CINCINNATI — Some Tri-State companies are concerned after two banks failed in the last few days.
U.S. regulators closed Silicon Valley Bank (SVB) Friday after depositors rushed to withdraw their funds all at once, the second-largest bank failure in U.S. history. Then, Signature Bank failed, marking the third-largest bank failure.
Robert McDonald, the chair of Taft's Cincinnati Business and Finance Group, said at least 20 of his clients had money in SVB.
"It was a very scary and traumatic weekend," he said. "It was one of those times when you question the very fundamentals of the market."
Many, including McDonald's clients, spent part of the weekend wondering if they'd have access to their money. By Sunday, the federal government had assured depositors they'd be able to withdraw their money Monday.
President Biden then worked to ease concerns, promising none of the losses would burden taxpayers.
But what led to these failures? The Associated Press reports SVB was hit hard by a year of technology stocks declining, plus the Federal Reserve's continued plan to increase interest rates with the goal of decreasing inflation.
"The rising rate environment created a market where some of the assets they were holding were suddenly not worth as much," McDonald said.
The bank's clients were largely startups or other tech-focused companies that started withdrawing more money, forcing the bank to sell some of those assets at a loss and look for investors.
"Which led to the bank run as we know it, which was people moving all of their funds out as quickly as they can," McDonald said.
Even those in the startup world who don't bank with SVB — including Pacaso co-founder and CEO Austin Allison — were watching this situation unfold.
"Silicon Valley Bank was arguably the bank of Silicon Valley and of the startup community," Allison said.
He said one of the big takeaways from this is the importance of diversification.
"We are diversified across various institutions, and also within the institutions that we bank with, we're also diversified across where the cash is held," he said.
There are still concerns about the impact it could have on other banks, which is reflected in the stock market.
Some of the biggest banks in the Tri-State saw lower share prices Monday:
- KeyCorp. was down 27%
- Huntington Bancshares Inc. was down 17%
- Fifth Third Bancorp. was down 14%
- US Bancorp was down 10%
- PNC Financial Services Group was down 5%
- First Financial Bancorp. was down 3%
McDonald thinks despite broader concerns there could be some positives to the situation.
"There's some thought that the Fed will not continue with rate increases on the schedule we had kind of anticipated and hopefully that means that will create stability for the market and some confidence that will calm things down," he said.
Federal regulators tapped former Fifth Third CEO Greg Carmichael Monday to take over operations of Signature Bank.