans and mortgage-backed securities;
Seasonality (public-fund fluctuations, agricultural credits, construction lending); and
Various time horizons.
Recommendations
We recommend that the Director, Division of Risk Management Supervision:
6. Comprehensively re-evaluate the Manual in light of the SBNY failure to determine
whether updates to examination guidance are needed in the areas of:
a. stability of deposits, including large and long-term uninsured depositor
relationships.
b. the velocity and magnitude of potential deposit outflows, including the
supervision of liquidity stress testing.
COMPLIANCE WITH PROMPT CORRECTIVE ACTION (PCA)
FDI Act Section 38, Prompt Corrective Action, establishes a framework of mandatory and
discretionary supervisory actions for insured depository institutions that are not adequately
capitalized. Regulators are required to take certain supervisory actions known as “prompt
corrective actions,” if an institution’s capital level deteriorates. The purpose of Section 38 is to
resolve problems of insured depository institutions at the least possible cost to the DIF.
The FDIC appropriately found that SBNY was well capitalized throughout each examination
cycle based on defined capital measures. As a result, the FDIC had not taken any action with
respect to PCA requirements for SBNY.
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APPENDIX I: OBJECTIVES, SCOPE, AND METHODOLOGY
Objectives
Pursuant to the relevant requirements of the Federal Deposit Insurance (FDI) Act, 12 U.S.C. §
1831o(k), and our contractual requirements with the Federal Deposit Insurance Corporation
(FDIC) Office of Inspector General (OIG), the objectives of our engagement were to (1)
determine why the Signature Bank of New York’s (SBNY’s) problems resulted in a material loss
to the Deposit Insurance Fund (DIF) and (2) evaluate the FDIC’s supervision of the Bank,
including the FDIC’s implementation of the Prompt Corrective Action (PCA) requirements of
section 38 of the FDI Act, and make recommendations for preventing any such loss in the
future.
We conducted this Material Loss Review (MLR) in accordance with the Council of the
Inspectors General on Integrity and Efficiency’s Quality Standards for Inspection and Evaluation
(commonly referred to as the Blue Book). In addition, we conducted this engagement in
accordance with the American Institute of Certified Public Accountants’ Statement on Standards
for Consulting Services.
The information in this report was obtained during the period April through September 2023. We
performed our work at the Cotton office in Alexandria, Virginia and remotely. In conducting our
work and preparing the report, we relied primarily on supervisory records, bank documents, and
other information provided by the FDIC’s Division of Risk Management Supervision (RMS). This
review fulfills a statutory mandate and does not serve any investigatory purposes.
Scope and Methodology
The scope of our MLR covered examinations performed and supervisory actions taken by the
FDIC from 2018 until SBNY failed on March 12, 2023, with emphasis on the period 2020-2023
when the bank experienced significant growth. Additionally, we focused on Supervisory
Recommendations (SRs) and Matters Requiring Board Attention (MRBAs) issued by the FDIC
during these examination cycles that would remain open until the Bank’s failure and covered
areas determined to contribute to the failure.
To accomplish our objectives, we evaluated:
Relevant aspects of the FDI Act.
Pertinent FDIC policies, procedures, and guidance, including RMS’s Risk
Management Manual of Examination Policies (the Manual), Continuous Examination
Process (CEP) Procedures, Case Manager Procedures, Formal and Informal
Enforcement Actions Manual, and Large Insured Depository Institution (LIDI)
Instructions.
Selected SBNY Form 10-K filings with the U.S. Securities and Exchange
Commission, Uniform Bank Performance Reports (UBPRs), and Consolidated
Reports of Condition and Income (Call Reports).
Information pertinent to the economic environment, such as interest and inflation
rates.
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Selected correspondence and examination documentation located in the Regional
Automated Document Distribution and Imaging System (RADD) database, including
Supervisory Plans, Supervisory Letters, Reports of Examination (ROEs), Ongoing
Monitoring (OGM) reports, LIDI reports, and Confidential Problem Memoranda.
The FDIC’s Failed Bank Case.
The FDIC’s report, Supervision of Signature Bank, dated April 28, 2023.
The New York State Department of Financial Services’ (NYSDFS’s) report, Internal
Review of the Supervision and Closure of Signature Bank, dated April 28, 2023.
