Top banking news this month: March 2023

March 31, 2023 11:11 AM

In March's roundup of American Banker's favorite stories: How rising interest rates took community banks by surprise, small banks and credit unions react to the collapse of Silicon Valley Bank, ex-Wells Fargo executive Carrie Tolstedt faces potential jail time and more.

Click here to read last month's roundup of banking industry news.

The Most Influential Women in Payments, 2023

Cardshow by Kate Fitzgerald and John Adams, featuring an introduction by Daniel Wolfe

The payments industry has always been fast to change, but 2023 may be more transformative than most. The adoption of real-time payments — with the expected launch of the FedNow system — is creating new challenges and opportunities for everyone in a leadership role.

This year's Most Influential Women in Payments honorees are uniquely positioned to make the most of this change, as well as other disruptive factors such as the advancement of artificial intelligence, central bank digital currencies and more.

This year's honorees also know the value of an unconventional work history. Some of them came from outside of the payments and banking industries.

"It's been said more than once that you can't get a degree in payments, so all of us have had to learn the ropes in payments along the way at some point in our careers," said Kara Kazazean, vice president of financial services for Walmart's Sam's Club.

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Greg Carmichael, who retired as CEO of Fifth Third Bancorp in July, will lead the bridge bank formed after the failure of Signature Bank, the FDIC says.

Regulators shut Signature Bank, pick industry veteran to run bridge bank

Article by Allissa Kline

Regulators shut down Signature Bank in New York on March 12 amid fears of an industry liquidity crisis and tapped a veteran regional bank executive to run the bridge bank that will take its place.

The shutdown of Signature by its state-chartering authority marks the second U.S. bank in three days to be closed by regulators, following the abrupt closure of Silicon Valley Bank in Santa Clara, California. The $110.4 billion-asset Signature is the third-largest bank failure by assets ever in the United States, according to Federal Deposit Insurance Corp. data.

The New York State Department of Financial Services took possession of Signature "in order to protect depositors," the department said in a press release. The FDIC, which was appointed receiver of the bank, said that it has transferred all of Signature's deposits and "substantially all" of its assets to Signature Bridge Bank, which will be operated by the FDIC as a full-service bank while the regulator attempts to "market the institution" to potential buyers.

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Adobe Stock

How interest rate risk sneaked up on dozens of community banks

Article by Polo Rocha

Silicon Valley Bank was not the only institution that loaded up on bonds at precisely the wrong time.

Dozens of other banks — most of them quite small — are deeply underwater on their bond investments and could hit trouble if they were unexpectedly forced to liquidate the investments. That's according to an American Banker analysis of regulatory filings by the country's more than 4,700 banks.

Many experts say there is very little risk that those unrealized losses could ever turn into a problem, given the many options available to banks and regulators' focus on avoiding that type of scenario. The losses, a result of banks' bonds losing their value when interest rates rose, remain "unrealized" and only theoretical. They would only cause trouble if a bank needed cash and was forced to sell the bonds early for less than it bought them, thus making the losses real.

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Banks have flooded the Home Loan Bank system with liquidity requests since the collapse of Silicon Valley Bank and Signature Bank, prompting the system's Office of Finance to raise a record $88.7 billion through the sale of short-term, floating rate notes — the system's largest debt issuance in a single day.

Bloomberg News

Banks tap Federal Home Loan Bank System for $90 billion in liquidity

Article by Kate Berry and Kyle Campbell

Banks flooded the Federal Home Loan Bank System with requests for up to $90 billion in billions in low-cost funding to shore up liquidity and avert a crisis due to a runoff of deposits.

Demand for liquidity from the Federal Home Loan Bank System skyrocketed on March 13, prompting the system's Office of Finance to raise a record $88.7 billion through the sale of short-term, floating rate notes — the system's largest debt issuance in a single day, reflecting the need for liquidity by community and regional bank members.

The largest banks were not tapping the Home Loan banks, experts said, largely because they have been the beneficiaries of depositors that have moved their money to large banks after being spooked by bank failures.

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Crypto Bank Silvergate Falls After Third Quarter Earnings Miss

SOPA Images/Photographer: SOPA Images/LightR

Four questions, many answers: What banks need to know about Silvergate

Cardshow by Kate Berry, Kyle Campbell, Ebrima Santos Sanneh and Claire Williams

Silvergate Bank's quick demise through a self-liquidation is prompting a closer look at the many red flags that ensnared the California bank even before the collapse of cryptocurrency exchange FTX late last year forced a run on deposits.

The state-chartered Silvergate's voluntary liquidation will allow the La Jolla, Calif.,-based bank to wind down its operations, sell remaining assets and pay off its depositors. The process is being monitored by California's Department of Financial Protection and Innovation.

Among the many lessons to be learned from Silvergate's collapse is that a liquidity crunch can quickly engulf a bank, particularly if management makes the wrong bet on interest rates, experts said. Silvergate's monoline business model was concentrated in the crypto industry, where the risks and correlated aftershocks were not fully understood.

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SeaComm Federal Credit Union President and CEO Scott Wilson said the $770 million-asset company does not take risks like the bigger banks that failed this month.

