Banking experts to local customers: 'Don’t worry'

And while Silicon Valley Bank faced what may have been a perfect storm of poor decisions and circumstances, customers don’t need to fear that their local bank is going down the same path, said Jim Harriss, a professor of banking and finance at Western Colorado University.

“Silicon Valley Bank was a special case,” he said, noting that the bank had been making risky loans for a while when they encountered the liquidity crisis that ultimately resulted in a run on the bank.

Needing cash, the bank known for lending to tech companies and startups sold off treasury bonds at a nearly $2 billion loss due to increased interest rates.

“Bond prices go down when interest rates go up,” Harriss explained. 

But the move spooked investors and depositors, leading to a run and the ultimate collapse of the bank. However, the FDIC has since ensured all depositors will get their money back, even for deposits over $250,000. The money needed to make the investors whole will come from a fund made up of fees the FDIC has collected from member institutions.

Silicon Valley Bank wasn’t the only one to collapse, as New York-based Signature Bank was also shut down by state regulators and depositors were again reassured by the FDIC.

However, Harriss said, “People don’t need to worry about this.” He said community banks should be fine, and noted Silicon Valley Bank served a specific niche in the industry and made the kinds of risky decisions other institutions shy away from.

A statement from the Colorado Bankers Association referred to the Silicon Valley and Signature collapses as “outliers” and said Colorado Banks have enough liquidity to meet customer needs.

“The California bank had significant concentrations of tech and venture capital clients while the NY bank had a significant concentration of cryptocurrency clients. Banks do not generally have significant concentrations. The recent closures are the first bank closures in nearly three years, which is a testament to the resiliency of banks and their ability to support the economy and the communities they serve,” it said.

Bruce Alexander, CEO of Vectra Bank, which has a branch in Montrose, called the situation “not relevant to Colorado” and said there was no systemic risk for customers. Vectra is owned by Salt Lake City-based Zions Bancorporation, which Alexander said has around 1.4 million clients across the West with a significantly smaller average deposit size than accounts at Silicon Valley Bank.

“The average balance of an account at Silicon Valley Bank was about 22 times the size of the average balance in a Zions account, which made Silicon Valley Bank much more susceptible to the kinds of outflows they experienced last week,” according to a statement Vectra sent customers last week. Alexander noted that around 95% of deposits at Silicon Valley were over the $250,000 threshold insured by the FDIC, while at most banks closer to 50% of accounts are insured.

He said Vectra hasn’t seen anything resembling a run, though some customers with high amounts in their accounts have sought to diversify assets across banks.

However, Zions, which is publicly traded, is one of multiple banks that experienced a drop in stock prices this week. Prices for a share fell sharply between Friday, when they traded around $40, and Monday, when they dipped to just under $30 and have hovered between $29 and $32 since, as of Friday morning.

Alexander said he is hoping the price will recover as the concern settles down, and Harriss said he believed the reason for the drop in stock prices of financial sector institutions to be “panic selling.”

At this point in time, Lee also said customers don’t need to be anxious. But he expressed some concern for the long-term prospects of the banking system, as he believes if the Federal Reserve continues to raise interest rates to balance out inflation, it could push the stability of more banks as costs to borrow money, for both banks and consumers, increase.

However, those with under $250,000 in their account can remember their money is backed up by the FDIC.

Representatives from Alpine Bank and Bank of the West did not respond to requests for comment.