Bank depositors ‘suddenly woken up’ to FDIC insurance amid SVB collapse: Reporter

American Banker Editor-in-Chief Chana Schoenberger joins Yahoo Finance Live to discuss the state of the banking system, regional banks and what depositors and investors can expect following the collapse of SVB and the bailout of First Republic Bank.

Transcript of video

11 of America’s largest banks reached a deal, a bailout deal here, for First Republic with $30 billion in deposits. It’s a reaction to extended hours, but if you look at how we end the day, we end the day pretty significantly. So for more information, we want to bring in Chana Schoenberger, editor-in-chief of American Banker. Chana, nice to see you here. So when we talk about the First Republic getting those $30 billion in deposits, it’s clearly an effort to prevent a broader crisis. First, just talk to us about the significance of this move.

CHANNA SCHONBERGER: Well, it’s pretty big. These are unsecured deposits. So these bigger banks – and almost every big bank in the country – said we believe in the stability of the First Republic and we think our money is safe there.

And, Chana, do you think that this measure is enough to stop the worries, the concerns in the banking sector and in particular in the regional banks?

CHANNA SCHONBERGER: It’s been a whole week since this banking crisis that started a week ago when Silicon Valley Bank failed and was taken over by the government. And there’s something new every day, so it’s been a fun week. It’s been a fun rodeo for us here at American Banker.

Regional banks typically don’t face the problems that Silicon Valley Bank did. They really don’t have the same problems at all. Most of them have no problems, and the banking sector is quite safe. So I think the government is just trying to assuage everyone’s concerns and say that this bank is not going to fail. We will not let it fail. Everyone calm down.

So Chana, what’s next?

CHANNA SCHONBERGER: So that’s the question. We are already starting to hear in Washington what they can do about it. There is the question, are the regulations we have now sufficient? Do we need different ones? Do we need other laws or is the problem in the management of the banks? And no one has an answer to that yet.

Our reporters talk to many bank executives. The other thing you’re seeing is that depositors have suddenly woken up and realized that FDIC insurance is something they should think about. So that’s something that really wasn’t on a lot of companies’ minds two weeks ago that they’re really thinking about now.

And speaking of depositors, I mean Silicon Valley Bank had its problems. It caters to venture capital and startups and startups that cash– burn a lot of cash. And then you have First Republic, which had these outflows that were only happening because of these concerns about contagion and whether or not it had enough liquidity, even though it said it had strengthened its liquidity on Sunday. But talk to us a little bit about this other problem with depositors also suddenly realizing that maybe they can get a better return elsewhere instead of just keeping their money in their bank account.

CHANNA SCHONBERGER: Well, that has always been true. You can– of course you can get a higher return and you can also get a better return if you’re doing something other than money in some cases. But most businesses only really worry about things like payroll and working capital. And it’s important to them that their bank is secure and accessible so that when they write those paychecks, they know their employees will be able to cash them. So that’s not really what’s on the mind of most CFOs. They usually aren’t – unless you’re an investment business. That’s…investing isn’t usually what they do.

Chana, of course, this also drew attention to the regulatory aspect of how regionals are monitored. If we do see some changes, what do you think that means for some of these smaller players, some of the regional banks and their ability to compete with the bigger players out there?

CHANNA SCHONBERGER: Well, it’s interesting because we had banking lawyer Rojin Cohen from Sullivan Cromwell at an event that we did earlier this week, and he was talking about mergers. Mergers are something that we obviously cover all the time, and the question is whether we’re really going to be able to have mergers in this administration. The Biden administration really doesn’t like bank mergers. They put a lot of conditions on them, if they approve them at all.

So it would certainly make a lot of sense for some of the regionals if they could come together, especially the super regionals. Nobody really wants to be a bank that is too big to fail because the amount of regulation you are subject to is quite onerous. But I think a lot of banks, given the choice, would like to merge and create smaller banks that are still quite large.

Okay, Hannah Schoenberger, thank you very much for your time. I really appreciate you getting on here and talking about this extraordinary news.

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