![]() ![]() ![]() As customers pulled deposits, banks were forced to sell those bonds at a loss. Last year, as the Fed began quickly raising rates to the current high of 5-5.25%, those bonds were worth far less. In the wake of the pandemic with interest rates near zero, banks looked for more yield through long-dated bonds with returns of 2% or less. ![]() Factor 1: Interest Rate RiskĪccording to testimony from Martin Gruenberg, Chairman of the FDIC, the Federal Reserve’s aggressive rate increases beginning in 2022 exposed Silicon Valley Bank and other regional banks to interest rate risk. In this post, we’ll examine these factors and solutions that we’re recommending and using with clients to address the challenge proactively. To meet this challenge, regional banks must demonstrate stability and unique value to the communities they serve. These failures share two important factors: interest rate risk and loan portfolio losses, which lead to a deposit retention problem as the perceived health of the bank is questioned. In the past few months, three banks (Silicon Valley Bank, Signature and First Republic Bank) collapsed due to deposit flight or customers pulling deposits and transferring them to the perceived safety of the big four banks-Chase, Bank of America, Citibank, and Wells Fargo. Regional banks are facing challenges as a number of factors put pressure on deposits. ![]()
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