Regional Banks React to Silicon Valley Bank Collapse

Joan McGuire

Stocks in regional banks declined sharply following Silicon Valley Bank’s collapse, but Oregon’s financial institutions are confident they would weather the storm.  

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Regional banks across the country have taken a stock hit after the failure of California’s Silicon Valley Bank Friday and the collapse of New York’s  Signature Bank just two days later.

Those events mark the second and third largest bank failures in U.S. history, and have had a ripple effect across the industry, including in Oregon, where several regional banks have seen declines in stock prices: Columbia Banking Systems saw a 14.2% tumble between Thursday and Monday, HomeStreet Bank saw a 14.8% decrease, Oregon Pacific Bancorps stock prices fell 12.2% and Summit Bank shares declined by 4.5%.

By Tuesday morning, some of those institutions were still performing poorly on financial markets, but others had rallied: Summit Bank shares were down 9.18% from Monday according to OTC Markets listings, but Columbia’s NASDAQ listing was 11% higher.

Leaders at Oregon financial institutions expressed shock at SVB’s failure, but in comments to Oregon Business said they don’t see a repeat of the financial crisis of 2008.

Here’s what they had to say:

Oregon Bankers Association president Linda Navarro, in a phone interview with OB:

“I’m aware that the industry is in good health. And the balance sheets are quite a bit stronger than when we went into the financial crisis or the Great Recession. When I heard the news, I was less concerned that there was any kind of a systemic issue and more jut stress that a bank failure occurred, especially one of considerable size, because I knew it was going to create angst, especially for depositors. So shortly thereafter, over the weekend, when federal regulators took action and used authority to cover all deposits, that obviously went a long way toward addressing depositor concern about what happens to uninsured deposits when the bank is closed.

0423bankLindaNavarroIT4A6309Linda Navarro, Oregon Bankers Association president.  Photo by Jason E. Kaplan

“That action is kind of a mixed bag, right? Because people think that that’s a bank bailout. I’ve heard newspapers and public officials refer to it as some sort of bailout, which it’s not. They did not bail out the shareholders or the bank. What they did is use the deposit insurance fund, which is paid by bank premiums, to assure that all the deposits, including those that are below that typical FDIC insured limits are covered. And that that extraordinary event aims at addressing the main concern that the general public has about a bank failure, which is, “oh my gosh, could this happen to my bank?” And no, I don’t think it will happen to their bank. But the actions of the federal regulators to ensure protection of uninsured deposits, and goes a long way to quell any concerns, regardless.

“No doubt there’s been a lot of conversations about deposit insurance protection and the health and safety of the banks doing business in Oregon…There’s a lot of conversation about what role regulating banks and regulators played in the collapse. And there’s certainly scrutiny already occurring, and announcements have been made about investigation into the conditions and supervision prior to the collapse of the banks, and that’s good, we need to shine a bright light and see what the circumstances were and where improvements can be made. But I’ve seen some policymakers at the federal level already drawing and others already drawing conclusions about that, and the investigation is only just beginning, so I think we need to be careful about drawing too many conclusions about bank regulation before we have all the facts.

What I’m hearing people say are things like the regulatory the bill, [SB 2155] from several years ago might have rolled back regulation to the point that it created risk, leading to these bank closures. I think it’s perfectly fine to investigate where gaps may exist, but I think it’s very premature to suggest that that bill, or any other policy is to blame, as opposed to regulators being able to use all the tools that they already have in their toolbox. How banks are regulated, is generally functioning very well. But when there’s a situation like this, the reaction can be rightfully strong….This is one period of time that we need to weather and so far, we are weathering it.”

reaction556A4104Summit Bank president Craig Wanichek in his Eugene office. Photo by Jason E. Kaplan

 Craig Wanichek, president of Summit Bank in Eugene, in a phone interview with OB:

“This really kind of was a confluence of unique events that most are certainly not shared by community banks. Obviously, the rise in interest rates impacted the value of those large investment securities and then depositors that kind of wanted all their money out at the same time. And there was the exposure to venture capital and private equity. That is typically not widespread; it’s very specific to banks that have liquidity issues, and not typical of community banks. We just don’t have the concentration like they did in that one particular industry. That’s just not a typical community bank model; they’re not going to invest long with depositors’ money. We did make a conscious decision not to make the investments when everybody had a lot of liquidity about a year ago, because you just never know. That’s just not what we do, either. They are going to have more loans than securities, and we just don’t have the concentration in industry — like [SVB] did in that one particular industry, to where everybody just wants their money back. We had a meeting [Monday] as the executive committee, just to make sure that we’re all on the same page and, and comfortable with the cash position and talking about that with our folks. We’ve talked to a number of our largest accounts today, and people were pleased that we called and but not really that worried, they said we’re comfortable with summit bank and, the strength to summit bank, and that they knew us and, and so that was kind of maybe a little bit of a non-event for us today.”

Kurt Heath, Umpqua Bank’s corporate communications director, in a statement shared with OB:

“Despite market volatility, our fundamentals remain very sound. As a newly combined bank, we have a strong, balanced portfolio of industries and businesses and are well diversified from a deposit and liquidity standpoint to weather disruption. The banking industry as a whole remains sound, and our fortress balance sheet provides us with tremendous flexibility to assist customers experiencing difficulties with their current institutions.

“On the whole, the past few days represent overall strengthening of our customer base. We’ve seen account openings from businesses looking to diversify their deposit accounts. Among other things, new customers are attracted to Umpqua’s strong balance sheet, in particular our enhanced post-merger liquidity, and our solutions that insure deposits above FDIC limits.

“We’re taking time to listen to any customer concerns about their unique situation and diligently respond. Once people understand our strong financial position, they are reassured of both the safety and soundness of our bank and their accounts. The response has been overwhelmingly positive.”

Ron Green, president and CEO of Oregon Pacific Bank, in a letter to clients on the bank’s website:

“Unlike the economic crisis of 2008, these banks were not closed due to problem loans. Their challenges arose due to their model of banking a single or limited number of industries. Silicon Valley Bank also had a large exposure to deposits from venture capital firms. The recent tech industry volatility caused many of these larger venture capital depositors to lose confidence in Silicon Valley Bank and withdraw their funds from the bank. As a result, Silicon Valley Bank no longer had sufficient cash to meet its operating needs and was forced to sell certain investments at a loss to raise cash. These losses depleted their capital, resulting in the subsequent closure of the bank by banking regulators. These events occurred in a matter of a few days, but the bank’s lack of diversification is what created their problem.”

Editor’s Note: This story has been updated from an earlier version. 

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