By Kevin Dietrich

It will likely take time to determine what the recent failures of Silicon Valley Bank and Signature Bank could mean for South Carolinians. 

The two out-of-state banks failed the weekend of March 10-12, garnering plenty of headlines and causing consternation on Wall Street. Longer term, banks could face more stringent regulations, especially super regional institutions with more than $100 billion in assets.

In the immediate aftermath of the two failures, South Carolina bankers reached out to customers, answering questions and explaining why the collapses of California-headquartered Silicon Valley Bank and New York-based Signature Bank were atypical.

“These were two unusual banks in that they were very concentrated in their holdings,” said Lynn Harton, president and chief executive officer of Greenville-based United Community Bank. “Both banks had concentrations in specific industries, one in cryptocurrency and one in venture capital-backed startups, and both of those industries were under stress.”

Added another Greenville banker, Southern First Bank CEO Art Seaver, “The lesson here is don’t have all your eggs in one basket. It’s a matter of risk management and dealing with the risk on the balance sheet, which those two banks didn’t do.”

While it’s unlikely any South Carolina banks have similarly lopsided portfolios, at least one bank operating in the Palmetto State has been affected by the failures.

The parent of First Citizens Bank, which has a significant presence in South Carolina, announced on March 27 that it had entered into an agreement with the Federal Deposit Insurance Corp. to purchase all assets and liabilities of Silicon Valley Bridge Bank. Silicon Valley Bridge Bank was created by regulators from Silicon Valley Bank after the latter failed.

The addition of Silicon Valley makes First Citizens one of 25 largest banks in the nations, with approximately $180 billion in assets.

Still, the collapse of Silicon Valley Bank and Signature Bank may bring have implications for banks operating in South Carolina and elsewhere, as politicians almost immediately began calling for stricter regulations on banks.

Sen. Elizabeth Warren, D-Mass., and Rep. Katie Porter, D-Calif., introduced bills on March 14 that would repeal parts of legislation passed in 2018 that relieved the regulatory burdens on all but the nation’s biggest banks. The latter rolled back parts of the Dodd-Frank Act, passed in 2010 to tighten banking restrictions in the wake of the Great Recession.

In addition, the Federal Reserve is said to be rethinking some rules related to the oversight of midsize banks, including enacting restrictions that currently apply only to the nation’s biggest financial institutions. 

Tougher capital and liquidity requirements, along with steps to strengthen annual “stress tests” that examine a financial institution’s ability to weather hard times, are said to be under consideration, The Wall Street Journal reported.

The rules could target banks with assets between $100 billion to $250 billion, which were excused from some of the most stringent requirements by the 2018 legislation, the Journal added. 

There are two dozen banks within the range, including First Citizens, Fifth Third Bank and Regions Bank. Like First Citizens, Fifth Third and Region have South Carolina operations. 

If regulators lower the level, it would increase costs at impacted banks, which would likely be passed along to customers.

Also said to be under consideration is insurance for all deposits, no matter the amount, for at least the next two years.

A coalition representing mid-sized U.S. banks asked regulators to extend insurance on all deposits to build confidence in the industry, according to a report by Bloomberg.

Currently bank deposits up to $250,000 are guaranteed by the FDIC, but amounts more than that are, theoretically, uninsured against loss. 

Recent Federal Reserve data has shown a shift in deposits from smaller to larger banks, according to The Wall Street Journal. This may be because consumers believe that large banks are more likely to be propped up by the government should they be in danger of faltering.

The collapse of the two banks came suddenly. The first, Silicon Valley Bank, which had $212 billion in assets and offices in 15 states along with several foreign countries, shut down March 10 after experiencing a run on its deposits, fueled by customer concerns spread through social media platform Twitter. 

The bank, which had offices in Georgia and North Carolina, made a name for itself working with a significant number of technology and venture capital companies.

Signature Bank, which had $118 billion in assets and 40 offices, including two in North Carolina, closed March 12 after it also experienced a run. 

Signature was heavily involved in digital currency, with as much one-quarter of its deposits coming from the cryptocurrency sector as of last September.

In the wake of the failures, regulators said all Signature Bank and Silicon Valley Bank depositors would be made whole, and "no losses will be borne by the taxpayer." 

Regulators said money would be pulled from the Deposit Insurance Fund to ensure that consumers have access to all their money. 

The Deposit Insurance Fund is funded with fees assessed on financial institutions and interest on government bonds. Assets from the failed institutions will also be used to repay customers.

Shareholders of the failed banks, as well as some bondholders, “will not be protected” by the actions, according to government officials.

Bank stocks have started to bounce back from the sharp drop that came after the two banks imploded. However, the Dow Jones U.S. Banks Index, which includes Bank of America, Wells Fargo and Truist, all of which have significant South Carolina operations, is still down more than 10 percent for the year.

Additional industry stress came in the days after the failure of Silicon Valley and Signature, as Credit Suisse, an international bank with operations in the U.S., began to founder. 

Swiss officials helped negotiate a deal whereby Credit Suisse was taken over by UBS, another Swiss financial services company. UBS has offices in Greenville and Charleston. Credit Suisse had no locations in the Deep South. 

South Carolina bankers spent days after the failures of Silicon Valley and Signature talking to customers and explaining the difference between their banks and the two that collapsed, said Fred Green, president of the S.C. Bankers Association.

The general banking model is to have a large number of relatively small clients, deposits and loans, Green explained.

“You spread out the risk by not having a small number of clients who are large depositors. Silicon Valley Bank did the opposite, having a small number of clients who were large depositors,” he said. 

“Their uninsured deposits – every dollar over the FDIC maximum of $250,000 – represented 94 to 97 percent of their deposits,” Green added. “At regional banks that number is usually between 30 and 40 percent, and at community banks it’s even lower.”

Banks across South Carolina don’t have large concentrations in one or two areas, Harton said. “We serve the community, individual clients and small business clients, all of which are diversified.”

Seaver said he was a little surprised his institution didn’t hear from more customers after the two out-of-state banks were shuttered.

“But the people who bank with us know us, and we know them,” he said. “They know our approach and how we do business.”