Crossroads financial institutions are secure and seeing growth a week after Silicon Valley Bank collapsed, offiicals said.
In the wake of the collapse of the Northern California regional bank, many people have grown concerned over how secure their finances are in their local institutions.
Since Silicon Valley Bank’s collapse, there has been a mini-financial contagion, or spread of a market disturbance, to other institutions with New York-based Signature Bank collapsing and San Francisco-based First Republic Bank requiring rescue from other banks.
Silicon Valley Bank’s collapse was caused by a social media fueled bank run at a time it sold off $21 billion in treasury securities at a $1.8 billon loss and Moody’s Investors Service downgrading its credit rating Friday.
Despite the justified financial services paranoia in the market, the Federal Deposit Insurance Corporation and the U.S. Federal Reserve have taken steps to keep confidence in these institutions nationwide.
The Federal Deposit Insurance Corporation has insured all depositors at Silicon Valley Bank and has extended a similar risk exception to Signature Bank.
The Federal Reserve Board has also set aside additional funding for a new Bank Term Funding Program, which provides financial institutions with liquidity against high-quality securities for one year loans, according to a board statement. While not expected to be necessary, the U.S. Department of Treasury has also made available an additional $25 billion from its Exchange Stabilization Fund as a backstop to the new program.
“The capital and liquidity positions of the U.S. banking system are strong and the U.S. financial system is resilient,” the Federal Reserve Board said in a statement. “The Board is closely monitoring conditions across the financial system and is prepared to use its full range of tools to support households and businesses, and will take additional steps as appropriate.”
Since Silicon Valley Bank’s collapse, financial institutions have borrowed $165 billion, according to Marketwatch, $153 billion through the Fed’s existing emergency loan program and another $11.9 billion borrowed through the new funding program.
Locally though, these measures will likely be unnecessary as many of the larger financial institutions that operate within the Crossroads are in strong financial positions due to how judicious they operate and are seeing growth in the week since Silicon Valley Bank collapsed.
The Advocate interviewed leadership of three of the Crossroads’ largest financial institutions — Houston-based Prosperity Bank, Houston-based Texas Dow Employees Credit Union (TDECU) and San Antonio-based Frost Bank.
All three noted that Silicon Valley Bank and the other institutions had a much different customer base than “main street” banks, since they were highly focused on tech start-up depositors and crypto currency.
“I’m an old-time bank rep,” Prosperity Bank CEO David Zalman said. “This bank was a lot different than any bank that you are familiar with, any mom and pop bank or any local bank that you’re are dealing with. This was a bank that did not have that many customers.”
More than 90% of Silicon Valley Bank’s deposits were uninsured, according to S&P Global Market Intelligence data.
“You never want to take things lightly,” Zalman said.
In contrast, only 32% of Prosperity Bank’s deposits are not insured by the FDIC’s $250,000 per depositor insurance limit or the bank’s investment portfolio, he said.
The bank also has enough liquidity to cover all the uninsured deposits with funds left over, Zalman said.
“We haven’t seen anything abnormal in our bank,” he said Thursday. “Overall, we’ve had net positive. We had positive 268 new accounts over the last two or three days in our bank.”
Zalman said Prosperity Bank has been able to stay strong and survive through economic crisis in the 1980s, the 2008 housing crisis and the pandemic, and he hopes this is the last such scare he sees as an executive.
“I always used to tell people, you’ll like us in the good times, but you’ll love us in the bad times,” Zalman said. “Our stock price has taken a little bit of a hit but nothing compared to everyone else. We’ve probably held up just as good or better than anybody through all of this.”
At the end of the day, this situation was a panic run, he said.
“Go with people who have been through a lot and been around for a long time and have a history of success with your banks,” Zalman said.
Frost Bank echoed much of that sentiment.
“Frost Bank is much more diverse in terms of its deposit base, the customers we deal with and the different companies,” said Bill Day, Frost Bank corporate communications senior vice president. “Silicon Valley Bank and the others were very specialized in tech companies, cryptocurrencies, start-ups, venture capital. We’re much more diversified than that. So one industry having issue isn’t going to be an issue for a bank like us compared to others.”
With many insured by the FDIC, most depositors don’t have to worry about their funds, Day said.
“In the time that has been around, no FDIC insured depositor has ever lost money,” he said. “That’s a solid insurance guarantee.”
Frost has a strong balance sheet and are in a good financial position, making the bank prepared in the event of a crisis where ever it comes from, Day said.
“It doesn’t matter what the risk is. The idea is rather than trying to predict what the next risk is you just make sure your bank is well positioned and has liquidity to withstand wherever the risk comes from,” he said.
With the bank operating for 150 years and surviving multiple crisis through that and its judicious investment keeps it in a strong position compared to those banks who have struggled in the last week, Day said.
On the credit union side, TDECU, the main credit union operating in the Crossroads, is also in a strong position financially in the wake of recent financial institution struggles and has seen some inflows into its accounts, said Michael Plaia, TDECU senior vice president and chief risk officer.
TDECU has next to no exposure to the volatile assets many of these struggling financial institutions have and has kept its loan rates in line with market rate, Plaia said.
“The chief financial officer and I have been hand-in-hand, locking arms on to making sure we are prepared for the financial headwinds and financial uncertainties for the last year or so in this rising rate environment,” Plaia said.
One the main benefits of TDECU, as a credit union, is that it is strictly responsible to its members, he said.
“We are able to be more conservative for longevity and make sure we can take care of our members,” Plaia said. “A public company driving value to shareholders may not have that luxury of making medium and long-term decisions.”
Unlike a bank, TDECU is insured by the National Credit Union Administration, which provides similar protections as the FDIC but it hasn’t been called into action during the current period of uncertainty with financial institutions as it has not been needed, he said.
Only 7% of TDECU’s deposits are uninsured, Plaia said. Deposits are diverse and consumer focused.
As for institutions across the region, higher interest rates have tempered loan demands and business activity, according the Dallas Federal Reserve’s March 8 Eleventh district Beige Book. The eleventh district covers Texas, northern Louisiana and southern New Mexico.
Those the reserve contacted for the report expressed concern over rising interest rates, inflation and deposit outflows.
Despite the concerns over the last week, regional financial instructions are still a safe and secure place for people to put their money, Plaia said.