Will the collapse of two US banks be followed by more? These banking veterans say no, for now

Lorraine Mirabella, The Baltimore Sun on

Published in Business News

The sudden collapse of two U.S. banks last week left many people wondering about the safety of their own deposits, the health of the banking system and consequences down the road.

Mary Ann Scully, the former CEO of a Baltimore-based bank, has been hearing a lot of such concerns since a bank run hit Silicon Valley Bank and it was taken over by federal regulators, a chain of events that triggered a similar run at New York-based Signature Bank. Bankrate lists those failures as two of the three biggest in U.S. banking history.

“The big fear now is, of course, is this some indication of systemic risk, and does this mean there’s more dominoes to fall?” said Scully, dean of the Rev. Joseph A. Sellinger, S.J. School of Business and Management at Loyola University Maryland and co-founder of Howard Bank, which was sold last year. “I would say I don’t think that is the case — which is not to say that no one else will get into trouble.”

Scully and other experts said they believe Silicon Valley and Signature faced a unique set of circumstances among banks that led to their failures and that are unlikely to be replicated in the same way at other institutions.

“We’ve heard a lot of rumblings, but as you can see, there’s not a lot of banks falling apart all over the place as some might have thought would be the case,” said Marbue Brown, a former JPMorgan Chase “customer experience” executive and head of New York-based consulting firm The Customer Obsession Advantage.

Some say government intervention has stabilized the system and stemmed the panic while others view those steps as merely delaying, not solving, problems.


Federal regulators stepped in last weekend to guarantee all the deposits of both banks, beyond the $250,000 insured by the Federal Deposit Insurance Corp. That calmed worried depositors and investors briefly, but fresh fears emerged again this week as Credit Suisse, a big European bank, appeared vulnerable.

Michael Faulkender, dean’s professor of finance at the University of Maryland’s Robert H. Smith School of Business, blames Silicon Valley Bank’s failure on bad timing, bank mismanagement and insufficient Fed oversight.

A commercial bank that specialized in lending and deposits for tech and health care startups, Silicon Valley Bank had invested heavily in long-term Treasury bonds. Such investments typically would have been considered safe, Brown said. But bonds lost value as the Federal Reserve hiked interest rates 4.5 percentage points in the past year to control inflation. The bank realized losses when it found itself needing to liquidate bonds before they matured.

Silicon Valley Bank “had this massive deposit influx,” said Faulkender, who served as assistant secretary for economic policy in the Treasury Department from 2019 to 2021.


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