Fed, NYDFS assess their supervisory performance after March’s big bank failures

U.S. banking regulators turned from self-reflection to confession after a high-profile bank failure in March. The New York Financial Services Authority (NYDFS) issued a signature internal review of his bank’s oversight on April 28, the same as the U.S. Federal Reserve announced its review of the handling of Silicon Valley Bank (SVB). Announced.

The banks closed within days of each other as California regulators closed the SVB on March 10 and the NYDFS moved against the signatory banks on March 12. Bank. The series of failures caused such a shockwave that US President Joe Biden felt the need to tweet a response.

Federal Reserve Review started Findings noted by commentators suggest that bank management is unable to manage its risks, and that supervisors believe banks “are not fully aware of the extent of their vulnerabilities as they grow in size and complexity.” It was widely known.”

Additionally, supervisors were unable to act quickly enough on identified vulnerabilities. The Capital, Asset Quality, Management, Earnings, Liquidity and Sensitivity to Market Risk (CAMELS) annual exams revealed deficiencies in 2021 and 2022, but changes in supervisory teams and banks’ rapid growth hindered their processing.

“Silicon Valley Bank’s supervisory approach has been too cautious, focused on continually accumulating supporting evidence in a consensus-driven environment.”

Economic Growth, Deregulation, and Deregulation with the passage of the Consumer Protection Act (EGRRCPA) in 2019 has led to a “tailoring approach” to regulating many large banks, including SVB. At the same time, according to the report, supervisory policy changed, placing greater emphasis on due process and slowing regulatory action.

However, the Federal Reserve conceded that “higher supervisory and regulatory requirements may not have prevented the company from failing, but they likely strengthened the resilience of Silicon Valley banks.”

#ICYMI: #NYDFS Released the results of the review of the supervision and closure of signatory banks. Read more here: https://t.co/cHIswG1FDt. pic.twitter.com/ns5xIwLxKA

—NYDFS (@NYDFS) April 28, 2023

NYDFS I got it Its crypto-friendly signing bank also experienced rapid growth in the years immediately preceding its closure. Like the SVB, it had a high percentage of deposits not insured by the Federal Deposit Insurance Corporation (FDIC), capped at $250,000 per account.

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“Bank growth has outpaced the development of risk management frameworks,” wrote the New York regulator. Risk management issues were identified at signatory banks in the 2018 and 2019 annual reviews, but were only partially addressed.

There were also problems with the director. “Internal staff constraints limited DFS’ ability to properly deploy inspections,” the report said. It also added, “DFS’s internal processes need clearer guidelines for when examiners need to escalate regulatory concerns and when banks are unable to timely amend their findings.” The mechanics of the review process within NYDFS was “cumbersome” and had no deadlines. In addition:

“[The NY]DFS will consider whether a tabletop exercise should be conducted to demonstrate that banks are operationally ready to collect and generate accurate financial data in stress scenarios at a rapid pace. ”

NYDFS has announced its decision to shut down Signature Bank, the culmination of a process that began with the bankruptcy of crypto exchange FTX in November. Due to its crypto-friendly reputation, NYDFS has begun requiring it to “provide regular liquidity updates.” This he did daily in January and was switched to a monitoring call on March 8th.

NYDFS worked with federal regulators over the weekend of March 11-12 to assess Signature Bank’s viability after “barely surviving immediate deposit runs” the previous week, and on March 12 In addition, we determined that its liquidity was insufficient and that its reporting was unreliable. So it is the property of the bank and has appointed the FDIC as the payee.

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Instability in the banking sector didn’t end with the closure of Signature Bank. Swiss Credit Suisse became eligible for a buyout of him rescued by UBS a week later. US bank First Republic, which is also characterized by a large amount of uninsured deposits, also began its share price decline in March. On April 28th, the stock fell 43.3% from $119.74 on March 1st to $3.51. reading Also speculation of an acquisition by the FDIC.

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