Louisiana bankers reassure customers after SVB and Signature Bank failures
The recent collapse of Silicon Valley Bank (SVB) and Signature Bank sent shockwaves through financial markets and resulted in a decline in the stock prices of several regional banks, including New Orleans' First NBC Bank. Despite this, Louisiana bank executives and economists have stated that there are few parallels between the local bank failure in 2017 and the recent demise of SVB and Signature. They also claim that there is little reason to worry about the viability of Louisiana’s community and regional banks as compared to Silicon Valley Bank and many other lenders, they conduct far less business with the San Francisco startup and venture capital world, have fewer uninsured deposits, manage more balanced portfolios, and have different investment philosophies.
According to Jude Melville, President of Baton Rouge-based B1Bank, most community banks are very different from SVB and Signature, and they are a totally different type of company. He and his counterparts at other local financial institutions spent time reaching out to customers in emails and phone calls to reassure them that all is well. Although local bank stocks were down on Monday, those declines were more in line with the moves seen by major global banks, like Citigroup and Wells Fargo, and were a far cry from the massive price declines of more vulnerable lenders.
SVB, based in Santa Clara, was the 16th largest bank in the U.S. at the end of 2022, with about $209 billion in assets and counted among its clients big-name tech companies like Roku, Roblox, and Vox Media. Signature Bank, at the time of its surprise closure by federal regulators, had $110 billion in assets. By comparison, the assets of Hancock Whitney, the regional bank with the second-largest market share in the Greater New Orleans area, had about $35 billion in assets at the end of $2022, and B1Bank had about $6 billion. However, it is not size so much that differentiates local institutions from SVB and Signature, but rather the types of loans and investments they made and the type of customers they did business with. SVB was heavily concentrated in the tech industry, while Signature had reportedly attracted cryptocurrency customers of late. Another key difference is the high percentage of uninsured deposits at the two failed banks. The FDIC insures deposits at U.S. banks up to $250,000. But some 87% of SVB’s deposits were uninsured, which meant there were many people and companies that were tempted to pull their uninsured deposits out in what amounted to a classic bank run. At Signature, some 90% of deposits were uninsured.
By comparison, the national average is about 40%. Hancock Whitney is 50%, B1B is about 35%, according to recent company filings. New Orleans-based Fidelity bank, which has $1 billion in assets, is less than 25%. Another significant factor in the failures of SVB and Signature was their investment approach. Both were heavily invested in mortgage-backed securities, which have lost value as interest rates have gone up.
Louisiana's banking industry is stronger than at any time since the financial crisis of 2008, notwithstanding the $1 billion collapse of First NBC five years ago. However, as a federal jury decided in February, the cause of the collapse of First NBC was different from what's occurring in financial markets today. Regulators blamed the local bank failure largely on fraudulent loans made by its former CEO, Ashton Ryan Jr. Ferris and others have stated that they heard from some clients Monday but haven’t seen anyone panicking. They have been proactively calling their clients and people in the community to assure them of strengths in the banking system and of the conservative nature of what they tend to invest in.