Virginia banks don't face same risks as failed institutions

The failure of Silicon Valley Bank in California on Friday and Signature Bank in New York on Sunday is not likely to spread to banks and other financial institutions in Virginia, which aren't exposed to similar risks, according to a spokesman for the Bureau of Financial Institutions.

"Our main point right now is that Virginia's banking industry remains strong and well-capitalized," said Andy Farmer, spokesman at the State Corporation Commission, which runs the financial oversight bureau.

Silicon Valley and Signature had "many risk factors which are not representative of the broader Virginia banking industry," Farmer said.

Silicon Valley Bank invested heavily in startup technology firms, while Signature had significant deposits from the cryptocurrency industry.

"Those were banks that specialized in a particular industry," said Senate Majority Leader Dick Saslaw, D-Fairfax, chairman of the Senate Commerce and Labor Committee. "We don't have those kinds of banks in Virginia."

However, the bank failures should sound a warning about the dangers of inflation and other pressures on the economy, said Virginia's House Commerce and Energy Chair Kathy Byron, R-Bedford. "You can't be too cautious when it comes to people's life savings."

"I'm not saying we need to be fearful, but we do need to be cautious," Byron said.

The collapse of Silicon Valley Bank, the largest bank failure since the Great Recession in 2008, sent tremors throughout the industry, prompting President Joe Biden to quickly announce measures to ensure that depositors don't lose their money, even if their deposits were larger than the $250,000 cap guaranteed by the Federal Deposit Insurance Corp.

"Americans can have confidence that the banking system is safe," Biden said at the White House on Monday morning. "Your deposits will be there when you need them."

U.S. Sen. Mark Warner, D-Va., a member of the Senate Banking Committee, said the president and his administration acted appropriately to head off "very real risks of instability spreading to other institutions and undermining our national security and technology innovation ecosystem."

"Their quick action will help companies make payroll and preserve jobs all across the country,” Warner said in a statement on Sunday night, adding that the administration also had made clear "that bank shareholders and bondholders shouldn’t expect any kind of bailout by the taxpayers."

The Department of Treasury, the Federal Reserve Bank and FDIC issued a statement in response to the closure of the two banks that promised all depositors would be made whole. Treasury also is making $25 billion available as a financial backstop to an expanded Federal Reserve lending program to extend loans of up to a year to financial institutions that pledge U.S. securities, mortgage-backed securities and other forms of collateral.

"The good news is the federal government has a backstop for banks," said Rex Smith, United Bank president for the Central Virginia region, based in Henrico County.

Treasury Secretary Janet Yellen, Fed Chairman Jerome Powell and FDIC Chairman Martin Gruenberg said in a joint statement that any losses to the federal fund for uninsured depositors would be recovered by a special assessment on banks and taxpayers won't be on the hook.

However, they said, "Shareholders and certain unsecured depositors will not be protected. Senior management has also been removed."

Smith, at United Bank, said the initial public panic after the Silicon Valley Bank failure on Friday already has opened a path for what he called "a flight to quality," as customers secure their money in well-managed and regulated banks that don't take undue risks.

He previously served as president and CEO of Essex Bank, purchased by United in late 2021 and now part of a larger regional banking footprint served by an institution founded almost 185 years ago in what was Virginia and is now West Virginia.

Smith called the Silicon Valley bank failure "sort of an anomaly," which he attributed to its business model and exceptionally high concentration of uninsured deposits, as well as California's banking regulations.

"I think we've got a very different regulatory environment," he said. "Our region has been focused on security and risk management.

Steven Yeakel, president and CEO of the Virginia Association of Community Banks, said the "banking system overall is extremely healthy" and the two failed banks "worked in much riskier space than most banks work in, especially Virginia's community banks."

"And while we have some concerns about how the joint response of the agencies could eventually impact community banks, the timing of the response is commendable in addressing any potential for misinterpreting the impact of these isolated incidents on depositors," Yeakel said.