May 5 - George Bailey saves his bank from a run by convincing residents to invest their money in their local communities.
Today, regional bankers are channeling their inner Bailey (played by Jimmy Stewart in the iconic movie "It's a Wonderful Life") as a bad business model, with a combination of rising interest rates and panic leading to the second, third and fourth: the largest bank failure in the history of the country.
This fear, coupled with a lack of understanding of banking regulations and safeguards, has led to calling in local banks and has persuaded some to take money from smaller banks and deposit it with larger corporate banks.
That last part drives Greg Deckard, president and CEO of Northwest National Bank, crazy.
"Jimmy Stewart was exactly the model we followed," Deckard said, referring to his portrayal of Bailey in the film, which was released on January 7, 1947.
At the end of the film, members of the fictional Bedford Falls community run to Bailey and try to withdraw their money. Bailey explained that his money is invested in businesses and families, and that they don't get the same benefits as big corporations and community banks.
"Don't you understand what's going on here? Don't you see what's going on?" Bailey says in the film. "Potter is not selling. Potter is buying! Why? Because we are panicking and he is not."
Deckard said he's been getting continuous calls from customers who want to make sure their deposits are safe. Each time, he tried to convince them to keep their funds local.
"I own our bank. We have five generations of clients with us," he said. "We take a long-term view. We always, always, always take the low-risk route instead of looking for growth and return."
Making the big banks bigger won't help the local economy, Deckard said.
"Do you think money is being reinvested in Division Street? It doesn't help that the big banks are getting bigger," he said. "They have different levels of investment in their local communities."
Carla Cicero, president and CEO of Numerica Credit Union, said organizations like the Washington Trust, STCU and hers can look directly at their customers, instead of turning them into one of the millions of New York-based organizations.
"We care about our members. We care about our community," Cicero said of Numerica's 170,000 members. "This is where we do business, and the health of our financial institutions allows us to serve our customers and give back to our communities.
"If you move to a bigger bank with no local connections," he continued, "it's bad for everyone."
analysis failed
The first recent bank failure occurred on March 10, when Silicon Valley Bank in Santa Clara, California closed. SVB has mainly been described as a "regional" bank in national publications. However, Deckard said that SVB has branches in several states and abroad.
He said he views the Washington Trust, Banner Bank and Wheatland Bank as regional banks that typically belong to the region.
SVB, which he considers a national bank, caters to venture capitalists who lend to startups, including some in Spokane.
However, the bank backs these loans almost entirely by investing in 10-year Treasuries issued by the US government. But early bond buying is at risk when the Fed starts raising rates.
"Regulators fell asleep on the change," Deckard said. “As soon as the venture capitalists found out, they started calling everyone to get their money out of there.”
Two days later, on March 12, New York-based Signature Bank, which mainly caters to cryptocurrency investors, also collapsed as investors became concerned about their holdings and rushed to withdraw funds after the cryptocurrency market crashed. .
Then, on May 1, First Republic Bank of San Francisco closed, and federal regulators allowed JPMorgan to take over its assets.
First Republic's business model is based on serving wealthy clients, like Microsoft co-founder Bill Gates, with low-interest loans and mortgages.
"The three of them have something in common," Deckard said. "All of them have grown rapidly in the last three years using exotic business models that rely heavily on undeposited deposits."
The three banks "mismanaged and suffered the consequences in a rising interest rate environment," he said.
The FDIC guarantees up to $250,000 per deposit. But all three banks rely on customers depositing much more than that amount with their banks.
And in most cases, those deposits are used to buy long-term investments like 10-year Treasuries or 30-year mortgages at extremely low interest rates.
These investments are generally the safest, Deckard explained.
However, if a bank buys 10-year mortgages or 1% Treasuries, those investments are at risk if the Fed decides to raise rates on future loans. If investors or banks are patient, Treasuries and mortgages, even at low interest rates, will eventually pay off.
