I am sure many of you have read the headlines or heard the news of the Silicon Valley Bank and the impact it has had on the banking system. Major news outlets have been flushed with commentators placing blame, giving theories on what’s next, and generally creating panic among the masses. If my 49 years in the banking industry have taught me anything, it is the importance of keeping calm and using reason during times of panic. As your local community bank, it is our duty to provide our customers and shareholders with the necessary information to make informed decisions and bring that sense of calm to the situation. By reading on, I hope I can best answer the three questions that have been most received in the past few days.
The bank behind the news is Silicon Valley Bank, a multi-billion-dollar bank in California. Their customer base consisted largely of large capital customers, including start-ups, tech companies, and venture capitalists. It was reported that over 90% of their deposit accounts were above the FDIC insurance coverage amount. Many of their customers were using “fast money” moving funds in and out of the bank on short notice, which presented a high-risk, high-reward business model. Unfortunately, the bank ran into a perfect storm of liquidity and interest rate risk. In a snowball effect, customers of SVB started withdrawing deposits in excess of what the bank had on hand to distribute (this is called a run on the bank). In order to provide the requested cash to their customers, they were forced to sell investments. However, with interest rates rising dramatically in the last year, the bank incurred huge losses on these sales, which ultimately upended the balance sheet and caused the bank to fail. To prevent a total loss to the customers, the government had to step in, and regulators seized the bank. The Wall Street Journal has a great short video detailing these occurrences, which can be viewed here: WSJ Silicon Valley Bank.
When visiting our branches or viewing our publications, you probably have seen the FDIC logo. All federally chartered banks, including ours, are required to be FDIC insured. FDIC insurance protects deposit customers from any loss on accounts up to $250,000.00 in the event of a bank failure. For the majority of community bank customers, this should serve as the peace of mind that your deposits are safe within the institution. Nobody has ever lost a dime of FDIC-insured deposits. If you have any questions about FDIC insurance or whether additional insurance coverage is needed, we are ready and prepared to assist you in this process to ensure your needs are met.
As you can possibly see, the business model of community banks like First National Bank of Sycamore and others across the country is very different than that of Silicon Valley Bank. We do not focus on rapid, potentially unstable growth, but instead, concentrate on a relationship-based business model. Our goal is to achieve long-term steady growth that centers on trust with you, the customer. Guided by our board and lead by our management team, the decisions made at FNB are made with our customers in mind, because we can only succeed if you succeed. As a community bank, First National Bank of Sycamore remains well-capitalized and well-positioned to serve your needs and the needs of the community. Founded over 104 years ago, we have weathered every national panic since before the great depression and we are well-positioned to weather this one and serve this community for generations to come. If you have any further questions regarding your accounts, the state of the bank, or the events of this week, please feel free to call the bank and speak with me or any of our trained staff.
Jerry P. Weininger
President / CEO« Back to Blog