By Billy Foster
As a community bank, we’re well aware of the conversations people are having about the recent turbulence in the U.S. banking system. According to a Gallup Poll conducted this spring, a total of 48% of U.S. adults indicate that they’re worried about the safety of the money they’ve entrusted to banks and other financial institutions. We understand that anxiety, and we’d like to take a moment to speak directly to our friends and neighbors about the health of the financial services industry.
Our industry was shaken in March of this year by the collapse of several high-profile banks. No banker likes to see this happen to another financial institution. When any bank is in trouble, it reverberates throughout the entire industry. While we may not have anticipated the time we would spend this year reassuring our depositors and the community that banks and our regulators are here to protect their assets, we stand by our belief that the banking system as a whole is strong.
There are many different types of banks across the country, some favoring strategies that are riskier than others. The banks that folded earlier this year had unusual characteristics that do not fit the profile of most banks in the country or here in our community. While the failed banks were in large markets with an international presence, TowneBank and other regional and community banks subscribe to the philosophy of “Main Street banking,” where we serve the same people and businesses that you deal with in your community daily. Everything from the hair salons to the local home builders, YMCAs, places of worship, local auto dealers, doctors, lawyers, dentists and veterinarians, local hotels, universities, and businesses of all types—those are our members.
A review of the failed banks reveals a concentrated mix of large businesses, private equity firms, cryptocurrency exchanges, and exceedingly high levels of uninsured deposits. By contrast, the banks in our community and most U.S.-based banks are well-diversified, have broad bases of deposits in many different mainstream industries, and maintain strong capital ratios.
Leadership and governance are important in every organization, and they receive heavy scrutiny in bank examinations, as they should. The failed banks showed areas of weakness in their board governance, where interest rate risk had risen to dangerous levels and poor risk management prevailed. Healthy banks reinforce the mandate that executive leadership and the board of directors share a responsibility to protect the depositors of the bank by ensuring the bank is operated in a safe and sound manner. Corporate oversight, risk management strategies, and the efficient use of internal controls are common attributes of banks known for strong regulatory compliance. These practices strengthen asset quality, a win for borrowers as well as for the banks and their shareholders.
The good news is that most industry observers agree that the worst is behind us now. Deposit outflows have stabilized, and some regional and community banks are growing their deposit bases once again. It certainly appears that Main Street banks have weathered the storm.
Being a bank that runs on sound practices and enjoys strong governance is good business, but the best part about our business is that our members are our friends. Building relationships and working together to advance the quality of life in our communities remains our priority. As a Main Street bank, we will continue to provide a safe haven for your deposits and be a source of financial strength by providing loans to help our communities thrive. We thank you for embracing community banking, and we remain dedicated to our focus on serving others and enriching lives right here at home.