The collapse of Silicon Valley Bank sent ripples through the banking world, causing stocks like Comerica’s to fall as investors looked to guard themselves against a potential domino effect.
The fast pace of interest rate hikes has stressed banks across the U.S., creating a higher risk of failure for them, said Gil Sadka, professor of accounting at the University of Texas at Dallas.
SVB was in a particularly bad spot as it was focused on the underperforming tech sector and purchased bonds, which have lost value with the interest rate hikes, Sadka said. The second bank failure that came over the weekend, Signature Bank, was focused on another struggling sector, crypto.
“The rising rates made the banks vulnerable, but the collapse was triggered by their portfolios,” he said. “Banks that took significant risks chasing returns and those concentrated in struggling industries are at risk.”
Banks that are focused on other struggling industries, such as commercial real estate loans at a time when office space and occupancy rates haven’t fully recovered from the COVID-19 pandemic, are at risk, he said. But banks that are well diversified will likely pull through the tough economic environment, Sadka said.
Customers don’t have reason to panic as the government decided to insure all SVB depositors, meaning it will likely protect other depositors should another bank fail, he said.
Texas Banking Association CEO Chris Furlow said the banking system in Texas is strong and well-regulated and the banks’ portfolios are diversified.
“Texas banks are well-capitalized, asset quality is solid and nonperforming loans are at historic lows, so you can have confidence in your community bank and banks of all sizes,” he said.
Texas banks respond to SVB
Dallas-based Vista Bank, which has more than $1.5 billion in assets, is continuing to grow deposits in spite of the collapse, said its CEO John Steinmetz.
“When the SVB news broke, anyone who said they weren’t concerned about how this might impact the overall community banking system was lying,” he said. “That said, I am pleased to share that Vista Bank has experienced a net increase in deposits since Friday’s news.”
While bank stocks will naturally fluctuate following a bank closure, Texas banks are bolstered by a strong economy and regulatory partners, he said.
“With one of the nation’s strongest, most insulated economies and a solid partner in the Texas Department of Banking, Texas banks are well-positioned to navigate the financial market uncertainties,” he said.
Dallas-based Comerica’s stock fell 35% in the past five days but gained nearly 4% on Tuesday, showing signs of recovery. The SVB shutdown seems to be a unique case rather than an issue with the overall health of the U.S. banking system, said Comerica spokeswoman Carmen Branch.
“While the events of the past few days have been unsettling to many consumers and businesses, it is important to remember that the impacted banks had an overconcentration in certain sectors and geographies,” she said.
Frost Bank CEO Phillip Green echoed those thoughts in an interview with CNBC on Friday, saying that community banks like San Antonio-based Frost, which has over 5,000 employees in Texas, are in better shape than specialized banks.
Frost has been cautious, only lending out about 40% of its deposit base and maintaining 20% of its deposit base in a checking account at the Federal Reserve, he said.
“The only liquidity you have in a crisis is the liquidity you bring to the crisis, and so you better have some,” Green said.
The 155-year-old bank, which has over $50 billion in assets, is reassuring customers who have called with questions about potential impacts, said Frost spokesman Bill Day. Bank failures are very rare so it’s natural for customers to have questions for their own bank, he said.
Like Vista, Dallas-based Texas Capital Bank has seen positive growth since Friday, even hitting a new record for the number of clients onboarded Monday, said CEO Rob Holmes. But he thinks there could be new regulations on banks that will include smaller banks, which will have to learn to comply with them, he said.
“I don’t think that this is over in any shape or form,” he said. “I fully expect for the environment to remain volatile for some period to come.”
The U.S. banking system is sound overall, but some banks are better than others, he said.
“When you have eight rate hikes in a short period of time, there’s a chance something breaks, and it did,” he said.