However, if enough customers decide to withdraw their deposits, banks will be forced to sell long-term bonds and heavily losing mortgages to cover those withdrawals.
"Generally speaking, when (interest rates) go up, portfolio values go down," Deckard said. "If you bought it cheap and rates went up, if you had to sell that bond today, you're in trouble."
"That's exactly what happened with the savings and loan crisis," he continued. "Liability-Asset Mismatch. It's Banking 101."
Between 1986 and 1995, about a third of savings and loan institutions closed. Most had issued low-interest mortgages before, and in 1979 the Federal Reserve began raising interest rates to curb inflation.
In 1996, the US General Accounting Office estimated that the collapse in savings and loans cost US taxpayers some $132 billion.
Grant Forsyth, chief economist at Avista Corp., said the public is frustrated when the government uses federal money to guarantee deposits at the three most recently failed banks or to prop up the savings and loan industry.
"But they intervene for a reason. The system is designed to allow the government to intervene so that there are no bigger crises," Forsyth said, "including the crises that we saw during the Great Depression."
Neither Deckard nor Forsyth said they saw the same systemic problems in the banking industry, including a reliance on subprime unsecured home loans, which led to the Great Recession in late 2007 that hit Spokane's economy.
"Honestly, I'm not really worried about the systemic banking crises that we've seen in the past," Forsyth said. "I just don't think it's going to get out of hand."
regulatory agency
As interest rates rise, local business officials say it has become more difficult to obtain loans for commercial development and other businesses, such as breweries and restaurants.
Doug Yost, vice president of development and acquisitions for Cowles Real Estate, is developing condos and townhomes at River Landing in Mirabeau, Spokane Valley. He said lending has slowed down recently.
Raising new funds has been "extremely difficult," Yost said. "Banks require more start-up capital and charge higher interest rates."
Yost said local contractors are working on a large number of local projects, most of which were funded before the recent rate increase.
"But some new projects are not moving forward because...interest rates are going up," he said. "It will definitely slow down the project."
No-Li Brewhouse owner John Bryant said he wished anyone trying to get a loan for a new restaurant good luck.
"Banks don't want to lend to breweries or restaurants right now. It's too volatile," Bryant said. "I would say it's a combination of rising debt and fear. Business is driven by emotion. Americans are cutting spending."
The essence of banking is risk management, Forsyth said.
"Taking risks is part of the business," he said. "The question for regulators is how much leeway they give banks to take risk, which is an integral part of a market economy. What is the right balance?"
Banks don't need more rules, Deckard said. He just wants the current rules to be applied fairly.
Last week, Deckard said he received an autopsy report on the Silicon Valley bank's collapse.
Fed regulators sent notices to the SVB board 31 times warning them of asset-liability imbalances.
"But it never got beyond the attention of the board. No punitive action was taken," Deckard said. "It pissed me off and everyone else in the industry."
He said he would "have to deal with this immediately or face fines and penalties" if Washington state regulators issued a similar warning to his bank's board.
He noted that, until the day of its bankruptcy, Greg Becker, CEO and CEO of Silicon Valley Bank, was also on the board of the San Francisco Fed.
"It doesn't make a difference to me, but it doesn't look good," Deckard said of Becker's double duty. "I cannot stress enough that the regulator was aware of this and did nothing about it."
Deckard said he is required by state regulators to review available funds and liabilities every three months. He also needs to model what would happen to his bank's earnings if the Fed raised rates to 4% or lowered them to 4%.
“I will tell you that the basic business model of banks taking local deposits and lending to local businesses has never been stronger,” he said.
No-Li Brewhouse's Bryant said he's saving money locally for a reason.
"If you go to the big banks, that money goes elsewhere," he said. "My hope is in Spokane. It's a beautiful little town. Every dollar I earn goes back to the community. We want to be a part of giving people hope."
Despite the number of calls, Deckard said most of his clients understand the value of local property and said their deposits have actually increased since the three banks collapsed.
“For some clients, it is very simple to understand.