The FDIC announced early this morning that JP Morgan Chase will assume all deposits and assets of troubled First Republic Bank. It’s the latest development in a banking crisis that began with the collapse of Silicon Valley Bank in March.
When you think about banks in Charlotte, you probably think about Bank of America, Wells Fargo, Ally, Truist. You know, the big names. But in this latest banking crisis it’s been problems at the small and midsize regional banks that have rocked the financial system.
Nationwide, those banks suffered from a big outflow of deposits, as spooked customers moved billions to the megabanks generally viewed as being more secure. Banking reporter Hannah Lang took a look at the state of small banks for the Charlotte Ledger Business Newsletter. She found the situation is more nuanced, and maybe not quite as dire, in North Carolina. She joins us now to discuss her story.
Marshall Terry: When you think about banks in Charlotte, you probably think about Bank of America, Wells Fargo, Ally, Truist, you know, the big names. But in the latest banking crisis sparked by the collapse of Silicon Valley Bank in March, it was problems at the small and mid-sized regional banks that rocked the financial system. Nationwide, those banks suffered from a big outflow of deposits as spooked customers moved billions to the megabanks, generally viewed as being more secure.
Banking reporter Hannah Lang took a look at the state of small banks for the Charlotte Ledger Business Newsletter. She found the situation is more nuanced and maybe not quite as dire in North Carolina. And she joins us now to discuss her story.
So Hannah, in the days after Silicon Valley Bank collapsed, consumers pulled $200 billion in deposits from small banks. You spoke to people at North Carolina's small banks about the state of the industry now. What did you hear?
Hannah Lang: Yeah, to my surprise, I heard they were, for the most part, doing just fine. I spoke to a handful of quote-unquote bankers across the state. I say, quote-unquote, because for the purposes of this article, I include credit unions as well. And many of these smaller lenders told me that they viewed this crisis as a blip for them in terms of consumer confidence. They had some concerned phone calls, maybe some emails to send, in the immediate aftermath of the crisis. But they told me this had no real lasting impact on their balance sheets, which I was surprised to hear. Honestly, as I write in the article, it kind of looks like a bad time to be a small bank or a smaller financial institution. The folks I spoke to said they've pretty much moved on.
Terry: Well, even though these banks say they're doing fine, you report that they have been hearing from customers who are worried and that these banks are taking steps to reassure those customers that, 'Hey, everything's fine.' What are they doing exactly?
Lang: Yeah. So just a lot of communication, especially in those days immediately following the collapse of Silicon Valley Bank and Signature Bank. I didn't speak to a single bank or credit union that didn't hear from customers in those first few days. Mostly they just wanted to know: Is everything OK? Should I be worried? Is my money safe? A legacy credit union who I spoke to, they have a few locations here in the Charlotte region. They posted a statement right to their website from their CEO that you could click on as soon as you reached the site. Basically, it explained, you know, hey, we have a completely different business model. And these banks that collapsed, you have no reason to believe that your money is not entirely safe with us. Basically, we're regularly checking up on the fact that we have cash on hand to cover all of our liquidity needs and ensure that something like this doesn't happen here. So not only do we have a completely different business model, but we're regularly checking up on it. And those types of things -- the way a bank structures itself, the way that it distributes risk and manages its risk, that's not necessarily immediately apparent, or even comprehensible, to people like you and me.
So what I heard from folks is that it was helpful to sort of lift that curtain, so to speak, and clearly explain that Silicon Valley Bank, Signature Bank, these were very unique institutions — one with many ties to the startup community, the tech community, one heavily involved in the cryptocurrency market. You know, these are very different institutions than the banks I talked to, you know, your main street bank or credit union that has a billion or a few billion dollars in assets.
Terry: What's been the effect on the stock prices for these small banks with all of this?
Lang: Those small banks that are publicly traded, some of them have seen a negative impact on their stock price that could probably be attributed to a hit to their reputation. First Bank, that I spoke to, headquartered in Southern Pines, North Carolina, their chief banking officer told me that there's been no internal changes at the company or nothing going on there that would indicate a drop in the value of their stock. But they have seen their stock price fall something like 17% since the week of the crisis. So he attributed that really to just a sense that small banks are in trouble and their stock is sort of suffering the impact of that more broadly.
Terry: Well, I learned from your story that there are 88 FDIC-insured institutions in North Carolina. Most of them are community or regional banks like the ones we're talking about. That doesn't include the 30 or so credit unions in North Carolina. What role do these smaller banks play in local communities in an era when the trend seems to be tilting toward ever-bigger financial institutions?
Lang: Their perspective is that these institutions really do continue to play an important role in many communities. Some of these smaller banks or credit unions do business with customers that larger banks maybe wouldn't, whether that is a lower-income loan applicant or a really small business. There's also an idea that they're more risk averse by nature because they're playing with fewer poker chips, so to speak. I also think it's important that these community banks, these regional banks, these credit unions — that pretty much used to be the entire American banking system, right? Banking across state lines really only took off in the 1980s. Bank of America started as one of these types of banks. North Carolina National, the megabank as we know it today is a fairly new invention.
Terry: So I guess the big question: Is bigger, better, or at least safer, when it comes to banks?
Lang: We certainly have reason to think that bigger is safer in some regard/ I think anybody who lived through 2008 knows that there's this bit of unspoken guarantee with megabanks, right — which is that for some, if not most, of these institutions, we will see the federal government step in and open up their pocketbook before we see those banks go under. But then we also have compelling evidence to suggest that bigger just means unmanageable. I think if you look at Wells Fargo and any of the news stories that have come out of that bank over the past several years, so many of the issues that that bank has run into have been attributed to their massive size. And of course, like I mentioned, there are always going to be some benefits to smaller institutions.
Adam Currie, the chief banking officer at First Bank, mentioned to me that there was a customer that was considering sort of pooling his fund and moving them to a much larger institution in the aftermath of last month's banking crisis. But instead, he gave Currie a call, and he said, look, I realize that I don't have (JP Morgan CEO) Jamie Dimon's cellphone number. I can't reach the leadership of this institution the way that I can just pick up my phone and give you a call. So in that sense, smaller lenders are always going to have an edge.
But I think it's important to remember whether you're Bank of America or Sklya Credit Union right here in Charlotte, this business runs on confidence. The government knows that, regulators know that and, of course, the banking industry knows that as well. So they're going to do everything they can to ensure customers that their money is safe. And barring these really idiosyncratic, unusual events like the Silicon Valley Bank failure, it is.
