I read the April 6 letter titled “On the hook for bailouts” by Mr. Bill Hudson from Brownsville. Mr. Hudson talks about how the government’s only source of funds is taxes and borrowing money. He is certainly right about that. The government does not produce anything to sell or generate income. It does, however, charge fees for various services such as allowing citizens to visit their own national parks or paying for the renewal of a passport and such things as that. But these sources of revenue are so small in relation to the amount of money being spent by the government that the revenue really does not move the needle enough to have any measurable impact on the money that the government brings in. So Mr. Hudson’s statement is basically correct and no one should be lulled into thinking that when the government is passing out money, be it to individual people or to businesses, it is somehow anything other than a bailout for that person or business.
What I do want to clear up is his comment about President Biden telling the American people that these bailouts will not cost the taxpayers anything. I listened to the president’s speech after the failure of Silicon Valley Bank in California and Signature bank in New York. Being a banker for almost 50 years, I thought that when he said that, it was an unnecessary comment, since the depositors of those banks were being bailed out by the Federal Deposit Insurance Corp.
The FDIC was originally formed as a result of the bank failures during the depression years of the 1930s. The fund has been and continues to be funded today by the more than 4,500 banks across this nation. So when the president says the taxpayers will not pay for any of these losses, he is actually correct. The remaining banks have and will be paying for bank losses including these two banks.
Today the FDIC insures deposits up to $250,000. And in most cases, if a bank properly structures deposit accounts, it can insure deposits for even more than that.
Several things disappointed me about these two bank failures. The first was the lack of proper oversight of these two mismanaged banks by the government regulators. The banks were allowed to have too many concentrations in both their loan portfolios and their deposit structure. SVB had 97% of its deposits uninsured at the time of their closing. That means it had many large deposit accounts concentrating those deposits with just a few customers.
To put that in perspective, there are only 27% of Texas deposits uninsured in all the banks of Texas today. SBV had one account that had $3 billion in the bank at time of closing.
Bankers are in the risk-taking business and managing liquidity risk is one of the risks bankers manage. One way to manage liquidity risk is by not allowing deposits to any one customer to be so large that if that customer wants to take their money out of the bank, the bank does not have the liquidity to meet that withdrawal request. SVB took in these large deposits and turned around and bought long-term government securities in a rising interest rate environment. It started taking losses in the market value of its securities, and when the depositors saw that, they started taking their money out of the bank, and the bank could not come up with the cash quickly enough to pay out the depositors.
In the case of Signature Bank, they were heavily concentrated in the relatively new crypto currency industry. We have all seen the demise of that industry, and without proper diversification in their balance sheet, the bank was running a big risk that regulators should have been addressing.
But the biggest disappointment to me was how the media handled the failure of these two banks, one on the West Coast and one on the East Coast. Even here in Texas the media were talking nonstop about the “banking crisis.”
There was no banking crisis. Certainly not in Texas.
Texas is the economic envy of the nation. If we were a country, we would be the eighth-largest economy in the world. That is why we have so many out-of-state banks trying to open offices in our state.
I have served the past year as chairman of the Texas Bankers Association. The banks in Texas are the strongest and best-run banks in the nation. But even with that, because of the media hype, we had customers panicking and taking money out of Texas banks.
Our country has had many banks fail in the past and there will probably be bank failures in the future, but know that for the most part, the banks in Texas are well run, well capitalized, profitable and safe. Also know that when the FDIC pays off depositors, no taxpayer dollars are part of that bailout. It is the healthy banks that remain that are paying off those depositors.
Ford Sasser is president and CEO of Rio Bank in McAllen.
