Will the Silicon Valley Bank collapse impact Baton Rouge?
03/13/2023
By: Holly Duchmann for Greater Baton Rouge Business Report
While investors around the nation scramble this morning following two bank failures in less than 48 hours, Fidelity Bank and NOLA Lending President and CEO Chris Ferris does not foresee a larger collapse of the industry.
Silicon Valley Bank’s seizure by federal regulators on Friday marked the second-largest bank failure in U.S. history, behind only the 2008 failure of Washington Mutual. The collapse underscored growing concerns that the Fed’s attempts to get inflation under control with rising interest rates could shatter the banking system and the greater economy. Those fears grew on Sunday, after regulators announced the seizure of New York-based Signature Bank.
“I think the event is idiosyncratic to those two banks’ circumstances,” Ferris says. “I’m not sure who in town has exposure to the two institutions, but it’s likely it will have little to no impact on the Baton Rouge community.”
Silicon Valley Bank, with 17 branches in California and Massachusetts, specialized in serving the tech and startup space, which Ferris says made the bank more susceptible to risk. Baton Rouge’s economy is more diversified than Silicon Valley’s, creating a more stable environment for the local community banks.
Silicon Valley Bank was previously thriving, he says, with fairly low credit losses and deposits almost tripling the last two-to-three years, mostly from venture capital-backed companies. But the deposits came in too fast to keep up with lending and the bank bought assets to cover their costs. Then, as the Fed kept raising interest rates, those assets declined in value.
“Banks like Silicon Valley Bank are levered 10:1 or more—owing $10 plus for every $1 of shareholder equity,” Ferris says. “If you’re levered 10x, a 10% loss on assets is a 100% wipeout.”
At the end of 2022, Silicon Valley Bank had approximately $209 billion in total assets and about $175.4 billion in total deposits. At the time of closing on Friday, the amount of deposits in excess of the insurance limits was undetermined. Customers with accounts in excess of $250,000 are being urged to contact the FDIC.
President Joe Biden, this morning, said people should “rest assured” that the banking industry is safe and that he will ask Congress and the banking regulators to strengthen rules for banks to make it “less likely this kind of bank failure would happen again.”