‘Somebody failed Banking 101’: Miss-Lou bankers draw distinctions between community banks and those in trouble

Published 2:27 pm Monday, March 20, 2023

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NATCHEZ — Banking stocks have taken a hit after recent negative news involving Silicon Valley Bank, a West Coast investment bank, and now First Republic, also a West Coast bank, which is requiring a government-organized funds infusion from its competitors to continue to operate.

Bankers at community banks in the Miss-Lou said this week that few of their customers had expressed concerns. However, they point out the vast differences between banks here and those larger banks in trouble now.

Adrian Sandel

“We were prepared to answer questions and concerns from our customers about the recent developments in the banking industry, but have been pleasantly surprised all week that it has been a complete non-event for us,” Adrian Sandel, CEO of United Mississippi Bank, said. “It is rewarding to know that our customers and customers of community banks, in general, are confident in how we are running our banks and not lumping us in with the larger institutions.”

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Pat Biglane, president and CEO of Concordia Bank and Trust, agreed.

“We have not had a whole lot of conversation about it,” Biglane said. “I think our customers are confident in our bank and other local banks.”

Biglane said banks in the Miss-Lou are fully liquid and undergo a “stress test” each quarter to make certain that stays the case.

Pat Biglane

“Our bank is privately held by local folks in the community. Most of the banks in our area are community owned,” Biglane said. “We are very proud we will celebrate our 120th anniversary this year. We have been through a lot, and other banks have been through a lot, but we are in good shape. It’s a matter of being locally owned, knowing your banker and your bank knowing its customers.”

Sandel said U.S. Treasury Secretary Janet Yellen, in a statement made on Thursday, said, “Community banks don’t need government bailouts, unlike too-big-to-fail institutions, because of their safe, sound, and relationship-based banking model.”

“And although I disagree with her position on bailing out big banks who make unsound business decisions, I agree with her assessment of the community bank business model. And it was nice to get that recognition.

“You don’t take money that you have for a short time, and invest for a long time. Yes, you can earn greater return by buying longer-term investments. But you can also get yourself in a severe cash crunch. And that is exactly what Silicon Valley Bank did. They took the money in their customers’ checking accounts, and bought long-term bonds. Then, when their customers wanted their money back, the bank did not have it. And, in order to get it, they had to take huge losses selling the long-term bonds because of today’s higher interest rates. I think somebody failed Banking 101,” Sandel said.

Deanna Kimbro, senior vice president and Mississippi market president for Home Bank, said, too, few of her bank’s customers have asked questions about the banking crisis.

Deanna Kimbro

“Typically, banks fail due to bad loans. Silicon Valley Bank failed for a very different reason and the Fed is putting measures in place so that doesn’t happen going forward,” Kimbro said.

The federal government very recently established the Bank Term Funding Program.

“If this program were in place, Silicon Valley Bank would not have failed,” she said. “This program allows banks to pledge U.S. Treasuries, agency debt, mortgage-backed securities and other qualifying assets as collateral for a one-year loan to make funding available to banks. This program helps with liquidity and eliminates the need to quickly sell those securities in times of stress.”

Kimbro said that when anyone buys stocks, the value goes up or down over time.

“Silicon Valley Bank was highly leveraged in the bond market. They had to sell $20 billion in bonds at a significant loss to meet depositors’ needs. People took notice, and the venture capitalists took their money out, and the bank failed. If the Bank Term Funding Program had been in place, SVB would not have failed.

“SVB also invested heavily in the tech sector. Community banks are more diverse,” Kimbro said. “Signature Bank in New York failed because they had become a hub for crypto exposure. Home Bank — and community banks in general — have a more diverse funding and investment base. Home Bank is well capitalized, strong and positioned to serve our community and customers. We do not invest in cryptocurrency.”