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Doni: It's been a tough few months for banks, their investors and depositors.

We've witnessed the third largest bank failure in history, making for a lot of nervous people and endless questions.

Is my money safe?

Will it happen again?

What exactly happened?

Well, we're talking about this today with one of the most respected bankers in northwest Ohio and the executive officer and director of our local signature bank.

John, such this is to the point.

Connect with us on our social media pages.

You may email me at doni _miller@wgte.org and other additional extras, please go to wgte.org.

To that point, it is my honor and my distinct pleasure to introduce you to a man that is so well-known in this community.

I shouldn't even introduce him to you.

But I will.

His name is John Such He is one of the most respected bankers in Northwest Ohio, having served 17 years at Trust Court, which is now KeyBank.

He's co-founder of Capital Bank at fifth Third.

For more than a decade, more than 50 years in the industry.

And he is now the executive officer and director at our local signature bank.

Hi.

Welcome.

It's so good to have you here.

The very first thing I'm going to ask you is what the heck is going on?

We have had three failures, three bank failures in one week.

There are real concerns about other banks failing.

First Republic stock was down 47% this morning.

Are where is my money?

Okay.

John: That's a that's a great question.

First of all, yes, your money is okay.

All right.

Actually, the government, your money is insured up to the $250,000, but also per per person.

By the way, the husband and wife can get double coverage.

But the government's also in this case, stepping in to insure deposits that are in cover, deposits that are above the insured amounts.

Yeah.

So I don't think anybody's going to lose money.

Any deposits are going to lose money in this particular episode.

Doni: In this particular episode.

Yeah.

We want to make sure that people understand that our local signature bank is not the signature bank that's all over television these days.

So want to we're going to say that more than once.

John: Just so thank you for that.

There actually are five signature banks in the country.

Doni: And you're not connected?

John: No, we're not connected.

Doni: That's interesting.

That's interesting.

So one of the things that I learned as I was preparing to speak with you today is that bank failures really are relatively rare.

That, for instance, there were four in 2029, in 2021.

But now we have this spate of bank failures going on.

Can you explain to the lay folks who are watching what exactly causes a bank to fail?

John: There are a number number of things can cause a bank to fail if you go.

I don't want to elaborate too much, but if you go back historically, most bank failures were related to major economic problems.

And they in the in the business community and with consumers and charge offs and bad loans, which, you know, basically eliminated the capital of the banks and they failed.

That happened in the, you know, during the Depression.

We had some of that in 0809.

This is completely this is completely different.

I have never seen a situation like this before.

And do I mean to elaborate a bit.

Doni: Yes, please.

John: So, first of all, the banks that failed don't have any significant issues with the quality of their loans.

And it's not really related to the the economy, which is which is very, very unusual in the history of bank failures throughout the country, which I'm kind of a student of in this situation.

It was it was a basic banking 101 that wasn't really followed by these banks that failed, first of all.

So Silicon Valley Bank and Signature Bank in New York failed for similar reasons.

But they accumulated huge deposits, large deposits way above the insured amount from venture capital firms, tech firms and so forth.

In in Silicon Valley, they were they had probably 70% of the tech companies in the country banking with them.

And a lot of them had huge deposits that they raised from their investors and put the money.

They encouraged these these companies to put the money in their bank, which for whatever reason, they they put their way above the insured limit.

Doni: For example, I heard had 500 million.

John: 500 million.

Doni: 500 million.

John: In that bank.

94% of their deposits were above the $250,000 insured amount, 94%.

Now, to put that in perspective, if you take the local banks in northwest Ohio, probably including the regionals, fifth Third's and Huntington's, etc., that number probably is closer to ten or 15%.

So and then the amounts that the local regional banks have above the insured amount is not it's not a lot.

It's it's what they have in there to cover their, you know, their basic banking activities, checking and so on.

So these were and both of these, I must speak mainly about Silicon Valley and and also Signature Bank in New York.

But they they encourage their clients to to big clients that they handled to put large amounts of deposits with them which is not in and of itself a bad thing.

But one of the things one of the basic principles of banking, which we monitor monthly.

Every bank that I've been at is headed as part of their regular bank management.

You, you match up your you match up the duration or the length of time for your deposits and your loans to mature.

