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How Community Bankers Demonstrate Resilience

author Rafael DeLeon
3 min read
Mar 17, 2023

When Silicon Valley Bank (SVB) collapsed, it took everyone by surprise. On Monday, no one was worried about the $200 billion-asset bank. By Friday, it was gone.

The time between SVB’s collapse and Sunday night when the government announced it would backstop all SVB deposits was a stressful time for everyone – including community banks that feared a flight of deposits to too-large-to-fail banks. 

While the media fanned the flames of crisis, community banks gathered as scheduled for ICBA Live, the largest annual gathering of community banks. As an attendee, I had a front-row seat to how community banks responded to this historic event. It was master class in resilience and calm.    

My three takeaways: 

  1. Community bankers stay level-headed. Community bankers have weathered a lot over the years. I’m not just talking about the subprime mortgage crisis, COVID-19, and The Great Recession – though that should be enough for any institution. The industry has adapted to high and low-interest rate environments and many leaders have experience navigating and learning from the S&L crisis of the 1980s.

That kind of longevity isn’t accidental. Community bankers know that a measured response trumps an emotional one. They know that acting for the sake of taking action is never a good idea. Sometimes the best action is no action. The smart move is to take a step back and wait for more information. 

In this case, the government moved swiftly to insure all deposits, quickly resolving most concerns.      

  1. Community bankers ask questions to assess risk. Part of staying calm is having the ability to assess information objectively. As events changed, community bankers asked questions to understand how unfolding events impacted their banks. For example:
  • Is this likely to impact vendors? Answer: No. Once the government put the backstop into place, SVB customers were able to access deposits and engage in other normal banking activities making it unlikely that there would be any near-term vendor disruption.
  • How might this impact my customers? Answer: They might be worried. The average consumer has little understanding of deposit insurance while business customers might be nervous since they are likely to have more than the $250,000 insured by the FDIC at their bank.
  • How does this impact financial modeling? It’s too early to know so don’t act rashly. Wait to see how the situation unfolds.
  • What will this mean for regulation and exams? Once again, it’s too early to know. What we do know is that after any financial disruption, both regulators and congress tend to act and more regulations seem to follow. For now, institutions should review their internal control environment and ensure it is appropriate for the overall risk and risk tolerance of the institution. Largescale issues like this tend to make examiners look harder at areas that haven't been touched on before, such as the experience and authority of your senior level personnel and board's ability to provide a credible challenge to management. 
  1. Community banks are trusted advisors. Community banks realized that spooked customers were a potential risk of SVB’s failure, so they did what community banks do best: they connected with their customers. Speaking with bankers at ICBA Live, I learned that rather than lose deposits to too-big-to-fail banks, many community banks actually grew their deposits in the days after SVB’s failure.

Why? Because they proactively reached out to customers to reassure them. Community bankers didn’t hide. Knowing customers were nervous and worried, they acknowledged customer concerns and made themselves available to answer questions and offer guidance. They were a voice of reason when the media and other influencers sowed panic, and their customers trusted them. 

I headed to ICBA Live expecting a lot of conversations about regulatory compliance, change management, risk management, cybersecurity, and the struggle to find good talent. I didn’t anticipate witnessing the real-time community bank response to the second largest bank failure in U.S. history.  

Concerned but calm. Decisive yet not reactionary. This group passed the test with a mature approach to risk management and resilience.

 

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