The Government Accountability Office’s report, Bank Regulation: Preliminary Review
of Agency Actions Related to March 2023 Bank Failure (GAO-23-106736), dated
April 28, 2023.
Testimony presented to the U.S. House of Representatives Committee on Financial
Services and to the U.S. Senate Committee on Banking, Housing, and Urban Affairs.
We interviewed officials from the FDIC’s RMS, including the Large Bank Supervision (LBS)
Branch; the FDIC’s New York Regional Office (NYRO); and three former Examiners-in-Charge
(EICs) from the FDIC’s dedicated SBNY examination team.27 We obtained their perspectives on
the principal causes of SBNY’s failure, the FDIC’s supervisory approach, and other
examination-related information. We also interviewed officials from the NYSDFS.
We performed certain procedures to determine whether the FDIC had complied with relevant
Prompt Corrective Action provisions in Section 38 of the FDI Act.
We obtained data from two FDIC systems, the Virtual Supervisory Information on the Net
(ViSION) and RADD. We determined that information system controls pertaining to these
systems were not significant to the evaluation objectives. Therefore, we did not evaluate the
effectiveness of the FDIC’s information system controls as part of this engagement.
We incorporated technical comments from RMS on a draft copy of this report.
27 The interviews conducted included three former EICs and did not extend to other members of the
examination team.
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APPENDIX II: ACRONYMS AND ABBREVIATIONS
Acronym / Abbreviation Long Form
ACL Allowance for Credit Loss
AML / CFT Anti-Money Laundering / Countering the Financing of Terrorism
BSA Bank Secrecy Act
BBR Bank Board Resolution
Capital adequacy, Asset quality, Management capabilities, Earnings
CAMELS
sufficiency, Liquidity position, Sensitivity to market risk
CEP Continuous Examination Process
CFPB Consumer Financial Protection Bureau
Cotton Cotton & Company Assurance and Advisory, LLC
COVID-19 Coronavirus Disease 2019
CRO Chief Risk Officer
DIF Deposit Insurance Fund
EIC Examiner-in-Charge
FDI Act Federal Deposit Insurance Act
FDIC Federal Deposit Insurance Corporation
FFIEC Federal Financial Institutions Examination Council
FHLB Federal Home Loan Bank
FRBNY Federal Reserve Bank of New York
GAO U.S. Government Accountability Office
IG Inspector General
LBS Large Bank Supervision
LIDI Large Insured Depository Institution
LST Liquidity Stress Testing
MLR Material Loss Review
MOU Memorandum of Understanding
MRBA Matter Requiring Board Attention
NYRO New York Regional Office
NYSDFS New York State Department of Financial Services
OCC Office of the Comptroller of the Currency
OGM Ongoing Monitoring
OIG Office of Inspector General
PCA Prompt Corrective Action
PCG Private Client Groups
RADD Regional Automated Document Distribution & Imaging System
RMS Division of Risk Management Supervision
ROE Report of Examination
SBNY Signature Bank of New York
SL Supervisory Letter
SR Supervisory Recommendation
SVB Silicon Valley Bank
TR Target Review
UBPR Uniform Bank Performance Report
UFIRS Uniform Financial Institutions Rating System
ViSION Virtual Supervisory Information On the Net
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APPENDIX III: MATTERS FOR FURTHER STUDY AND
RECOMMENDATIONS FROM OTHER SOURCES
Matters for further study provided by the Federal Deposit Insurance Corporation’s (FDIC’s)
Chief Risk Officer (CRO)28 and recommendations from the New York State Department of
Financial Services (NYSDFS)29 and the FDIC’s New York Regional Office (NYRO) Lessons
Learned memorandum are presented in the table below. An asterisk indicates the language
below is a sub-set of the information presented in the original publication.
Sources Matters for Further Study / Recommendations
Reiterate RMS forward looking supervision philosophy and the importance of addressing risk
FDIC CRO
management weaknesses before financial decline occurs.
FDIC CRO 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.
FDIC CRO Consider the need for enhanced examination guidance related to assessing liquidity risk management
practices based on FDIC’s experiences supervising SBNY.
Continue to evaluate the continuous examination process (CEP) and implement necessary changes to
FDIC CRO
ensure the CEP provides efficient, effective, and timely, risk-based feedback to large banks, including
interim CAMELS ratings, when appropriate.
FDIC CRO 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.
Incorporate a subsequent events section into the roll-up [Report of Examination] ROE to reflect
FDIC CRO
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.
