RALEIGH, N.C. (WNCN) — The recent high-profile collapses of a pair of banks might have made you jittery about the money in your account.
The banking industry makes up a significant part of North Carolina’s economy, and with that in the backdrop, state Treasurer Dale Folwell made a statement that sought to distance those institutions based here from the failures of Silicon Valley and Signature banks.
But does he have his facts straight?
THE CLAIM: Folwell said in the statement that the 36 “banks we regulate in North Carolina do not have the same number of unsecured deposits and are more diversified than those troubled banks. At this time, the abbreviation ’N.C.’ stands for ‘no crisis.’”
THE FACTS: Three banking experts at universities in the Triangle all agree: Folwell appears to be right.
“I would agree in general with his statement,” said Gerald Cohen, the chief economist at the University of North Carolina’s Kenan-Flagler Business School.
Added David Butler, an assistant professor of business at Campbell University: “I can’t disagree.”
In the largest bank failure since the financial crisis of 2008 and second-largest in U.S. history, Silicon Valley Bank collapsed March 10. Two days after that, so did Signature Bank.
“It seems unlikely that these (North Carolina) banks have the same set of circumstances as Silicon Valley and Signature,” Cohen said.
The key portion of Folwell’s statement credits North Carolina’s banks for having fewer unsecured deposits and more diversification than Silicon Valley and Signature banks.
The FDIC insures deposits up to $250,000, and for the vast majority of people, that’s plenty.
“But if you’re catering to small businesses, even larger businesses, of course, you’re not insured beyond $250,000,” said Lee Reiners, the policy director at the Duke Financial Economics Center.
Data from the S&P Global Market through 2022 back up Folwell’s claim about unsecured deposits: On the list of banks with the highest rate of uninsured domestic deposits, Silicon Valley Bank ranked second at nearly 94 percent and Signature Bank was fourth.
Conversely, no North Carolina banks rank among the five with the most uninsured deposits.
San Francisco-based First Republic Bank was atop that list with $119.5 billion of those deposits making up 68 percent of its total, leaving investors concerned about its stability. A dozen banks — including Charlotte-based Bank of America and Wells Fargo — provided it with $30 billion in deposits earlier this week to prevent a wider crisis.
“The situation with Silicon Valley Bank was that those depositors were concerned that they wouldn’t be able to get their money back because they weren’t insured, and it sort of became a self-fulfilling prophecy,” Reiners said.
As for the question about diversification, the concept is not quite the same for banks as it is for your 401(k).
“In some respects, it’s a similar concept, but applied in different ways, Cohen said.
For a bank, diversification means having a mix of bonds, loans or mortgages with different maturity lengths and interest rates “so they’re not just holding a bunch of long-dated bonds with the same yield,” Cohen said.
But Silicon Valley did not have the comparatively broad deposit base that other banks do, and did not have as many retail customers. It served mostly tech workers and companies backed by venture capital.
“By having a more diverse portfolio, what the treasurer is saying is that their losses are substantially smaller or … they could, if they needed to, withdraw money, they could sell things that have gains rather than losses and not have the same issue as these other institutions or Silicon Valley Bank,” Cohen said.