By Henry Dubroff Sunday, March 12th, 2023

Update: This article was updated on March 13 to include stock prices of banks both inside and outside the region as well as include an exclusive interview with American Riviera Bank President Jeff Devine. This article was updated again on March 14 to update stock prices.

Regional bank stocks were headed into recovery mode on March 14, vindicating the speedy and unusually decisive move by federal regulators to guarantee all bank deposits and open special facilities for banks to gain access to cash in case depositors demanded their money.

Five days after the collapse of Santa Clara-based Silicon Valley Bank and the smaller Signature Bank of New York the shares of Pacific Premier Bank’s parent were trading at $25.31, American Riviera Bank was $17.39, PacWest was $13.05 and Community West was $12.71. All of the shares were above the lows reached earlier in the week and American Riviera and PacWest were sharply higher on the day.  

Acting in concert were the U.S. Treasury, the Federal Reserve and Federal Deposit Insurance Corp. Treasury Secretary Janet Yellen said on March 12 said the actions would ensure that “all depositors,” would not see their fund frozen or take losses.

Silicon Valley Bank, with deposits of $175 billion and assets of more than $200 billion, was a key lender and deposit holder for venture capital-based companies as well as an estimated 400 wineries. The inability to get funds on deposit would have made it impossible for those companies to make payroll or meet other obligations although the impact was more muted on the Central Coast.

“We’ve been through this before,” said Janet Garufis, Chair and CEO of Montecito Bank & Trust, the region’s largest bank, alluding to the 2008 financial crisis and the new tools that regulators gained subsequently to resolve problem banks. Given those extra powers, “they had to do the right thing,” she added.

“It’s quite extraordinary,” said Rod Brown, a Santa Barbara resident and retired CEO of the California Banker’s Association. “But I don’t know what you do the next time.”

Jeff DeVine, President and CEO of American Riviera Bank, told the Business Times he has spent a lot of the past few days talking at length about the repercussions of SVB’s closure, including to his own patrons.

“Our parking lot and lobby are seeing very light traffic… We are answering a fair amount of FDIC insurance questions and helping clients structure their accounts to obtain additional FDIC insurance if they feel the need to do so. We have actually been the busiest setting up new accounts for individuals and companies,” he added.

Garufis said she had spoken with a number of bank customers who indicated little concern about the safety of their deposits. DeVine said he is looking forward to American Riviera deposits increasing on a net basis over the coming weeks.

UC Santa Barbara economist Peter Rupert, a director at Montecito Bank & Trust, said in a statement that “The failure appears to be caused by the idiosyncratic borrowing and lending policies along with rising interest rates and the pullback in the venture capital space.” 

Attorney Mike Pfau said that in 18 years as a bank board member, he did not see any excuse for Silicon Valley Bank to mismanage its balance sheet that badly. “It’s a colossal failure,” he said in an email adding that balance sheet management is “banking 101.”

Regarding the rest of the banking industry, DeVine says the next few days will be busy and there will certainly be a lot of money moving around between banks, but that the vast majority of banking clients are unaffected and unconcerned.

“Those clients that are concerned will work with their banker to obtain more FDIC insurance and educate themselves on their options. We believe education is a good thing and clients should understand the nature of the bank they bank with,” said DeVine.

Considering depositors now have access to all their funds that were previously in jeopardy, DeVine doesn’t think it will have much of an impact on venture capital firms and the way they conduct their business.

Signature Bank was a lender to the crypto industry and its failure sent shock waves through investors in the alternative currency.

For banks serving high-net-worth individuals, the Treasury backstop could be an important catalyst to stop major withdrawals. First Republic Bank saw its share drop sharply on March 10. Its shares also rebounded sharply on March 13 and 14 after the backstop was announced and the panic mood subsided.

At the root of Silicon Valley Bank’s problems is the fact that it was ill-prepared for the shock of short-term interest rates rising to the 5% level, which caused the bank to both lose depositors and mark down the value of some securities.

As a privately owned bank, Montecito Bank & Trust does not have to worry about its stock price. But Garufis said that if actions by the Fed were to have the effect of reducing short-term interest rates that could ease pressure on banks with a high percentage of uninsured deposits or facing losses on securities on their balance sheets.

Her remarks proved prescient as short-term interest rates fell as much as 60 basis points on March 13, as investors bet that the Federal Reserve would not raise rates sharply in the future.

Easing pressure on short-term rate increases could diminish the prospect of another failure along the lines of Silicon Valley Bank.