Banks are seen as safe but uninsured customers have been burned before
ERIC FOSTER: If I thought that was a risk, I would have immediately mitigated the risk. That was not even a smidge of a thought in my head.
SIMONE DEL ROSARIO: SILICON VALLEY BANK MAY HAVE BEEN IN THE WEST.
BUT IT’S NOT THE WILD WEST – WHERE BANK BANDITS COULD MAKE OFF WITH YOUR HARD-EARNED CASH.
I’D ARGUE NOW, WHEN PEOPLE DEPOSIT MONEY IN THE BANK, IT’S BECAUSE THEY BELIEVE THAT’S THE SAFEST PLACE IT COULD BE.
IT’S NOT IN AN INVESTMENT THAT COULD LOSE VALUE. IT’S NOT IN YOUR WALLET WHERE IT COULD GET STOLEN.
IT’S IN THE MODERN BANKING SYSTEM, THE BACKBONE OF OUR ECONOMY.
BUT BANKS DO FAIL AND PEOPLE DO LOSE MONEY.
GIVEN THE MEDIA STORM AROUND THE FAILURES OF SILICON VALLEY AND SIGNATURE BANKS, IT’D BE FAIR TO THINK, WOW THIS MUST NOT HAPPEN VERY OFTEN.
BUT IT HAPPENS NEARLY EVERY YEAR.
AND WHILE NOT A PENNY OF INSURED FUNDS HAS BEEN LOST IN THE HISTORY OF THE FDIC – DEPOSITORS DON’T ALWAYS GET *ALL* THEIR MONEY BACK.
WE ASKED THE FDIC FOR A LIST OF FAILED BANKS WHERE UNINSURED DEPOSITORS LOST MONEY. AND GOT A LIST OF 76 INSTITUTIONS DATING BACK TO 1993.
SOME OF THOSE LOSSES ARE RELATIVELY SMALL. OF THE MORE THAN 30 MILLION IN DEPOSITS AT FAILED ENLOE STATE BANK, ABOUT 461-THOUSAND DOLLARS OF CUSTOMER MONEY WAS UNINSURED. AND 61% OF THAT WAS LOST FOR GOOD.
BUT WHEN, FOR INSTANCE, THE COLUMBIAN BANK AND TRUST COMPANY WENT UNDER, SO DID 95% OF UNINSURED DEPOSITS TOTALING MORE THAN 25 MILLION.
SO WHY – IF BANK FAILURES HAPPEN NEARLY EVERY YEAR, ARE SVB AND SIGNATURE DEMANDING SO MUCH ATTENTION AND CONTAGION?
IT’S PARTLY BECAUSE OF THE SHEER SIZE OF THE BANKS.
THE TOTAL ASSETS OF THESE TWO FAILED BANKS NEARLY MATCH THE ASSETS OF ALL FAILED BANKS IN 2008.
BUT UNLIKE SOME BEFORE THEM, NO ONE LOST A DIME.
ERIC FOSTER IS THE CEO OF WOOP INSURANCE, A VENTURE-CAPITAL-BACKED STARTUP THAT BANKED WITH SILICON VALLEY BANK.
ERIC FOSTER: It became evidently clear that by Thursday night, there was a run on it. So then we were like, Alright, let’s see if we can get the money out because there is a run on and we don’t know what’s going to happen from that. But at that point, it was too late.
SIMONE DEL ROSARIO: WITH MILLIONS IN UNINSURED FUNDS LOCKED AWAY AND ABOUT 25 FULL TIME EMPLOYEES AWAITING PAYROLL – FOSTER WENT INTO FIX-IT MODE. BUT WITHIN DAYS THE FEDERAL GOVERNMENT ANNOUNCED CUSTOMERS WOULD GET FULL ACCESS TO THEIR FUNDS. AND WOOP INSURANCE DECIDED TO STICK WITH THE FEDERALLY-CONTROLLED SVB.
ERIC FOSTER: I still feel safe, if anything, I more so trust the American government for stepping in as they did, and the reality was like, did I have a few really crappy days? What is the downside outside of the handful of days and additional work for me, I did not lose a single dollar nor did my business lose a single dollar outside of the time spent? I think there should have been more tighter regulation on how those assets are managed. Like not to go into details. But why are you investing in a 10 year T note when you know, the average cycle span for a VC is 18 to 24 months when someone gets in their money to when they need to need a new flood of cash that is just flat out illogical to me.
SIMONE DEL ROSARIO: THE FDIC’S DEPOSIT INSURANCE FUND IS TAKING A $20 BILLION DOLLAR HIT OVER SVB’S FAILURE.
AND NOW, SVB HAS A NEW NAME. REGIONAL NORTH CAROLINA-BASED FIRST CITIZENS IS TAKING OVER – GETTING $56.5 BILLION IN SVB’S DEPOSITS AND $72 BILLION IN LOANS AT A $16.5 BILLION DOLLAR DISCOUNT.
ACCORDING TO A SPOKESPERSON, FIRST CITIZENS IS NOT NEW TO THIS. THEY’VE ACQUIRED MORE THAN 20 FDIC-INSURED BANKS SINCE 2009. AND ITS LATEST SNAG MOVES IT INTO ONE OF THE TOP 15 U-S BANKS, ACCORDING TO BLOOMBERG INTELLIGENCE.
BUT WILL IT BE ABLE TO MEET THE NEEDS OF TECH STARTUPS LIKE WOOP INSURANCE THAT BANKED WITH SVB? COMPANY CO-FOUNDER ERIC FOSTER TOLD US ABOUT TROUBLES WITH REGIONAL EAST COAST BANKS THAT DROVE HIM TO S-V-B IN THE FIRST PLACE.
