The FDIC’s recent action to close Silicon Valley Bank, Silvergate, Signature Bank, and First Republic has put the financial sector under scrutiny, made worse by some news reporting based on incomplete data and flawed analysis. Many depositors are drawing false conclusions, and wondering what this means for their hard-earned money. Obviously, undue panic would be a dangerous self-fulfilling prophecy that would undermine confidence in the banking system. Being relationship bankers, community banks can and should confront misperceptions and inaccuracies directly with their customers and allay their concerns.

Community bankers should explain to their customers how the four banks that failed were big regional banks that were involved in niche areas, like cryptocurrency, with unsafe concentrations in those areas coupled with risky liquidity positions. Customers should be comforted that community banks, like our ICBC members, do not engage in those types of practices, having business models and policies dedicated to safety and soundness, thorough underwriting, and robust risk management. Emphasize to them that community banks have weathered economic cycles and stood the test of time for generations.

Bankers should convey to their customers there is consensus among the regulators that the banking system is strong and without systemic problems. Bankers should detail the latest FDIC Quarterly Banking Profile which shows community banks’ asset quality, total deposits, and capital ratios are favorable and strong and how that helps protect their deposits. It is also extremely important to point out that the Deposit Insurance Fund, which the FDIC uses to insure their deposits, has a record-high balance. Let them know nobody has ever lost a dime of FDIC-insured deposits. Community banks can advise customers on how to structure and divide their accounts to ensure FDIC coverage. And if additional coverage is needed, community banks can advise customers about supplemental protection products and services. Reassure them that Coloradoans do not have to worry about the safety of their deposits.

For our part, the ICBC, other state community banking associations, and the national Independent Community Bankers of America have worked the past month to educate and broadcast to the public and media about the distinctly different soundness practices and financial conditions between the banks that failed and community banks. In particular, Colorado Biz Magazine recently published an ICBC op-ed which accentuated those points, and we will continue to seek other outlets for that messaging.

We are also communicating to policymakers in Washington that any regulations and/or policy changes that result from the closures should support, and not harm, community banks, targeting only the risky practices of other, larger lenders. We are particularly advocating for a community bank exemption from contributing to restore losses to the Deposit Insurance Fund. Community banks do not benefit from the systemic risk exemption and shouldn’t have to pay for the miscalculations and speculative practices of large financial institutions. For now, the White House is in support of that proposition, and ICBC has received acknowledgment on the issue from its letter to the FDIC, OCC, and the Consumer Financial Protection Bureau. We also voiced these concerns to our Colorado U.S. lawmaker delegation when ICBC member bankers visited Washington, D.C. in mid-May for the ICBA Capitol Summit.

These bank failures highlight the strengths of banks like ICBC’s members. Despite lingering effects from the global pandemics, rising inflation, and an unprecedented rise in interest rates, customers should know the community banks’ mission to always support their customers and communities continues undaunted.