Evaluate the [Supervisory Recommendation] SR and [Matter Requiring Board Attention] MRBA
FDIC CRO 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.
Consider implementing workflow solutions that would track the timeliness of examination deliverables
FDIC CRO
such as targeted reviews/supervisory letters and ROEs, and provide the regions and [Large Bank
Supervision] LBS with reporting information highlighting outlier situations.
Develop a near-term strategy for increasing the attractiveness and interest in LFI positions, particularly
[Large Financial Institution] LFI [Examiner-in-Charge] EIC positions. Potential and ongoing efforts that
could be considered include:
FDIC CRO • 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.
Continue to work with other parts of the Corporation, including the FDIC’s Division of Administration,
Division of Finance, Legal Division, [Division of Complex Institution Supervision and Resolution] CISR
and Corporate University to enhance the examiner staffing and retention strategy to deliver a healthy
FDIC CRO
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).
Continue to explore the use of contractors to provide services that support supervisory functions so
FDIC CRO
examiners can focus on policy, the application of regulations, and other inherently governmental
functions.
Enhance examiner staffing dashboards to include hiring and attrition trends for LFI and other positions
to readily show:
FDIC CRO
• Vacancy trends by region and field office,
• Trends for why examination staff leave LFI and other positions, and
• Where staff exiting LFI positions go.
28 FDIC’S Supervision of Signature Bank. See https://www.fdic.gov/news/press-releases/2023/pr23033a.pdf.
29 Internal Review of the Supervision and Closure of Signature Bank. See
https://www.dfs.ny.gov/system/files/documents/2023/04/nydfs_internal_review_rpt_signature_bank_20230428.pdf.
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Sources Matters for Further Study / Recommendations
Develop a means for monitoring regional dedicated team staffing shortages and develop protocols for
FDIC CRO
RMS headquarters to quickly move staff between regions to address shortages based on a nationwide
view of large bank risks.
*Update Policies and Procedures - Signature’s collapse underscores the speed at which the modern
NYSDFS
financial system moves. DFS’s policies and procedures will be reviewed to streamline and simplify
internal processes and to insure that DFS is addressing risks in real-time.
*Operational Stress Testing - Signature struggled to provide timely and accurate information to the
Regulators on the key issues of liquidity and outgoing wire requests. While examiners routinely require
NYSDFS stress testing of certain key financial assumptions and controls, operational functions are not similarly
tested. DFS will consider whether banks need to conduct table-top exercises demonstrating their
operational readiness to collect and produce accurate financial data at a rapid pace and in a stress
scenario.
*Rebuilding Examination Capacity - As DFS continues to advance its recruitment, hiring, and
retention strategies, it will do so bearing identified inefficiencies in the examination process in mind. A
larger pool of examiners and supervisors will help close the timing gap between the end of
examinations and the issuance of Reports of Examination and Supervisory Letters, and avoid over-
NYSDFS staffing key examination personnel, rendering them unavailable as primary participants in the
preparation of key documentation.
Examiner training will also be reviewed to ensure new and existing DFS examiners are receiving the
most up-to-date training, including ensuring the examination team is kept current on new and emerging
issues that may affect a bank’s safety and soundness.
*Escalating Regulatory Issues - DFS needs to establish clear escalation procedures for examination
NYSDFS
findings that remain outstanding and criteria on when further action must be taken to ensure
compliance with an outstanding regulatory finding.
*Liquidity Risk Modeling - The rapid collapse of Signature underscores the need to revisit the
NYSDFS assumptions used to model and manage liquidity risk. In particular, both the types of Signature’s
depositors that ran and the speed at which they initiated withdrawals far outpaced assumptions many
institutions use to model and assess liquidity risk.
Strengthen Regulatory Tools - DFS will work with stakeholders to identify and develop appropriate
new regulatory tools to hold executives accountable for misconduct that leads to the failure of a
NYSDFS
banking organization and address the dissemination of false information that provoke bank runs. These
actions may include potential administrative actions, such as regulations or guidance, as well as
working with the New York State Legislature on potential statutory changes.