So these huge amounts of money that the two banks accumulated Silicon Valley and signature were basically money that could be withdrawn overnight.

So they were in checking accounts, money market accounts, the duration of them was basically a day.

So you have to as a bank, when you have you have to match the the duration of your assets, assets being your loans and deposits.

Right.

Somewhat with the duration of excuse me, loans and investments, some with the duration of your deposits, for example.

So what caused the run on the bank though, That's that's really, isn't it.

What caused the collapse that people panicked for some reason?

John: Well, no, there's there's probably not a there's probably a pretty good reason.

So the banks took these huge amounts of money and Silicon Valley Bank tripled their deposits in the last three or four years.

So they had this enormous amount of cash that was short term in nature.

And they invested the money in Treasury bonds.

Doni: Which are relatively safe.

John: Very safe.

Yeah, very safe.

triple-A rated the safest investment in the world.

But what they didn't do and what local banks have done, we've done our maturities on our treasuries are probably 1 to 3 years.

Silicon Valley Bank and Sydney is your main New York.

But long term treasuries by ten years plus at one and a half percent a couple of years or year ago.

And what happens rates then and Treasuries went from one and a half percent to four and a half percent, and they're sitting holding these these bonds at one and a half.

The market value of those bonds, what they could sell them for, fell by close to 50%.

Doni: Got it.

John: So you have an unrealized loss in your portfolio.

The unrealized loss in the portfolio for both of those banks was more than the total net worth of the bank.

So now you have a negative net worth situation.

And you know, as that became more public, the large depositors panicked and pulled the money out of the banks.

In fact, one of them, I think, had 40% of their money withdrawn in a day.

Doni: No kidding.

John: So it wasn't related to a bad business environment.

It wasn't related to, you know, bad loans.

It was related to mismanagement of the asset liability.

Doni: Banking one on one, as you call it.

Yeah.

Yeah.

Banking went to one.

So here's a question that I have for you this particular time.

Janet Yellen, the treasury secretary, has said that they're going to cover the Biden administration is going to cover everybody's losses.

But that's probably not will what will happen in the future?

Is that a bad precedent?

John: I think it's a bad precedent because I think it's a bad precedent.

But it's happened in the past has I mean, in oh eight or nine during the depths of that crisis.

And that was the that was a systemic bank, industry wide crisis.

They they basically covered deposits for everybody at that time.

So it isn't the first time, but it's a bad it's a bad message to send long term.

Doni: Well, let me tell you, I ask you that.

One of the one of the pieces of advice that I keep hearing during this discussion is that it's really the responsibility of the depositor to understand the financial status of the bank, that they should be more involved in managing their money, that they just shouldn't put it there.

They should.

If you have more than $250,000, which most Americans don't have.

I think they should use multiple accounts.

Is it really fair to expect Americans to be that involved in banking decision making?

I wonder if we shouldn't expect to have our deposits covered.

John: I think you're right on.

I mean, how can this happen?

The average Irish person is not going to thoroughly analyze the financial statements of a bank.

And just by the way, the the securities industry and the stock research companies that study this.

Many of them had both of these banks that failed on a buy list.

A couple of weeks before they failed.

So, I mean, if they can't analyze.

Doni: The.

John: Bank, how is the average how's the average individual going to do it?

So.

And I think that I think the American public has a right to expect.

I mean, these banks are first of all, they have their in.

Doni: I'm going to ask you to hold that thought.

All right.

Okay.

It sounds like something we should really pay attention to.

So we're going to go away for just a minute and you'll pick up right there.

Good.

All right.

We'll be right back.

Jaden: Following the collapse of two major banks here in the U.S., we're asking people the important question how safe do you feel your money is in the bank?

It's the first edition of Point of View.

How safe do you feel your money is in the banking system?

Man: Not quite.

Not really safe.

I feel like we feel like this situation that we're having now is just bloody explode.

Ladies: I am honestly concerned about our banking system because it is super easy to get credit card information and people will just steal your money.

I think it's pretty easy.

I would say the same.

I think that it's pretty easy to get people's information.

Overall, I'd say it's it's safe enough.

How safe do you feel your money is in the banking system?

Man: I think it's completely safe.

We have a great system since the 1920s that protects our money.

So I am a big believer in our banking system at this time.

