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Area institutions work to ease panic after Silicon Valley Bank collapse

While investors might be reeling from the collapses of Silicon Valley Bank and Signature Bank, leaders of our community banks say everything is fine here.

“We’re doing well,” said Craig Zurn, the president of Jim Thorpe Neighborhood Bank. “It’s business as usual.”

Albert Yesu, the CEO of First Northern Bank and Trust, said, “The main thing that everyone should know is they were just very, very different banks. Don’t panic. Our banking system is safe.”

The Federal Deposit Insurance Corp. insures 100% of investments up to $250,000. The federal government has also stepped in to cover amounts over that for SVB and Signature Bank through the Deposit Insurance Fund, because losses in these banks posed a systemic risk to the banking system.

Patrick Reilly, the president of Mauch Chunk Trust, said that designation made it possible for the government to cover every investment.

“If they didn’t step in and do more, it would pose a problem for the banking system,” Reilly said.

SVB and Signature banks have a different business model from community banks. SVB catered to technology, health care, life science, and startup companies. Crypto currency was the Achilles’ heel for Signature Bank.

“There are some worries about that,” Kevin Schmidt, president of Neffs National Bank said about crypto currency.

Reilly pointed out that at SVB only 6% of the deposits could qualify for FDIC protection. Whereas at Mauch Chunk Trust, 74% of the deposits are protected by FDIC. The remainder are public funds.

“It’s a whole different type of business plan,” he said.

Reilly said that when banks fail, it is usually because of bad loans. The loans aren’t paid back, so the bank is left with a loss. That wasn’t the case with SVB.

In this case, technology companies, in particular, were making large deposits into the bank. The pandemic had proved to be a boon for some technology companies.

Zurn said SVB had “all of these deposits and nowhere to go with it.”

The bank, in turn, sought to invest the money. Some of it was invested in safer long-term investments and some in other types of investment.

For instance, Reilly said some of the investments were in things like government backed 30-year Treasury bonds, which won’t default.

When interest rates rose in order to slow inflation, the bank’s investments lost value.

“There was a temporary liquidity problem for that bank. There really shouldn’t be any loses there. If there are losses, it would depend on the timing of the liquidation,” Reilly said.

The losses caused some SVB clients, who for the most part are not protected by FDIC, to become nervous about their deposits.

“It was a classic bank run,” said First Northern’s CEO Albert Yesu said. “It doesn’t take too many to cause a problem.”

“It’s really a case of customers losing confidence,” Reilly said.

In addition to interest rates causing problems, several technology companies have had their own losses resulting in layoffs in 2022. A CNBC report in January stated that 95,000 employees were let go from technology companies in 2022, and more layoffs were pending for 2023.

Yesu said, “SVB had a very, very different business model than community banks. Their deposits were highly volatile. Most of the banks in the country and community banks are in a very different place.”

All of the bankers said only a few customers have asked about the SVB and Signature Bank collapses and the health of community banks.

Yesu said he thinks most people see the difference between community banks and SVB and Signature Bank, and they know their investments are protected.

Zurn said the local community banks have a good relationship with federal regulators and the Pennsylvania Department of Banking, and have regular meetings with them.

“I thank the federal regulators for having these meetings. We have a great rapport with them, and that’s important,” Zurn said.