National headlines about recent bank woes can raise concerns about the safety and stability of the U.S. banking system. Local bank leaders emphasize that though it’s good for residents to be aware of how account insurance and limits work, holding funds at a bank is as safe as ever.
When two banks, Silicon Valley Bank in California and Signature Bank in New York, failed within a few days of each other over the weekend of March 10-12, some wondered if the U.S. was headed toward another financial crisis. Federal authorities quickly took action to use insurance funds paid for by banks, not taxpayers, to reassure depositors that they would have full access to all of their money. They also wanted to prevent a “contagion” effect that might prompt banking customers elsewhere to withdraw funds out of fear.
“The banking system is strong. Local community banks have a pulse on their customers. We’re well diversified and highly regulated,” said Paul Witte, chief operating officer of First Bank Richmond. “We’re examined quite often by the (Indiana) Department of Financial Institutions and FDIC, and external auditors as well,” Witte said.
At some level, banking relies on the trust of depositors that their bank will make responsible decisions about how to manage funds. Banks can’t hold every customer’s money as cash in their vault for withdrawal at any time, so they balance low-risk investments with appropriate amounts of cash on hand, known as liquidity. If too many customers contact the bank on the same day and ask for their funds when the bank isn’t expecting it, problems can arise.
That’s what happened when Silicon Valley Bank customers lost confidence in the bank’s management, creating a withdrawal panic that apparently became self-fulfilling. But in a message sent to customers on March 12, First Bank Richmond’s CEO Garry Kleer said that situation is unlikely to be repeated locally. “(B)oth banks’ deposit bases were funded by more volatile depositors — leaving them more susceptible to the drastic consequences that occurred. First Bank Richmond’s most loyal customers are comprised of local families and businesses which provide a very stable foundation for our business,” Kleer’s message said.
Witte put it this way: “We’re not allowed to have risky investments. We just can’t.”
Mike Gaddis, president and CEO of Wayne Bank, shared the same sentiment. “As a community bank, Wayne Bank is heavily focused on Wayne County and is not exposed to higher volatile business lines such as investment banking and trading,” Gaddis told the Western Wayne News. “We operate in a conservative nature and limit our risk exposure,” Gaddis said.
Witte said they’ve received a handful of calls asking about the situation, but that in general it’s been business as usual, and in some cases they’ve seen an increase in deposits. He also emphasized that banks of every size have access to the same pools of funds when customer requests might exceed a bank’s cash on hand. Whether it’s making a loan or processing a withdrawal, “the conversion to cash is fairly rapid,” Witte said.
At banks insured by the Federal Deposit Insurance Corporation, account holders are guaranteed that up to $250,000 per customer will be available to them no matter what problems the bank might face, including a bank failure. Witte and Gaddis both agree that while it’s good for customers to be aware of FDIC policies and limits, community banks tend to have a low percentage of uninsured account balances, further limiting volatility. If someone does have questions, they can visit fdic.gov, or just ask. “Our staff can assist depositors at evaluating coverage for their specific circumstances,” Gaddis said.
Volatility may continue in certain parts of the financial world, but for the average Wayne County resident thinking about their checking or savings balances, the banking system still offers safety and stability. Gaddis says they continue to “serve our customers and community focusing on high-quality customer service with no change in our day-to-day operations.”
A version of this article appeared in the March 22 2023 print edition of the Western Wayne News.