Jaden: So there you have it.

Reporting in Toledo, I'm Jean Jefferson.

Doni: Connect with us on social media.

I ask you that all the time because it's really important to us that you do.

Email me at doni _miller@wgte.organd for this episode and other additional extras, please go to wgte.org/tothepoint.

We are talking to John Szuch.

He's the executive officer and director of our local signature bank.

We're talking about the recent spate of bank failures and how it really affects ordinary citizens as we went to break.

You were talking about several points that you thought it was important for us to pay attention to.

John: As far as the talking about the expectations of the normal individual depositor.

Now, I think I think that I think the American people have a right to expect.

First of all, banks have internal asset liability management companies, which in any kind of a normal bank would not permit a mismatch of the deposits and investments like you had in these cases.

Secondly, they all have an outside auditing firm that comes in and does their, you know, their audits of the bank that have banking specialists that know better than to allow this type of thing to happen.

Third, you have the bank examiners and these banks were on the radar of the bank examiners, but nowhere near at the level they should have been.

So I think there was really a failure all the way down the line on these regulatory and auditing people, which they're the people that should be on top of this type of thing.

It shouldn't it shouldn't go back to the average individual customer to do this.

So.

Doni: Yeah, should we be worried about the type of investing that our banks are doing?

So much of these failures was related to being involved in high tech, for instance.

And there is one bank I can't remember the name.

Silver backed Silver.

John: Silver Lake.

Doni: Silver Lake.

That is actually closing because of its overinvestment in cryptocurrency.

It feels a little bit like we're moving into some riskier investing than banks typically do.

John: Well, I think all of the three banks that are, you know, the Silicon Valley signature in the Silver Lake, I don't know as much about Silver Lake, but, you know, I know that the signature bank in New York got heavily involved with crypto, but it wasn't that they lost money on I mean, on the on taking in the crypto deposits or lending money.

The I mean, these banks really failed because of the because of the mismatch of their of their overnight deposits with their long term investments in Treasury securities and Treasury securities are are very safe.

I mean if they they will hold these bonds probably to maturity and get 100 cents on the dollar when they mature.

It's just that when you have a run on the bank and you have to sell these securities, now, the losses are staggering.

So it's I, I just put on really terrible asset liability management on behalf of the banks, which is way outside the lines.

Doni: Yeah.

And, you know, interesting to me is that when we had the bank failures in 2008, as I recall, many of those CEOs were not held accountable.

They received bailouts and they continued to they continue to manage those banks.

It's it's my position and you may disagree that CEOs of banks need to be held accountable, just like the supervisor at the Ford plant or or the Kroger's.

John: Totally agree.

Doni: With you.

Yeah.

Yeah, I totally agree.

John: Well, and I think the at least in this case, the leadership of these banks is gone and all the shareholders are wiped out.

So, I mean, they're they the people who invested and ran the place, have they paid the price?

Now, a couple of the senior executives sold some of their stock shortly before the banks went under and made several million dollars.

We'll have to see how that plays out now.

Doni: Yeah.

Yeah.

That's So how does this roll back on on the depositor and the community?

I mean, are loans going to be higher or is it going to be more expensive to buy a house?

How do you see this actually manifesting in communities?

John: I don't know that these these isolated failures will have a, you know, a huge impact on on communities.

I think I think it's a you know, I think obviously the other banks in the country will pay more FDIC insurance premiums if there are any losses.

But I don't think there probably will be.

I think the rate increase, which the large increase in interest rates, which precipitated the decline in value of these bonds, that's the thing that will affect the communities more than the particular bank failures, because buying a house or a car or credit card is a lot more expensive than it was a year ago.

And this is this the the Federal Reserve attempting to stem inflation, but they're stemming inflation by, you know, it's going to hurt consumers a lot.

So it's all it's all interwoven.

But I think this rate increases serious stuff.

Doni: Yeah, I was I was just thinking that it all seems to be fairly circular.

And I don't know that the average consumer understands, nor should be expected to understand how all of this works.

But but is there something that we should be doing to protect our money, or are there signs that we should be looking for to to to tell us if our if our banking organizations are in trouble?

John: Well, all the banks have there There are Bauer rates, all banks, five star, four star.

