Reports issued last week by the Federal Deposit Insurance Corporation (FDIC) and Federal Reserve on the failures of Signature Bank and Silicon Valley Bank (SVB), respectively, highlight two simple facts: these banks were not small and they were fundamentally different from community banks.
The reports are critical of bank management and regulators alike. In the case of Signature Bank, the report acknowledges that the FDIC was unable to adequately staff the bank for supervisory purposes. As would be expected, it went on to say that, “the root cause of SBNY’s failure was poor management” that did not “implement fundamental liquidity risk management practices and controls.” The Federal Reserve similarly pointed out a fundamental failure of management to manage risk at SVB.
IBAT has maintained that the failures of SVB, Signature and now First Republic should not negatively affect community banks. IBAT has written letters to members of the FDIC Board of Directors, arguing that a special assessment or increased regulatory burden on community banks would be highly inappropriate.
Despite calls from some so-called advocates for the banking industry, community banks should not be resigned to “taking their medicine” to account for the failures of large banks, which continue to enjoy the benefit of too-big-to-fail policies.
