ND financial institutions assert good health in wake of bank failures elsewhere

FARGO — As the collapse of two major U.S. banks continues to echo across the financial landscape, local institutions have been sending a message of their own: We're OK.

On March 13, Bell Bank President and CEO Michael Solberg posted on the company's website a statement that stressed what many banking industry officials are saying in the wake of the collapse of Silicon Valley Bank and Signature Bank — that Bell Bank and many other financial institutions around the country remain safe.

Forum file photo

"I don’t think those bank closures will have much of an effect on Bell or the vast majority of U.S. banks," Solberg said, adding that he was pleased to see the swift action taken by the FDIC and Federal Reserve to support banks and help prevent further runs on the nation's banks.

Solberg said that both Silicon Valley Bank and Signature had unique attributes that exposed them to catastrophic trouble as interest rates rose, including connections to the crypto/tech sector and large bond holdings.

Bell Bank does not share those attributes, Solberg said, adding that Bell Bank has "virtually no nonperforming loan issues and is well capitalized — and we are strengthened by the fact we have no debt at our holding company."

Brad Houle, president and CEO of Town & County Credit Union, also issued a reassuring statement , pointing out that as a community credit union, the business is owned by its local members.

"The credit union's profits are reinvested back into our organization and given to members in the form of lower loan rates, higher deposit rates and other rewards," Houle said, noting that one way the credit union is similar to banks is that its deposits are insured.

Houle said the National Credit Union Administration has a standard insurance amount of $250,000 per share owner for each account ownership.

Todd Steinwand, president and CEO of the Bank of North Dakota, said the failures at Silicon Valley Bank and Signature Bank have had no impact on the bank of North Dakota, at all.

"Their customers were Silicon Valley, venture capital and startup companies. By statute, our deposit base is made up of the funds of the state of North Dakota, they are the vast majority of our funds," Steinwand said.

Photo via Bank of North Dakota

"We're just so different," he added, noting that in order for there to be a run on the bank of North Dakota, "The legislature would have to pass a law to say they're going to take all the money out of the Bank of North Dakota. It's not going to happen."

Steinwand said the bank's loan portfolio is made up through lending through local community banks and credit unions to businesses, farmers, ranchers and students across North Dakota.

"We're just in great shape," he said.

Steinwand noted that unlike many other financial institutions, the Bank of North Dakota's deposits are not FDIC insured.

Instead, the bank's deposits are backed by the full faith and credit of the state of North Dakota.

"Because we're state owned, we're probably the only bank in the nation that can say that," Steinwand said.

"Really," Steinwand added, "the message to everybody is: your money is safe in your local community banks and Bank of North Dakota. We're fine."

Silicon Valley Bank collapsed suddenly on March 10 and the federal government soon shut down Signature Bank, a regional bank that was threatening to fail as well.

Contributed / REUTERS / Kori Suzuki

In the wake of the closings, President Joe Biden reassured the country that the FDIC would guarantee customer deposits over and above the long-stated limit of $250,000 per account, a move aimed at staving off widespread runs on banks.

According to a CNN analysis , just before it collapsed Silicon Valley Bank was America’s 16th largest commercial bank, providing banking services to nearly half of all U.S. venture-backed technology and life science companies.

The bank's failure was sudden, precipitated by customers withdrawing money in a classic run on the bank.

The CNN analysis pointed out that Silicon Valley Bank benefited from the tech sector’s explosive growth in recent years, fueled by ultra-low borrowing costs and a pandemic-induced boom in demand for digital services.

However, the good times stopped after the Federal Reserve began increasing interest rates to curb inflation.

With interest rates rising, bond prices fell, eroding the value of Silicon Valley Bank's bond holdings, according to the CNN analysis, which said the hike in interest rates meant tech startups had to put more cash towards repaying debt at a time when they were struggling to raise new venture capital funding.

All of that forced companies to draw down on deposits held by Silicon Valley Bank and when that became known it set off panic among customers, who withdrew their money in large numbers.

Just days before Silicon Valley Bank's failure, bank lobbyists and executives were feeling confident they had convinced key GOP lawmakers to publicly warn Federal Reserve Chairman Jerome Powell against tightening regulations on the industry, according to an analysis by Politico.

That confidence has turned shaky as attention turns to bank safety and the Fed may be encouraged to push ahead with new rules that were being talked about before the collapse of the banks, according to the Politico analysis.

The rules in question pertain to the dollars lenders are required to keep on hand so they can absorb losses during downturns and spare taxpayers from having to bail them out.

The Fed and other regulators hiked bank capital requirements following the 2008 economic crash and in recent months Fed Vice Chair for Supervision Michael Barr kicked off a review of capital rules that were put in place over the last decade, suggesting lenders should be subject to higher requirements.

It was Barr's comments that prompted the bank lobby to mount its campaign against hiking capital requirements, with lobbyists arguing the move would be a drag on the economy, according to the Politico analysis.

In a counterpoint to that position, Politico quoted U.S. Sen. Elizabeth Warren, D-Mass., who warned, "Regulators must not buckle to pressure" from the bank lobby.