GREAT FALLS - Over the weekend, a top 20 largest bank in the United States — Silicon Valley Bank (SVB) — reached failure.
On Sunday, Signature Bank became the next casualty causing an uproar of concern amongst borrowers and raising questions about the security of America’s assets.
SVB primarily had venture capitalist accounts in the bank, its failure comes as James Lautenschlager, Assistant Professor of Business at the University of Providence explains, that high-interest rates had SVB in over its head.
“There was just a good old-fashioned bank run… Venture capital tends to dry up when capital becomes more expensive, and that’s exactly what higher interest rates do,” explained Lautenschlager.
The failures come after creating the second-longest streak of 867 days since the last Federal Deposit Insurance Corporation (FDIC) bank failure on October 23, 2020.
“It shows that our financial system really is in good health," Lautenschlager said. "SVB was highly exposed to a lot of its depositors. SVB in their bond portfolio had a lot of exposure to long-term bonds that they had purchased at very low-interest rates. Now that the interest rates had risen, they had a lot of unrealized losses on their books.”
A snowball effect knocked a banking giant down and left patrons unsure if their assets will be insured.
The Montana Credit Union is a Board of Director-driven institution that works for the common goal of benefiting the borrower versus itself.
“We regularly look at our liquidity, you know, kind of looking at that every day, making sure we have a safe balance here that's not too risky. We want to make sure that we're being good stewards of our member's money,” said Montana Credit Union Vice President of Marketing Becky Timmons.
Lautenschlager said that the health of the financial system is good since the Great Recession of 2008, and a lot of safeguards were put in place allowing banks to have more capital, and higher liquidity rates and the SVB failure doesn’t represent a systemic risk to America’s financial system.
“I don't believe there's a systemic risk to our financial system at this point just because of a lot of the controls that were put in place following the Great Recession, 2008, 2009. I believe most of the banks out there are going to be adequately capitalized too. Let me just say that again, I believe a lot of the banks are going to be adequately capitalized to get through this cycle of interest rate tightening that the Federal Reserve has been on the last 16 to 18 months.”
Montana Credit Union is a relatively conservating financial institution while SVB and Signature Bank took on high amounts of risk in their business and lending practices. SVB hosted several large corporations including Roku and Pinterest, while Signature Bank handles large Crypto accounts. Montana’s exposure to large venture capitalist accounts is few and far between.
“In the case of SVB. They were really focused on high risk, high reward.” Timmons added.
"Americans can have confidence that the banking system is safe. Your deposits will be there when you need them." President Biden said in a speech on Monday.
Sunday night the Treasury Department, Federal Reserve, and FDIC announced that they will ensure depositors will have full access to their money today.
"The management of these banks will be fired. If the bank is taken over by FDIC, the people running the bank should not work there anymore. Third, investors in the banks will not be protected.” President Biden threatened.
Silicon Valley Bank and two former top executives, including its CEO, Greg Becker, were named in a lawsuit filed on March 13, 2023.
The suit alleges the bank concealed how rising interest rates would leave it susceptible to a bank run.
The saving grace for depositors, in this case, was that SVB was insured by the FDIC, which covers up to $250,000 in assets. Montana Credit Union is insured by a similar organization, NCUA, for up to $250,000.
One Montana bank that is not federally insured that has branches in Helena, Belgrade, Bozeman, and Butte — Rocky Mountain Credit Union has a disclaimer at the bottom of the homepage of its website that reads: “By member’s choice, this institution is not federally insured. If it fails, the federal government does not guarantee that you will get your money back. Each account is privately insured up to $250,000.”
It’s unclear who the bank is insured through, but it would be in the fine print packet a depositor receives upon opening an account.
“Just be educated as to what financial institution you're trusting your money with and what they're going to do in the event that liquidity dries up,” said Lautenschlager.
The Montana Department of the Administration which oversees banking regulations in Montana released the following statement:
“Montana law requires all banks to be federally insured with the Federal Deposit Insurance Corporation (FDIC) and all credit unions to be either federally insured with the National Credit Union Administration (NCUA) or to have private share insurance. Montana’s banks and credit unions are regularly examined and monitored including both their capital and liquidity levels and Montana depositors should feel safe having their deposits in our state-chartered institutions. In the 100 years since the Great Depression, there have been numerous changes to banking laws and regulations, and deposits are now insured. No depositor has ever lost a penny of insured deposits since the FDIC was created in 1933.”
For more resources on FDIC depositor regulations visit, this link.
