RMA Members React to Bank Failures

With two well-known banks having failed since March 10 and stocks in several financial institutions shaken, RMA members are watching the fast-moving events tied to the industry’s liquidity challenges and thinking about their short- and longer-term impacts. 

The decision by regulators to guarantee depositors access to all funds at the failed Silicon Valley Bank and Signature Bank of New York appears to be preventing a feared wider bank run. President Biden emphasized Monday morning that “Americans can rest assured that our banking system is safe.”

“Recent events make clear that banking fundamentals, including balance sheet management and addressing concentration risk, remain critical,” said RMA President and CEO Nancy Foster. The speed of the Fed’s recent rate increases, and the fact that they followed so closely on abundant liquidity from pandemic-era stimulus, helped to set the conditions for a serious event, Foster said. In addition, concentration of lending and deposits in one area of the economy “always introduces more risk,” she said.

Senior bankers responding to unfolding events emphasized the importance of banking fundamentals, including asset-liability management and careful monitoring of concentration risk. Periods of rapid growth can demand extra attention to diversification, they noted.

Reaction to U.S. regulatory action to make uninsured depositors whole was generally positive. “I think that the actions of the government were appropriate and should create confidence in our system,” one banker said. Resolve to carry lessons forward from the crisis is strong, with bankers citing efforts to review liquidity policies and stress tests, and to update crisis playbooks. Attention to communications and to managing the risk posed by fast-moving information in a social-media influenced environment are top priorities.

“RMA and its members will take a long and deep look at the specific circumstances of the SVB and Signature Bank of New York situations,” Foster said, “just as they have with every period of economic distress in the last 109 years—to learn from them and help other banks make sure they are not at risk.”

RMA is continuing to follow these important developments and is planning a webcast for members, along with an asset-liability management seminar. Check back often for updates, virtual events, and other information focused on this topic.