Small banks, credit unions work to quell panic after Silicon Valley Bank fails

Article by Jim Dobbs and Ken McCarthy

Community banks and credit unions are working in earnest to distance themselves from the spate of regional bank failures, emphasizing local deposit bases and aversions to cryptocurrency.

Silicon Valley Bank's outsized deposit exposure to vulnerable technology start-ups ultimately forced regulators to shut it down. Many of those deposits were far in excess of the $250,000 insured by the Federal Deposit Insurance Corp. and credit union authorities. Signature Bank failed and Silvergate Bank decided to self-liquidate following big bets on a cryptocurrency market that is falling apart.

Small institutions with different business models do not have such risky exposure, executives said.

"It's just a totally different situation," Alabama Credit Union President and CEO Steve Swofford said in an interview.

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Former Wells Fargo retail bank chief Carrie Tolstedt.

Carrie Tolstedt, the former head of retail banking at Wells Fargo, agreed to a plea agreement that calls for 16 months in prison.

LOUIS LANZANO/Bloomberg

Ex-Wells Fargo executive Carrie Tolstedt agrees to guilty plea

Article by Kevin Wack

Carrie Tolstedt, the former head of retail banking at Wells Fargo, has agreed to plead guilty to a criminal charge of obstructing a bank examination in connection with the company's phony-accounts scandal, prosecutors said on March 15.

The plea agreement could lead to prison time for Tolstedt — a rare outcome for a high-ranking big-bank executive accused of wrongdoing. The deal calls for a sentence of up to 16 months behind bars, the U.S. Attorney's Office in the Central District of California said in a press release.

The charge of obstructing a bank examination relates to Tolstedt's participation in the preparation of a May 2015 memo, which was to be provided to the Office of the Comptroller of the Currency. Around that time, the Los Angeles City Attorney's Office filed suit against Wells, and the bank's regulators were scrambling to assess the extent of the fake-accounts problem.

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Mark Kauzlarich/Bloomberg

Businesses allege Bank of America pressured them to take out bigger PPP loans

Article by Jordan Stutts

A group of small businesses allege in a lawsuit that Bank of America left them with unforeseen debt after overstating the amount of their pandemic aid that was eligible for loan forgiveness.

In a suit that seeks class-action status, three small businesses accused BofA of marketing Paycheck Protection Program loans to firms that used independent contractors on the basis that the debt would be forgiven by the U.S. Small Business Administration.

The PPP's guidelines excluded compensation paid to independent contractors — sometimes called 1099 workers, a reference to the tax form used to report payments they receive — in calculating loan amounts. Independent contractors had a separate way to apply for PPP support.

"Bank of America knew, or should have known, that the SBA would only approve forgiveness of loans to business owners that used PPP loans to pay retained employees, not 1099 employees," the businesses allege in their complaint.

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Silicon Valley Bank Collapses In Biggest Failure Since 2008

Philip Pacheco/Bloomberg

Did VCs and Twitter trolls help take down Silicon Valley Bank?

Article by Penny Crosman

The speed of Silicon Valley Bank's demise was shocking, and some people blame venture capitalists, who told tech companies in their portfolios to take all their money out, fast.

"I'd like to formally thank my peers in the venture community whose stellar leadership over the past 48 hours triggered a run on deposits at Silicon Valley Bank, ultimately toppling one of the most important institutions in our ecosystem," Brad Svrluga, co-founder and general partner at Primary Venture Partners, tweeted.

He acknowledged that the bank made some big mistakes, including major missteps in communications as its balance sheet crisis grew, in his tweets.

"However, the ultimate failure was from the hysterical urging on social media of VCs who undermined our shared ecosystem," he said. "It has been a stunning failure of leadership. And I won't even get started on the fact that some of these VCs had neobank portfolio companies that stood to benefit directly from SVB's failure."

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“We have a lot of new folks knocking on our door wanting to open accounts,” said Eytan Bensoussan, NorthOne’s co-founder and CEO, pictured top right. Brandon Arvanaghi, CEO of Meow, at left, and Immad Akhund, CEO of Mercury, at bottom right, have also reported increased interest in their products.

Neobanks report a windfall of new clients in wake of SVB shutdown

Article by Miriam Cross

Fintechs that serve startups and other small businesses are getting a boost from the collapse of Silicon Valley Bank. They're scooping up new clients, promoting their abilities to safeguard funds above Federal Deposit Insurance Corp. limits, and touting their profitability and fast account opening prowess on Twitter.

"Right now, we're overwhelmed with inbounds for companies looking for a place to park their cash," wrote Brandon Arvanaghi, CEO of business banking platform Meow, on March 9.

"Since my DMs + emails are going a little crazy and I can't give the same level of personal service as I normally do. If you want to get a Mercury bank account quickly please use this link and we will try to prioritize. Though normal signups is also fast!" tweeted Immad Akhund, CEO of Mercury, a neobank for startups, on March 10.

"We (@mercury) have already onboarded 2x more customers today than we do on a normal weekday!" he added the next day.

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