The Federal Deposit Insurance Corporation (FDIC), the primary federal regulator of Signature Bank, released a report highlighting the causes of the bank’s failure.
In a press release, the regulator has attributed the bank’s failure to illiquidity which was facilitated by contagion effects following the announcement of the collapse of crypto-friendly banks, Silvergate and Silicon Valley.
Additionally, the FDIC has also blamed the executives of Signature for failing in their responsibilities. The regulator highlighted that Signature Bank’s management could not prioritize appropriate corporate governance practices, pay attention to FDIC examiner concerns, or respond promptly to FDIC supervisory recommendations.
Inappropriate Management Practices in Signature Bank
Instead, the management of Signature Bank and board of directors pushed for speedy and unrestricted development. The FDIC determined that the bank did this by relying too heavily on uninsured deposits without developing and sustaining proper risk management rules and controls appropriate for the size, complexity, and risk profile of the organization.
Furthermore, the regulator claimed that Signature also failed to recognize the dangers associated with its dependence on deposits from the crypto industry or the risk of contagion from the collapse of the defunct FTX and other prominent exchanges.
Implications of the Collapse of Signature Bank
While the blockchain industry has been known to overcome challenges and failures in the past, the collapse of Signature could have a huge impact on the blockchain sector. It could possibly result in less liquidity, more regulatory scrutiny, unfavorable market sentiment, slower innovation, or enhanced decentralization.
Earlier in the month, Binance.US announced that it is still struggling to find a new banking partner following the collapse of Signature Bank. At the time, Binance said attempts to collaborate with financial institutions like Cross River Bank and Customers Bancorp Inc. have failed.
Virtual Banks Provide Digital Services
Following to collapse of the renowned crypto-friendly banks in the US, some Virtual banks have now proffered solutions to accommodate crypto clients. Notably, Hong Kong’s ZA Bank has announced that it currently provides fiat cash to digital asset conversions via crypto exchange platforms.
Industry Experts Share Their Opinion
Furthermore, some industry stakeholders have shared their thoughts on issues that need to be addressed. On that premise, Charles Hoskinson, Cardano’s founder emphasized in a report that there is a need for crypto to cut links with traditional banks.