Michiana banks unlikely to face same fate as SVB, Signature Bank
SOUTH BEND, Ind. (WNDU) -The FDIC seized another big bank in what’s now the third-biggest banking failure in U.S. history.
This comes after Silicon Valley Bank collapsed on Friday, prompting the feds to take action.
However, there’s no reason for folks in Michiana to panic or rush to get deposits out of their local bank. 16 News Now spoke with a financial expert in California, as well as the leader of 1st Source Bank to figure out why.
Silicon Valley Bank’s collapse isn’t something that happened overnight according to a financial expert living in the same state.
“We had one year of pretty extreme interest rate increases. The way most banks operate is they take the deposits and invest them. They also have other sources of income, for example, loans. With interest rates so high, those loans started drying up. They were relying on the spread between their deposits and the deposits were invested in long-term bonds,” said Family Financial Founder/CEO Tammy Trenta.
When account holders came knocking to make withdrawals, Silicon Valley Bank had to sell these bonds for a $1.8 million loss, just to have enough cash on hand.
“They decided to do a capital raise for some money because of the loss they had to take on selling the bonds.”
That’s what Trenta says caused an avalanche of withdrawals that the bank simply couldn’t keep up with.
The top executive at 1st Source Bank here in Michiana says that’s not likely to repeat itself at our local banks thanks to the way they manage deposits, as well as the sources behind those deposits.
“We’re all local providers of services. We draw our deposits from the local area. We’re all pretty conservative in the way we manage our balance sheets. Most of us have been around for a long time. At 1st Source, we’ve been around since 1963. Mom and dad come in and open accounts for themselves and for their kids. That’s a different kind of funding base than what you see with these bigger banks that are technology-oriented,” said 1st Source Bank Chairman Chris Murphy.
Murphy even said it’s normally a good thing when he hears from the FDIC.
“Usually we get called by the FDIC asking if we want to take over a bank if they’ve closed. Never have we had the conversation the other way and it’s not something I ever expect to see,” he said.
This is a complicated issue if you’re not a banker or in finance, so it’s important to be wary of advice you see on social media or online. If you have real concerns about how the collapse in California and New York impacts you that we didn’t answer in this story, Murphy suggests you reach out to your bank directly to get the facts.
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