Communicate the findings of this Lessons Learned document and the findings of the May 1 Report, as
well as findings from other reviews (material loss review, GAO, etc.), to staff in the Region.
o Discuss during the Region’s May 22-24 Regional Management Meeting with regional and field
management and establish a plan for further communication.
o Conduct a call(s) with large bank EICs/dedicated teams and applicable case managers and
managers to discuss specific lessons learned related to SBNY, including but not limited to:
• Horizontal/programmatic findings and ratings considerations, including the need for risk
FDIC NYRO
management findings to translate to the Management rating.
• Timing of work products and regional monitoring
• Board/management meeting cadence, format, and messaging, as well as frequency considerations
if have an area with issues.
• Other exam administration topics (ex: SharePoint sites, RADD, etc.).
o Conduct a broader region wide staff call (possible Training Tuesdays) to discuss findings and lessons
learned. Tailor lessons learned to broader audience.
o Determine if other audiences would benefit from the conversation.
Work with the Region’s capital markets specialist to compile liquidity lessons learned from a bank
FDIC NYRO monitoring perspective following the failure of SBNY and the recent weeks of in depth liquidity
monitoring across the Region. Determine best way to communicate these lessons to staff region wide.
Conduct a review of the Region’s current target and report turnaround time tracking system for banks in
FDIC NYRO
the Continuous Examination Program. Determine ways to improve the system and ways to produce
relevant reporting for management and awareness of monitoring.
Continue to emphasize the importance of accurate and comprehensive RADD folders – including
FDIC NYRO
documentation of key discussions and key decisions. Discuss during professional staff meetings.
Consider an independent review of RADD folders through the [Review Committee].
FDIC NYRO
Conduct the Large Bank Workpaper Review as planned; however, consider expanding the sample.
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Sources Matters for Further Study / Recommendations
FDIC NYRO Explore the EFX session expiration rules in relation to CEP examinations. Determine if a
recommendation should be made to extend the auto delete timeline.
FDIC NYRO Incorporate these recommendations into the [Review Committee’s] tracking system to monitor
implementation.
FDIC NYRO *Continue to advocate for flexibility in posting and staffing.
Complete horizontal complex bank staffing reviews (similar to the rescoping project) on a semiannual
basis focusing on vacancies as well as needed expertise. Make adjustments and move resources as
needed, acknowledging the risks the Region is unable to oversee given the shift of the limited
FDIC NYRO resources. Communicate the review results to regional and field management and applicable staff
ensuring all are on the same page as it relates to the Region’s resource needs and priority.
Communication should be multi-faceted and occur through regularly-scheduled meetings (DRD/FS
calls, Regional Management Meetings, etc). Communication of adjustments should also be provided to
WO LBS.
FDIC NYRO Ensure specialists and non-LFI CG-14 examiners are assigned based on risk across the Region, not a
first-come-first-serve basis.
Initiate an EIC/team member mentorship program to support new EICs, team members, or individuals
FDIC NYRO new to large, complex bank work and to provide a horizontal perspective. For the same reasons,
continue regular EIC and/or team member calls focusing on emerging risks, complex bank exam
administration, horizontal findings, etc.
Host regular discussions (including possible “Training Tuesdays” events) regarding various aspects of
FDIC NYRO
the Region’s supervision of large, complex institutions for both RMS and [Division of Depositor and
Consumer Protection] DCP.
Include a “realistic/what if” aspect to the Region’s Supervisory Plans, including prioritization of planned
activities. Current Supervisory Plans assume every position will be filled and that the field office can
provide all additional needed hours. As seen in the Region, this is rarely the case. Plans should include
FDIC NYRO a brief section laying out a plan for “what if resources are not available”. This will allow dedicated teams
and the Region to easily adjust supervisory approaches throughout the year, ensuring focus remains
on the highest priority items and not just what is convenient to move in the schedule. This
“realistic/what if” aspect will be flexible and can be altered throughout the year as risks change and/or
new information emerges.
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APPENDIX IV: OPEN MATTERS REQUIRING BOARD ATTENTION
AND OPEN SUPERVISORY RECOMMENDATIONS WHEN SBNY FAILED
There were Supervisory Recommendations (SRs) and Matters Requiring Board Attention
(MRBAs) were issued to Signature Bank of New York (SBNY) remained open when SBNY
failed. These were reported to the Bank in the 2021 ROE, 2022 Information Technology Target
Review, and the 2022 Corporate Governance Target Review, the final reports issued prior to the
failure of the Bank. They are summarized below.
Supervisory Recommendations (SRs)
Count SR No. Brief Description
Bank Secrecy