CLEVELAND — With Silicon Valley Bank and New York-based Signature Bank both collapsing, many our wondering with this means for our banks here in Northeast Ohio.
"For the regional counter parties that are in the Cleveland area, they're going to have to prove to us that they have got prudent risk management," Case Western Reserve University banking and finance Professor Greg Harmon says, "not just us, but to the Federal Reserve."
SVB, the 16th-largest bank in the United States, is now the biggest American bank to fail since the 2008 recession. From that market crash to the COVID-19 pandemic, the news does not come as a surprise to Harmon.
"We had more stimulus packages and zero interest rates and got the nation into a situation where risk taking was really easy to do because there was no penalty," he told 3News. "Money was free. "
Now, the U.S. Treasury Department, Federal Reserve, and FDIC will protect deposits following the issues at both SVB and Signature.
"All of these banks had large deposits on hand from depositors that were active in trying to pursue higher interest rates for their cash from the bank that they held them at," Harmon said.
However, could the impact trickle down to our local banks?
"If you and I have a bank account with one of the local or regional banks and we get 1% or 1.5%, short-term treasury issues — so, treasury bills guaranteed by the government — are yielding 5.5%," Harmon explained, "so there's a big disconnect with where you can invest your money and what your banks are paying you."
3News reached out to Cleveland-based KeyBank for comment, and its regional office responded with a statement that read, in part, "Despite the recent events in our industry, KeyBank is well positioned to continue supporting all our clients with a full range of financing options while maintaining our moderate risk profile."
Harmon says the future of our local and regional banking institutions is, for now, uncertain but safe.
"It's yet to be determined," he admitted. "In terms of you getting access to your deposits, everyone is safe here. The government has put a program in place to backstop those deposits so that you'll be able to have access to your deposits."