Executive Letter: An Update on Recent Out-of-State Bank Failures

By Rose Oswald Poels

Since the announcement of the failures of Silicon Valley Bank (SVB) in Santa Clara, California and Signature Bank in New York, New York, the Wisconsin Bankers Association (WBA) has been working with the news media as well as federal- and state-level government officials to reassure the public that the banking system overall — and Wisconsin banks in particular — are safe, sound, and resilient.

On Sunday, I issued a special edition of my Executive Letter to share a summary of events as they were unfolding, including the decision of the regulators to protect all depositors affected by the Silicon Valley Bank and Signature Bank failures. On Monday, WBA issued a statement to the news media highlighting important differences between the failed banks and Wisconsin banks. WBA has been working with newspapers, TV stations, and radio stations across the state to put the public at ease in knowing their money is safe in an FDIC-insured bank in Wisconsin.

Resources for Bank Customers

WBA has created a new consumer-facing piece explaining FDIC insurance. The one-page document can be printed out or shared digitally. It contains a high-level overview as well as links (and QR codes) directing readers to FDIC resources: Understanding Deposit Insurance and Deposit Insurance FAQs. WBA’s FDIC insurance resource — along with a range of other materials, including social media graphics for banks — is available in the Consumer Resources Hub.

My previous Executive Letter also contains talking points about how the situations at the failed banks were idiosyncratic and do not reflect the way Wisconsin banks operate. A number of unique factors converged at the same time to trigger the liquidity crisis at Silicon Valley Bank, which would not apply to Wisconsin banks that are not heavily focused on the volatile tech sector. As government officials, banking leaders, and economists have reiterated: Americans should have confidence in our banking system.

The Federal Reserve’s Bank Term Funding Program

The Federal Reserve has launched the Bank Term Funding Program (BTFP) to offer loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging any collateral eligible for purchase by the Federal Reserve Banks in open market operations. The assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating a bank’s need to quickly sell such securities in times of stress.

WBA staff participated in a call on Monday with Nellie Liang, Under Secretary for Domestic Finance at the U.S. Treasury Department and from that call, WBA learned:

• Bank holding companies are not able to participate in BTFP. Eligible participants include any U.S. federally insured depository institution or U.S. branch or agency of a foreign bank that is eligible for primary credit under the Fed’s discount window.
• The Federal Reserve is not looking to consider municipal securities as collateral.
• Banks are not required to first utilize all other available funding options before seeking access to the BTFP.
• It is not the intention of the Federal Reserve to lengthen the one-year term.
• At some point in the future, the names of institutions who participate in BTFP will be made public in accordance with Congressional requirements.

The Federal Reserve has made an FAQ and a Terms and Conditions one-pager available regarding the program. It is my understanding the FAQs will be updated, as necessary.

The Federal Reserve announced a free webinar, Wednesday, March 15, 2023, at 1:00 p.m. ET–2:15 p.m. ET regarding the new lending program. The Federal Reserve’s Matthew Malloy, section chief – monetary policy operations and analysis, monetary affairs and Kelley O’Mara, senior counsel – legal division, will lead an Ask the Fed® webinar to provide an overview of the BTFP and address frequently asked questions that have arisen since the program’s launch. Registration for the webinar can be done through the Ask the Fed® website.

The Latest on SVB and Signature Bank Bridge Banks

Moments ago, WBA staff attended a Q&A webinar with FDIC on the status of the two failed banks. The bridge banks Silicon Valley Bridge Bank, N.A. and Signature Bridge Bank, N.A., have assumed the deposits and obligations of the failed banks. FDIC has appointed new CEOs, and their objective is to maximize the value of the entity to attract a buyer as well as minimize cost to the industry. The main theme from FDIC officials was “business as usual” — all deposits (insured & uninsured) have been transferred to the bridge bank, all contracts for services have been transferred, the bridge banks have access to borrow to ensure ample liquidity, they have the same routing number and check stock, and they can operate just as any other open and operating bank.

Our Current Focus

Our immediate priority is to make sure the public knows that the banking system is safe and sound. No taxpayer dollars will be used to repay depositors of the failed banks; longer-term policy questions about the treatment of uninsured deposits are a discussion for a later day. WBA has heard from our membership about the positive steps you are taking through both proactive and responsive conversations with your customers as well as issuing email and social media communications. Thank you for all you are doing to reassure Wisconsinites that our industry remains strong and a source of strength for our economy.