Local Bank CEO Explains Recent Tech Bank Failures

(KNSI) — The recent failures of at least three banks may fan public fears about what will happen to our money locally, but Falcon National Bank Chief Executive Officer John Herges explains to KNSI that failed lenders like Silicon Valley Bank significantly differ from community financial institutions here.

“Let’s take Falcon National Bank, for example. When we take in deposits we turn around and make it into loans. We don’t go out and buy bonds and securities. We buy some, but not to the extent that they were.”

The SVB failure Friday was the largest since the 2008 financial crisis.

Herges says tech companies were so flush with cash when money was easy to come by, and interest rates were held at zero percent; Silicon Valley Bank couldn’t find enough loans to make with all the deposits they had on hand. They could either sit with that extra cash earning nothing, diversify to other industries, or buy long-term government treasury bonds. Once rates normalized, bond values fell, and the tech companies needed to tap into their cash reserves held at SVB. The combination led to a run on the bank.

Herges says the lender was too reliant on technology companies and speculative venture capital firms.

“That’s why you look at concentration levels all the time. Yes, they could have avoided that [failing]. They could have spread their deposits out, not just making it in one industry or what have you.”

The SVB collapse was followed by the seizure of crypto banks Signature and Silvergate, which federal regulators took over on Sunday.

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