All of the banks are, you know, examined by the, you know, the the comptroller of the Currency, the Federal Reserve, pretty much annually or maybe every 18 months.

Um, I think the consumer should have a right to assume that those things are being done.

And they do to that do they're independent.

How can they possibly do an independent analysis of that?

And then the other thing is as far as insurance, we have, there's networks of banks where you people put a deposit with us and we all 250,000 and then move the balance to another bank where it's insured, or we have customers where we're managing their deposits at several different banks, all of which have under the 250,000 hour limit.

So it's all manageable.

I mean, it just doesn't have to be this type of thing.

It just really shouldn't happen.

Doni: So you don't see this, as many commentators have mentioned.

You don't see this as a run on bank closings.

John: I do not, although having something.

Doni: To say, you you pause there.

So there must be.

John: Yeah.

No, there was there has been some flow of money from moderately sized banks to to the larger the biggest safest banks or have been some of that and there's been some lobbying on behalf of some of the medium sized banks and banking organizations to have the government cover all of the deposits even above the short amount for a period of time.

And I think some of that's happening.

The other thing that's happened, which is a pretty big protection for, I think, for depositors by creating liquidity for the banks, is the Federal Reserve will now loan a bank or advance a bank money up to the face value of the bonds.

In other words, if you bought $1,000,000 bond and it's worth 600,000, they'll advance you up to the million dollars so that you aren't forced to sell it at a loss.

Doni: At a loss.

John: Right.

And that that creates a lot of liquidity for the system, too.

So, I mean, I think at least for the short term, they've done what they need to do to prop things up.

Doni: Do you think this, though, is forcing a real consideration of mergers between larger and smaller institutions?

I'm thinking about the Credit Suisse situation where where USPI is is, you know, one side is saying it's a merger and the other side is saying it's an acquisition.

At the end of the day, that the larger bank is going to own the smaller bank.

So do you think there is more movement toward that so that smaller banks are at risk here?

John: Well, I mean, okay, So if you go back, there's probably there's pressure on a thousand banks in the country.

I could be off a little bit on that.

But there's been a reduction in the number of banks probably every year for the last 30 years, larger banks acquiring smaller banks.

I'm in Ohio, probably had 50 or 60, maybe 100 small banks.

Every town had a bank.

It's just there's an ongoing trend of smaller banks being acquired by larger banks.

And in a go, I'm going to OP going off script a little bit.

I've read Credit Suisse is a notorious bank.

I mean, as far as, uh, fraud, I mean, questionable, if not fraudulent transfers, banking criminals.

Yeah, the Russian mafia.

I mean, there that is Credit Suisse is has a really sketchy.

Doni: Very colorful.

John: Very colorful.

Yeah.

Yeah, very colorful.

Doni: Yeah.

So but they were still allowed to operate.

You know, all of those scandals happened and they were still allowed they're still allowed to operate.

And one of the larger banks.

John: Very large.

Doni: Yeah.

Yeah.

One of the larger banks.

Are you.

What challenges are you seeing in the industry in terms of just banking?

It's different today.

It feels different than it used to.

John: It does, but I but I think the I mean, the, the extreme basic principles are, you know, you have to you have to make loans and investments and get a rate.

You have to you know, a normal bank can afford to lose maybe a half percent of its total loan portfolio in a year and stay within the normal guidelines.

Then you raise money and deposits and you're you're still trying to make a three and a half percent spread on that, which covers your overhead and gives you a profit.

I mean, those those basic things have never really changed.

You know, it's, uh, you know, rising rate environment you have we will have some pressure on your customers profitability and your consumer's ability to make payments.

But those are, you know, fairly normal economic things that happen.

I mean, so you've made me feel really good about, I don't know, my money in the bank, my money's safe, Right.

I think I shouldn't have to pay attention to the way the banks are operating.

No, no.

And it ought to be there when I get ready to come get it back.

Right.

John: I would say that every bank and I'm familiar with in this market certainly is.

There are not issues, and I'm pretty familiar with all of them.

Doni: I am so glad to have you with us today.

You've made me feel so much better and I'm sure everyone else, too.

Thank you, John.

I hope to talk to you again soon.

Thank you all for joining us.

We will see you next week.

On to the Point.

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They do not necessarily reflect the views or opinions of W t public media.

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