Community Bankers Weigh in On Recent Bank Failures

Bankers began arriving at the Independent Community Bankers of America’s annual convention eager to discuss a broad range of strategies for navigating 2023.

The fact that the conference was held in Hawaii – a destination that was scrapped a couple of years ago because of the pandemic – was a cause for optimism despite several headwinds.

By the time the convention fully revved up on Sunday most of the talk had shifted to the collapse of Silicon Valley Bank and Signature Bank and the government’s decision to cover billions of dollars of uninsured deposits at the two institutions.

I’ve had dozens of conversations in recent days with bankers who represent banks of varying sizes based on a wide range of markets and communities. Here are four thoughts that have come out of those discussions.

• Deposits are critical. Having a sound strategy to attract and retain a diverse base of retail deposits (or small commercial deposits) is important. The session on deposit strategies was standing room only.
• Messaging matters. Many community bankers have taken time away from the convention to send out emails and press releases touting their financial health and differentiating their models from those that took down SVB and Signature. They’re also fielding calls from clients – at early hours given the time zone difference.
• Concern about assessments. Community bankers are already expressing worry about the potential of having to pay higher assessments to cover the costs of insuring the uninsured deposits. Many are pushing for a tiered system to put more of the onus on bigger banks to foot the bill.
• Why have deposit insurance caps? Several bankers have told me they support removing the $250,000 cap after the government ignored it when deciding to make all SVB and Signature depositors whole. One idea would be to replace the cap with other restrictions such as a cap on industry concentrations.

The Bottom Line

Bankers’ immediate focus is clear communication and direct contact with clients, with an emphasis on explaining how deposit insurance works and explaining their own financial stability.

There will certainly be a debate in the coming months about FDIC assessments – the ICBA vowed to fight against “paying a penny” to cover uninsured deposits at Silicon Valley Bank and Signature Bank – and other ways to supervise bank liabilities.

SRM will be keeping a close eye on these developments and will share our perspective as we move through uncertain territory.