Buffalo, N.Y. (WBEN) - The Silicon Valley Bank (SVB) and Signature Bank both collapsed last weekend and were taken over by the Federal Deposit Insurance Corporation (FDIC). The situations that surround them have arisen partly due as a result of their clientele.
"These are banks whose clients had businesses that were extraordinarily volatile," said Dr. Cristian Tiu, a financial professor from University at Buffalo.
"Silicon Valley Bank had only 3 percent of their balances were under the $250 thousand limit that is insured by FDIC. The majority of them being startups, venture capital funds, that type of a client. That's very different from our local banks. I wouldn't say that what happened to these two banks, Silicon Valley, or Signature Bank, is something that our local banks face."
Signature Bank, being the predominant bank in the cryptocurrency sector, was shut down by regulators on Sunday, after the regulators said that keeping the bank open could threaten the stability of the entire financial system.
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As venture capitalists in the tech sector make layoffs, those companies have started drawing on their deposits at their banks. As they do that, the bank has to come up with cash, so they start selling some of their investments, such as U.S. Treasury notes which they sell at a loss due to high interest rates. This in turn prompted SVB to issue more stock to bring more cash flow. People flooded the bank. There were $42 billion in requests last week.
Some bankers are concerned with stock prices of local banks as some are declining. Why is this happening and should that be a concern?
"What happens is that you have assets that basically trade in buckets nowadays," Tiu explains. "Let's say you have ETFs, exchange traded funds, that consist of just bank stocks. Now, when people saw Silicon Valley tanking, if they held one of these portfolios of stocks, then they sold out of that portfolio. Now, when you sell out of that portfolio, that portfolio contains all the banks. The prices of all the banks then got depressed, hopefully, temporarily only. So even though the stock prices of banks declined a bit, I don't think that shouldn't be that big of a cause of a concern."
As far as concerns go, those who bank locally should have no immediate concerns, unless we foresee an incoming economic depression.
"They shouldn't have any new concerns that they didn't have until now. I mean, one concern is interest rates are moving, right? So they're increasing, right? So if I want to borrow money, for example, I should be concerned. But I should have no concern that my bank basically has clients who will want to withdraw the money because the businesses they are in, will all face a decline suddenly in one day, like, you know, the people who are in the venture capital business or the people who are in the cryptocurrency business. I don't think we have much to worry about that," said Dr. Tiu.
We have reached out to a variety of our local banks for comment. Some tell WBEN they will continue to extensively monitor the situations as they arise. None were able to provide additional comment beyond these issued statements.
Five Star Bank:
“Five Star Bank has been, and continues to be, a source of stability in uncertain times. We are confident in the operations of our strong, diversified and well-capitalized bank,” said Five Star Bank President and CEO Martin K. Birmingham. “We remain focused on the financial well-being of our customers and continue to be well-positioned to meet the banking and financial services needs of those we serve.”
KeyBank:
Key is well capitalized, with strong credit quality and deposit profiles. KeyBank has a moderate risk profile with a wide range of funding sources and a very diversified deposit base. Regional banks like KeyBank are subject to a high level of regulation and take part in annual stress tests where banks have to prove their durability through a myriad of negative economic scenarios. We are actively monitoring the situation and are not seeing anything unusual in terms of deposit flows across our businesses. In fact, our team has mobilized quickly to support and onboard many new, high quality clients.
"Key is a nearly 200 year old financial institution with safe, sound and strong fundamentals. While the events of the last few days have been disconcerting, it’s important to note that they are limited to small number of niche banks with unique, highly concentrated financial profiles,” said Chris Gorman, Chairman and CEO, KeyCorp. “KeyBank, as well as other regional banks, are in a much different, more diversified and stronger financial position. Despite the recent events in our industry, KeyBank is well positioned to continue supporting all our clients with a full range of financing options while maintaining our moderate risk profile and delivering value to our shareholders.”