The failures of Silicon Valley Bank and First Republic have shocked the banking sector, sending stock prices down.
But in Colorado, industry officials believe there is no systemic risk, and consumers shouldn’t be concerned.
The bank failures, while large, are likely isolated cases particular to their own investment decisions. The underlying health of households and many businesses in Colorado and across the U.S. is strong, and many banks have internal controls and diversified portfolios to manage things like interest rate hikes.
“You have a lot more important things to worry about than your bank,” said Doug Price, Chairman and CEO at CSBO Holdings in Ouray. “I own a bank. We and the employees own a bank. We're not stressed out every day about the safety of our bank. We just aren't. We are worried appropriately about the functioning of the economy."
Any banking customer with deposits of less than $250,000 truly has nothing to worry about, said Price, since that money is federally insured.
“Generally speaking,” Price said. “Banks are a product of the health of the economy.”
Most of Colorado's banks are community banks, and don't face the same problems as larger banks
It's difficult to analyze the health of Colorado's independent banks. Most are privately held, offering limited information into their financial health. And while others have metrics on deposits they must report publicly, all are now too small to undergo "stress testing" by the Federal Reserve.
But leaders in the state's banking community speak with confidence about the health of the sector, and they point to several reasons.
For starters, they say, there doesn’t appear to be the same systemic risk to the system, like in 2008, when subprime mortgages pervaded the balance sheets of the nation’s largest banks.
The Federal Reserve has raised interest rates to slow down the economy, to reduce high inflation that’s eating into household earnings. That has worked to a degree, and banks, like other businesses, are feeling the slowdown.
Some banks though, like Silicon Valley Bank, didn’t have the proper hedge on rising interest rates, customers got spooked and that created a run on the bank. But those problems appear to be highly specific to those banks.
Smaller banks, like those owned and operated in Colorado, take a totally different approach to their business that reflects how close they are to their customers.
“Community bankers are, their customers are, their neighbors,” said Michael Van Norstrand, executive director of the Independent Bankers of Colorado. “And so they see their customers at church. They see them in the grocery stores. The last thing they want to do is put their customer’s deposits at risk. Their business models really are dedicated to safety and soundness and thorough underwriting and robust risk management.”
Van Norstrand said there are 126 banks authorized to do business in Colorado, and about three-quarters of them are community banks. And he’s quick to dismiss any connection to today’s banking issues and the banking crisis that led to the Great Recession or Great Depression.
“No, not at all. And I think if you talk to the regulators there's general consensus that the banking system, as a whole, is really strong.”
Still, for banks that are publicly traded, it’s been a rough year for their stocks. In part, because short sellers this year are targeting some banks they think are vulnerable and have made nearly $7 billion betting against some regional banks, according to a source cited in The New York Times on Thursday.
At least one Colorado bank has felt the downturn in stock prices
National Bank Holdings Corporation, which is headquartered in Denver, does business in Colorado as Community Banks of Colorado.
NBHC’s stock price is down about 40 percent in the last six months, but in a conference call a couple of weeks ago, executives were confident in their business.
“We delivered record net income during the quarter,” said CEO Tim Laney on the call. “The loan portfolio, it performed extremely well during the quarter.”
The bank's executives said they have a diversified deposit base and aren’t exposed to some of the riskiest sectors of the economy.
“We believe it's prudent to be preparing for some kind of faults in the industry just given where the economy appears to be headed,” Laney added. “But I think we're well positioned for it.”
In a statement to CPR News, a bank spokesperson said: “Our strong capital, ample liquidity, and relationship-based banking model positions us to continue to serve our clients and communities in any economic environment. Our stock performance reflects that of most other regional banks.”
On Friday, the bank’s stock was up about 5 percent on strong hiring data — non-farm payrolls were up more than 250,000 jobs in April, suggesting a recession was not imminent.
The smaller private banks in Colorado, meanwhile, are not subject to the short selling of bank stocks, since they aren’t publicly traded. “My members don't have to worry about that,” Van Norstrand said.
Still, the industry is prepared to push back against any new regulations coming from Washington, especially on smaller community banks.
“I'm actually gonna be in Washington in a couple of weeks,” Van Norstrand said. “We're watching very closely what the knee-jerk reaction might be out of Washington. And we feel very, very strongly that it isn't and wasn't the community banks that caused this problem.”
