Banks in Oklahoma have rushed to allay the concerns of customers amid the recent failures of financial institutions on both coasts.
The biggest takeaway from the local experts: maintain perspective.
“What Oklahomans need to know is the collapse of Silicon Valley Bank in California and Signature Bank in New York are unique,” Susan Chapman Plumb, a former board member of the Oklahoma City branch of the Federal Reserve bank, said in a statement. “These banks were disproportionately leveraged in volatile industries like tech venture capital and crypto currency. In the case of SVB, the bank’s investment strategy was much riskier than that of nearly every community bank. SVB was an institution that overly concentrated itself in emerging markets, which makes them highly sensitive to interest rate fluctuations.”
Silicon Valley Bank, which served many of the globe’s largest tech investors, collapsed Friday and was taken over by federal regulators, becoming the largest U.S. bank to fail since the 2008 global financial crisis.
People are also reading…
Sunday, regulators grew worried about the financial health of New York’s Signature Bank, largely because of its exposure to the crypto market. Today, both banks are under the control of the Federal Deposit Insurance Corporation, or the FDIC.
Plumb is board chair and CEO of Local Bank, formerly Bank of Cherokee County. She served for six years on the Oklahoma City branch of the Federal Reserve Bank’s 10th District board of directors.
“I think this probably goes for a lot of community banks in Oklahoma — we keep a lot of money ‘on the sideline’ because we can’t go invest it for 10 years or 20 years and then have loans that are three- and five-year loans,” Plumb said by phone Tuesday. “They made a big blunder, a blunder that I would venture to say no bank in Oklahoma is in the situation that these people put themselves in.
“We have home loans. We have small business loans. We have some larger commercial loans. We have consumer loans. We have all that in a pretty even mixture, so if there’s some wobble somewhere in one of those areas, then we typically don’t have any problem.”
Tom Bennett III, president and CEO of Jenks-based First Oklahoma Bank, emailed a letter to employees Monday about the bank failures. He co-founded First Bank with his father, Tom Bennett Jr., who serves as executive chairman.
“In nutshell, SVB failed because they did not have enough cash to cover customer withdrawals,” the First Bank letter read. “The seeds of failure were sown years ago. Terrible risk management set the stage for a fast failure.”
Bennett III labeled as “crazy” SVP’s actions of taking short-term deposit dollars and buying long-term securities.
“When the interest rates went up, the value of their securities declined — substantially,” he wrote. “When customers withdrew their money, SVB had to sell securities at a loss to come up with the cash to give back to their depositors. Selling securities at a loss reduced the amount of capital in the bank to where they were unable to survive.”
According to First Oklahoma Bank, in the past 45 days a bank safety and soundness examination was completed, as well as an annual audit, all of which came back excellent. A total of 70% of its deposit base comes from core deposits.
“The implosion of SVB liquidity happened over the course of 48 hours,” the statement from First Oklahoma Bank reads. “However, the terrible risk management that broke the bank took place over years. These guys followed the Savings & Loans playbook from the 1980s — short-term funding for long-term investments. Same strategy, same result. In my opinion, SVB’s failure was tragically avoidable.”
Sean Kouplen is CEO and chairman of Tulsa-based Regent Bank. Monday, he released a statement regarding Silicon’s Valley’s failure.
“There are really three main ways in which a bank can go out of business,” Kouplen said. “Excessive loan losses is by far the most common, followed by fraud and then by a liquidity crisis. Silicon Valley Bank did not have excessive loan losses or fraud. They were victims of a liquidity crisis because of the very unique (and risky) structure of their balance sheet.
“I agree with virtually all national experts that the SVB bank failure appears to be localized to them and should not spread to the rest of the banking industry. … This failure wasn’t caused by loan losses, which could spread across the (United States) like they did in 2008-2010. It was caused by a liquidity crisis unique to their situation. The banking industry is actually very strong financially.”
Regent Bank ranks among the top 5% of U.S. banks in profitability and, because it is privately held, isn’t subject to fluctuations in stock market prices, as publicly traded banks are, Kouplen said.
“Over the past few days, I have received numerous calls from nervous clients of Silicon Valley Bank and other venture, tech or crypto-related financial institutions asking what they should do,” he said. “While I truly believe this problem will be localized to Silicon Valley Bank, you need to feel safe about the bank holding your deposits.”
Video: Why did Silicon Valley Bank fail?