ERIC FOSTER: Every time I had to wire something it came up as fraudulent. Because we had huge sums of money come in, come into us with basically no real reason for it outside of yes, we are venture capital backed that is what the industry is, and then huge sums of money outflow in a really short period of time. My literal line before, is commercial banking was the bane of my existence, because I would spend days just doing normal business transactions, and it had to actually be me to get physically had to be the CEO of the company. So the reason why I went there is because, hey, we knew we had the money, there was a, there is a reputation of being easy. And frankly, when I got there, I was like, wow, this is a lot easier than everyone else.
SIMONE DEL ROSARIO: AND NOW BILLIONS ARE AT STAKE IN HOW FIRST CITIZENS ADAPTS TO ITS NEW, HUGE TECH BASE. FOR NOW, FOSTER TELLS US – HE’S STICKING WITH THEM.
FRANK HOLDING JR.: Silicon Valley Bank brings to us, overlaps our strengths in private banking, wealth management, and small business banking. what we look forward to learning and listening to is their market expertise in serving the tech and venture market and we’ll be adding a lot of associates with that capability.
SIMONE DEL ROSARIO: AS FIRST CITIZENS GOBBLES UP ITS LATEST BANK – A NEW STUDY RELEASED THIS MONTH SHOWS 186 BANKS ARE VULNERABLE TO THE SAME RISK THAT TOOK DOWN SVB.
RESEARCHERS FROM THE NATIONAL BUREAU OF ECONOMIC RESEARCH SAY IN A WORKING PAPER THAT EVEN IF *HALF OF UNINSURED DEPOSITORS AT BANKS TOOK THEIR MONEY AND RAN, 186 WOULD HAVE TROUBLE STAYING AFLOAT FOR EVEN THEIR INSURED DEPOSITORS.
HAL LAMBERT: You’ve got to figure with that number. You’re going to have one or two at least more banks that are going to have similar problems to Silicon Valley. And then what’s the, what’s the Fed going to do? Are they going to let depositors at those banks lose their money and start picking winners and losers at the regional bank level.
SIMONE DEL ROSARIO: IF A WIDESPREAD BANK RUN HAPPENED AND THE FDIC SHUT DOWN THESE BANKS, THE PAPER SUGGESTS THERE’D BE NO INSURANCE FUNDS LEFT OVER FOR REMAINING UNINSURED DEPOSITORS, MEANING THE DECISION TO RUN WOULD HAVE BEEN A RATIONAL ONE.
AND WHY THE GOVERNMENT IS KEEN ON EARLY INTERVENTION.
JEROME POWELL: The banking system is sound and it’s resilient. It’s got strong capital and liquidity. We took powerful actions with Treasury in the FDIC, which demonstrate that all depositors savings are safe into the banking system is safe. Deposit flows in the banking system have stabilized over the last week. And the last thing I’ll say is that we’ve undertaken, we’re undertaking a thorough internal review that will identify where we can strengthen supervision and regulation.
SIMONE DEL ROSARIO: BUT IS IT TIME FOR THE GOVERNMENT TO RECONSIDER HOW MUCH OF YOUR BANK DEPOSITS ARE INSURED? RIGHT NOW IT’S $250-K. BUT LET’S GO BACK TO WHAT I SAID AT THE BEGINNING OF THIS REPORT. PEOPLE OFTEN ASSUME THEIR MONEY, ALL OF THEIR MONEY, IS SAFE IN THE BANK.
ERIC FOSTER: If you really only believe that you have $250,000, that’s going to be safe in there, not only will you not deposit it, people are not going to spend money nearly as much that money will not be reinvested in the economy, because banks can’t loan it out to other businesses or other people.
SIMONE DEL ROSARIO: SOME ARE CALLING FOR THE FDIC CAP TO BE RAISED. IT WENT FROM 100K TO 250 DURING THE 2008 FINANCIAL CRISIS.
SEN. ELIZABETH WARREN: I think that lifting the FDIC insurance cap is a good move. Now the question is where’s the right number. Is it $2 million? Is it $5 million? Is it $10 million? Small businesses need to be able to count on getting their money to make payroll.
SIMONE DEL ROSARIO: FORMER FDIC CHAIR BILL ISAAC TELLS ME – HE’S NOT A FAN.
WILLIAM ISAAC: I think that would be a horrible idea and would destroy the free enterprise system that we have developed and the banking system that supports it.
SIMONE DEL ROSARIO: HERE’S HIS COUNTER PROPOSAL.
WILLIAM ISAAC: What we wanted to do was to put full insurance, full 100% deposit insurance on all business checking accounts that did not pay interest. The notion that small businesses need their checking account money available to them at all times, under almost all circumstances is absolutely correct. and it would be a huge benefit to our country or nation and the small business sector of the nation in particular, if we would protect non-interest bearing business checking account.
ERIC FOSTER: Clearly, I’m biased that I’m going to like that proposal, particularly given the current environment, I would say I don’t think there is, to my knowledge, a downside in doing that.
SIMONE DEL ROSARIO: LET’S GET THE CONVERSATION GOING IN THE COMMENTS…WHAT SURPRISED YOU IN THIS REPORT? AND STICK WITH STRAIGHT ARROW NEWS FOR MORE BANKING CRISIS COVERAGE. I’M SIMONE DEL ROSARIO, IN NEW YORK, IT’S JUST BUSINESS.