Local banks, experts on what the Silicon Valley Bank, Signature Bank failures means for Louisville
By Eleanor Tolbert – Reporter, Louisville Business First
Mar 15, 2023
Updated Mar 15, 2023 11:42am EDT
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Repercussion of the collapse of Silicon Valley Bank and Signature Bank were felt across the U.S. over the weekend, including here in Louisville.
Some Louisville tech startups were directly impacted by the bank’s shutdown Friday. For other Louisvillians, however, the concern lies in their own deposits and investments, weighing the safety of the U.S. banking system.
I spoke with local experts who have been dealing with direct and indirect fallout from the bank failures over the last several days. Nathan Berger, partner at Frost Brown Todd, said the law firm has been working around the clock since Thursday, assisting its clients in Louisville and across the U.S. who have funds in SVB.
“We have clients in Louisville — we have clients across our footprint — who were impacted by the Silicon Valley Bank failure and the impending, and obvious, Signature Bank failure,” Berger said. “Most of the attention Friday and Saturday was centered around whether clients were going to be experiencing losses.”
The firm had several local clients, specifically financial services firms, with dollars flowing through Signature Bank as well. Berger said the decision from the FDIC, Federal Reserve and Treasury Department to create Signature Bridge Bank saved those clients from potentially catastrophic outcome.
“That would have been disastrous for each of them, because funding would have ground to a halt without the creation of the bridge bank to allow operations to continue until the FDIC has a formal resolution plan,” Berger said.
While the situation is changing day to day, Berger said he doesn’t think the Louisville market has to fear major bank failures. He predicts stocks of regional banks may take a hit, but can’t envision panic withdrawals locally.
That’s because Signature and SVB dealt particularly in niche categories. James “Ja” Hillebrand, chairman and CEO of Stock Yards Bank & Trust (NYSE: SYBT), mirrored that sentiment in a statement:
“As a community bank with a history of sound banking practices and financial strength, Stock Yards Bank & Trust remains well?capitalized and will continue our focus on taking care of the customer’s needs in front of us. The issues of a few 'niche players' in our industry are not issues for the majority of the traditional banks in our country, including Stock Yards Bank & Trust.
"As you know, we are a financially strong bank that our customers should have plenty of confidence in. The Silicon Valley Bank (SVB) failure was largely a run on the bank’s deposit base, which was extremely concentrated. We have no exposure to the tech or biotech startup sectors or cryptocurrency. There are advantages to being vanilla and it’s times like these when that shows through.
"I applaud the Department of the Treasury, Federal Reserve and FDIC working together over the last several days taking decisive actions to protect our country’s economy and taxpayer.”
Andrew Pyles, CEO of Eclipse Bank, is pleased so far with the response from the Louisville banking community. He said he nor his peers have received major concerns from local clients, noting the general public seems to understand the specificity of the issue.
“We're a completely different business, in a sense — a community bank versus, what I would consider, a mega regional,” Pyles said. “I think depositors understand that as well, that our risk profiles are completely different. We're not taking risky bets. Our model is taking deposits and lending them out within our community.”
For Pyles, this situation is reminiscent of early Covid times. During the early days of the pandemic, he said Eclipse was able to jump into action faster than bigger banks to give payment relief for its borrowers. Then later on, the bank was able to quickly begin rolling out Paycheck Protection Program loans while it took bigger banks time to process.
He said Eclipse was able to do this because of the community bank model.
“In a situation like this where you see these niche banks that have arguably grown too big in some circumstances or too fast, our business model, it's certainly not as sexy as some of these things, but it's a pretty tried-and-true model, which is to take deposits and lend them out to our communities,” Pyles said.
For local startups and tech companies, Berger said the biggest pain will be acting quickly to find another financial institution to ensure their operations and liquidity are not at risk. Because SVB had developed an expertise in banking that niche clientele, he said it will potentially take the FDIC time to find a buyer that fully understands the business in the same way.
“The FDIC switching to creating bridge banks was good for all of the customers and good for the banking system as a whole because it allows business to continue as those banks customers either await a buying bank or it gives them an opportunity to move their relationships to other banks so that they don't have interruptions in their own cash flow,” Berger said. “That was a tremendous step by the FDIC, the Federal Reserve and the Treasury.”
Bank share prices at Louisville’s largest banks have remained relatively steady in the days following SVB’s collapse. Cincinnati-based Fifth Third Bancorp’s stock plunged 27% in the first hour of trading Monday, however the value has since bounced back, but the stock is still down about 5.2%.
According to Yahoo Finance, Stock Yards Bancorp Inc. has seen virtually no change, with its price per share having increased by nearly 1% as of 1 p.m. Wednesday. PNC Bank, which has about 23% of the local market share, was down 3.8%, and JPMorgan Chase & Co. was also down, about 4.8%.