March 18, 2023 / VOLUME NO. 253

The New Crisis

We’re always thinking about the last crisis and it’s not easy to anticipate the next one. 

Barney Frank is a case in point. The former U.S. representative was one of the key architects of the last banking reform bill, the eponymous Dodd-Frank Act. And he served on the board of $110 billion Signature Bank in New York, which New York regulators closed March 12. 

Signature was the third bank to fail or close, following the much larger SVB Financial Group’s Silicon Valley Bank, at $209 billion in assets. And a smaller bank closed its doors on March 8: the $11 billion Silvergate Capital Corp.’s Silvergate Bank. 

Those banks experienced a classic bank run: their depositors got spooked and demanded their money and, in some cases, they told their colleagues to go demand all their money. Sure, the Monday morning quarterbacks will find a lot wrong with their businesses — the fateful decision to load up on longer-duration bonds ahead of a period of rising interest rates. The decisions to cater to a few industries with a lot of uninsured deposits, rather that diversify their deposit bases. We will learn even more about what went wrong with these banks in the months ahead. 

But all banks are facing difficult issues when it comes to the interest rate environment, even those that didn’t make the same decisions as the management teams of Silicon Valley Bank and Signature Bank. Our Editor-at-Large Jack Milligan writes about that problem in the upcoming issue of Bank Director magazine, which publishes April 12. 

This moment has little to do with the last financial crisis. Unlike in 2007 and 2008, credit quality is good. Overheated real estate hasn’t collapsed. Subprime mortgages aren’t invading the world’s economies. Capital is high. 

This is the moment that liquidity — the ever-present threat in banking — takes center stage. As rates rise, the cost of funding can go up too, even though longer-term loans and assets don’t necessarily reprice higher. A lot could happen in the weeks ahead, and global banking regulators may successfully improve confidence in the banking system, as well as stability. Or they may not. Bankers will have to look ahead, not behind them, and anticipate what their depositors and borrowers need in the months ahead. The last financial crisis will offer little to guide them. 

• Naomi Snyder, editor-in-chief of Bank Director

*This newsletter was last updated at 2 p.m. CDT Friday.

Will Regulators’ Actions Stem Deposit Runs, Banking Crisis?

Time will tell if recent regulatory actions work, but bank boards should ask questions now. 

“Every board of every bank should be asking their management right now: Do we have this problem? If we do have a risk, how are we hedging it? What sort of options do we have to backstop liquidity? What’s our plan?” — Clifford Stanford, Alston & Bird 

• Kiah Lau Haslett, managing editor of Bank Director

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