The New York Department of Financial Services (NYDFS) released prepared testimony by Superintendent Adrienne Harris for 2 subcommittees in the US Congress.
A confluence of events – the liquidation of Silvergate, the collapse of SVB, and rapidly spreading social media posts – led to a panic and an unprecedented outflow of deposits from Signature on Friday, March 10 that the bank was ill-prepared to handle.
Signature’s response to the crisis was hampered by a control framework and liquidity management plan which did not mature in line with the bank’s growth and deposit mix. Given the prevailing panic, and the size and speed of the deposit run that occurred at SVB, it is unclear whether, if Signature had opened on March 13 in a better liquidity position, the bank could have survived a new-old fashioned bank run.
The NYDFS is currently developing new internal procedures for escalating supervisory areas of concern, revisiting the assumptions used to model and manage liquidity risk, and considering the addition of operational stress testing to ensure banks are ready to collect and produce accurate financial data rapidly in a crisis. Furthermore, to better hold banking institutions responsible for regulatory failures, the authority will explore potential policy action and legislative recommendations to ensure it has additional necessary authority to hold executives accountable for critical management failures.
Harris said in the testimony: “This critical review of DFS’s supervision of Signature builds upon my longstanding commitment to data-driven policymaking, which includes examining and strengthening our processes and staffing to ensure we can meet the needs of consumers today and in the future.”