The second-biggest bank failure in U.S. history is raising concerns about whether other banks are inadequately managing interest rate risks, overexposed on uninsured deposits, or — as in the case of Silicon Valley Bank — both. As of the fourth quarter of 2022, deposits that were under the $250,000 insurance limit accounted for just 2.7% of the bank's total deposits.
Ironically, only two months earlier, American Banker ran an article entitled, “Some banks will go to any lengths for deposits, even opening branches.” The “any lengths,” according to the article, “included building more branches in a bid to attract depositors.”
Banks, of course, need depositors, and opening branches is a way to attract them… especially in a down economy and an environment where loan-to-deposit ratios are pushing 120%. (PS: Back in 2017, the ideal loan-to-deposit ratio for the industry was 60.2%.) They do need to be wary, it appears, of uninsured deposit overexposure. In the case of SVB, many of those deposits were far in excess of the $250,000 insured by the Federal Deposit Insurance Corp.
Even more ironic, one of the banks mentioned in the article was Signature Bank of Arkansas. “That's been the case at White River Bancshares in Fayetteville, Arkansas,” says the article. “The $983 million-asset holding company for Signature Bank of Arkansas, White River has opened three locations since December 2021, and White River bankers are not shy about asking prospective clients to move all their cash into Signature Bank of Arkansas.”
Understandably, Signature Bank of Arkansas, immediately went into crisis management mode, declaring that it is in no way associated with Signature Bank of NY. A banner of the bank’s website makes this very clear:
“We are not affiliated, associated, authorized, endorsed by, or in any way officially connected with the various “Signature Bank” brands independently headquartered in Chicago, Florida, Kansas, Michigan, Minnesota, New York, and Texas, the Signature Bank National Associations of both Ohio and Texas, Signature Bank of Georgia, or any of their subsidiaries or their affiliates. You may rest assured that your community bank, Signature Bank of Arkansas, is not associated or affiliated with a similarly named organization that you may see mentioned in the news.”
Instead of taking the issue head-on, it has been suggested by some that community banks simply put their heads in the sand and, well, pretend that nothing happened. Robert Bolton, president of bank investor Iron Bay Capital is one of them. “Small banks don't really know anything more about all of this than the rest of us — other than it's not a problem of their making," he said. "So while they are scratching their heads, wondering what to do next, it makes sense for most of them to stay out of the spotlight."
In my opinion, the smart banks are the ones that have taken action, instead of “staying out of the spotlight.” If, as a community bank, you have a story to tell, especially in the wake of a crisis of confidence in the banking system, tell it. I’m with Signature Bank of Arkansas and those small banks that are taking action, distancing themselves from the failures and marketing their trustworthiness. It’s called risk management and sometimes, unfortunately, it simply can’t be avoided. And this is one of those times.
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