DISTANT BANK FAILURES A THREAT?

Silicon Valley Bank and Signature Bank are more than a thousand miles from Kimball County’s FirsTier Bank, Points West Community Bank and Kimball State Bank, and their practices and depositors remain as distant as their location.

But the question arises here and across the nation: Could the troubles at those distant banks spread elsewhere?

These two banks on both coasts have succumbed to financial failure recently; Silicon Valley Bank in California and Signature Bank in New York closed their doors on March 10 and March 12, respectively. These large banks are the first two to fail in 2023 but have created concern for the banking system due to their size, exposure and increasing interest rates.

A statement from Nebraska Bankers Association said, “The recent bank closures in California and New York appear to be outliers and not reflective of the norm for banks across America and Nebraska. The closed banks had significant exposure to volatile sectors, including cryptocurrency. Nebraska banks have limited exposure to these types of industries.”

Silicon Valley Bank was heavily into small tech, venture capital industries, and entrepreneurs, and Signature Bank was heavily into cryptocurrency, whereas Nebraska banks rely on agriculture, practice traditional and conservative values.

Kara Heideman from the Nebraska Banking Association explained, “An overwhelming number of Nebraska banks, small and large, have capital levels that well exceed industry standards and as required by federal regulation. In addition, because of the 2007-08 financial crisis, Nebraska banks report near-record loan loss reserve levels. Smaller banks in Nebraska tend to have more conservative investment strategies; thus, they have limited exposure in volatile industries like cryptocurrency and technology.”

Heideman continued, “When a loan to a technology firm goes into default, there are little to no real assets to recapture. With ag loans, on the other hand, the lender will always have land to utilize as important collateral in cases of default.”

Local banks have reacted to the situation in prepared statements.

The president of FirsTier Bank, Tim Ostic, said, “The downfall of Silicon Valley Bank demonstrates how volatile today’s financial markets have become. The purpose of this email is to assure our employees and large depositors that FirsTier Bank remains sound and well-capitalized.

Silicon Valley Bank’s downfall was caused by many factors, but its largest mistake was purchasing long-maturity Treasuries at a low point in the market. When the Fed began raising rates and made these Treasuries less valuable, it eroded SVB’s capital base, while their tech-centered customer base also began to withdraw their deposits. FirsTier Bank has practically no exposure in this area.

Please be assured FirsTier Bank remains on solid financial footing, with adequate liquidity, strong profitability, and strong capital. The bank is under no regulatory orders, and we had no substantive issues in our last audit, in the summer of 2022. Our balance sheet remains well-positioned for a rising rate environment.”

Points West CEO Marin Olson released a statement explaining the bank failures and the difference between Points West and the failed banks: “It is sad to see any bank fail and for depositors to suffer any uncertainty about the safety of their deposits. This is why it’s important to take stock of lessons learned from the Silicon Valley Bank closure.

As of December 31, 2022, Silicon Valley Bank had $216 billion in assets and was the 16th largest bank in the country. SVB experienced rapid growth of 215% between year-end 2019 and 2022.

Points West Community Bank and ICBA encourages consumers and small businesses to understand that not all banks are created equal. In stark contrast to the nation’s largest banks, community banks operate under an entirely different business model – one that’s based locally and is relationship focused. As a small business ourselves, we take pride in serving the unique needs of our customers and communities.

In short, we are in it for the long haul to serve the needs of those who count on us for financial stability

and prosperity.”

Kimball State Bank was not immediately available for comment for this article.

As a depositor, large or small, there’s no need to panic or worry about your money, many officials say. Not only do Nebraska banks have limited exposure in critical areas, but the Federal Deposit Insurance Corporation insures all deposits up to $250,000.

Kara Heideman from the Nebraska Banking Association explained that: “The safest place to keep your money is in a bank. Bank deposits are protected up to $250,000. No customer has lost a penny of FDIC-insured deposits since the program was established 88 years ago. Banks also have fraud protection and fraud monitoring systems in place to keep customers’ money safe. For depositors with levels above the FDIC insurance level, Nebraska banks have a plethora of tools they can make available to provide additional protection if needed.”

Heideman noted that “In the case of Silicon Valley Bank, 94% of their deposits were in excess of $250,000.

The FDIC cautions individuals to never invest in a product that you do not understand, ask questions, understand the risks of their investments, and know who is investing your money.

Although deposits are insured by the FDIC, some products are not insured, including stock investments, bond investments, mutual funds, crypto assets, life insurance, annuities, municipal, and safe deposit box contents.

The Nebraska Bankers Association assures Nebraskans that Nebraska’s banking industry remains a source of strength and stability. They maintain strong capital levels and record levels of loan loss reserves, allowing them to successfully absorb economic shocks. Nebraska bankers take pride in their strong relationships with customers and are invested in the economic growth and prosperity of the state.