Local banks say they’re well insulated from financial collapse

By JAMES PENTLAND

Staff Writer

Published: 03-13-2023 6:38 PM

NORTHAMPTON — On the heels of the second- and third-largest bank failures in U.S. history, local bankers said they see little chance of the problems spreading far, and no chance that any Massachusetts banks will be in trouble.

“All of our deposits are fully insured by the FDIC and the state’s Depositors Insurance Fund,” said Thomas Meshako, president and CEO of Greenfield Savings Bank.

U.S. regulators closed California’s Silicon Valley Bank on Friday after depositors rushed to withdraw their funds all at once, and New York bank regulators took possession of Signature Bank on Sunday, again because of a high volume of withdrawals over the past week. Both had a specialized customer base — venture capital and high-tech start-ups at Silicon Valley, cryptocurrency investors at Signature — and many large depositors with accounts well in excess of the $250,000 FDIC insurance limit.

The Associated Press reported Monday that shares of First Republic Bank, another bank with many clients from the high-tech sector, plunged more than 70% even after it announced it was securing emergency funding from the Federal Reserve.

While local banks operate under a different business model and are fully insured, that doesn’t mean they will feel no effect from the financial upheavals, said bankESB President and CEO Matthew Sosik.

“There certainly will be impacts, though it’s too early to tell what those may be,” Sosik said, citing insurance cost increases and regulatory changes as possibilities.

But local bankers stressed that their situations are very different from those of the failed banks.

“The composition of our deposits and assets is far, far less risky,” Sosik said, observing that local lenders have a “plain vanilla” business model.

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“We know our depositors,” Meshako said.

While the FDIC insures all deposits up to $250,000, Meshako noted, Massachusetts is unusual in providing insurance on all deposits up to any amount for state-chartered banks through its Depositors Insurance Fund.

Meshako said it’s also beneficial that Greenfield Savings, like many other area lenders, is a mutual savings bank rather than an investor-owned bank answerable to its shareholders.

“It takes a lot of the risk out,” he said.

The failed banks made some bad decisions, too, Sosik said. Noting that Silicon Valley Bank invested a large portion of its deposits in long-term government bonds, he said they could have foreseen that this might cause problems as interest rates rose.

Sosik said he believes the steps the Federal Reserve has taken in response to the crisis — allowing customers of the failed banks access to the entire amount of their deposits and letting banks borrow up to the face value of depreciated investments — will help the financial system pull through.

Florence Bank President and CEO Matt Garrity noted that community banks benefit from not having high-risk concentrations of assets and deposits, and said he was not concerned about any wider effects from the failing banks.

“It’s very much business as usual,” he said.

James Pentland can be reached at jpentland@gazettenet.com.

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