The President’s Perspective

Collapse of SVB – is this an opportunity for the credit union model to shine, or will this lead to more regulatory scrutiny? Plus, help us spread the word in support of SB 2266. 

To Bail Out or Not to Bail Out?
Did the U.S. Government just guarantee every depositor and uninsured account in the country? Of course not. However, it does appear that way. By now we all have heard about the FDIC’s takeover of SVB (Silicon Valley Bank) in California, and Signature Bank in New York over the weekend.

One can argue that the government’s response looks a little rigged, which leads to this question: Are there two sets of rules? Rules for a favored sector, and rules for everybody else? In this case, I’m referring to the depositor’s insurance coverage of a $250,000 threshold per account.

Let’s do a deeper dive. SVB reportedly had 95 percent of their deposits over the depositor insured $250,000. In fact, many of the bank’s depositors had cash balances at SVB in the hundreds of millions of dollars each. Yet, it appears that everyone will have their deposits covered, meaning no one will lose their funds. But according to the administration, this is NOT a bailout, and no taxpayer funds will be spent on the rescue. Really? How so?
 
Initially, federal agencies are predicting that the repayments will come from the sale of SVB’s assets, which include treasury securities, with any shortfall covered by an FDIC assessment on its member banks. Federal agencies are claiming that there were enough assets on the bank’s balance sheet to cover all deposits once the assets are sold. However, one news source I saw over the weekend indicated that after such a sale they were still short by around $1.8 billion.  
 
One can and should ask, is this really a bailout of Silicon Valley itself, where fintech startups made disastrous decisions to begin banking with SVB? Yet the Federal Government is saying don’t worry about it – we’re going to come in and save you and allow you to keep making these disastrous decisions.
 
Here is a question I have: Did these venture capitalists manufacture the fear of a “bank run” or, worse yet, other prospective bank runs over the weekend to force the government’s hand here? The more likelihood of public fear meant the more likely these fintech venture capitalists would get the government to act in their favor. Certainly, something to consider.
 
However, is there a more dangerous way to shake public confidence than to call an emergency meeting on a Sunday night and come to the rescue of a bank that wasn’t, in all technical terms, a systemically important institution? But, by calling it “systemically important” and potentially impactful, they could then justify a bailout to its depositors.
 
We are only 48 hours into this event and Congress doesn’t seem to know what to do yet or even how to respond. We do know that Congress tends to act (or overreact) when there is a public crisis. We can expect more fallout to come and we should be prepared for a ripple effect that could impact your credit union and your members.
 
Many of you have already pivoted and are responding appropriately. CUNA is working on some social media tools and resources, and has also prepared “Credit Unions Safety & Soundness Talking Points” to help your team address any questions or concerns you may encounter from members.
 
Back to SVB, because there is even more to this story. It has been reported that top executives sold millions of dollars of shares in the weeks prior to the collapse. They didn’t diversify their lending and invested primarily in venture investments in fintech and “green project” startups that were financed by venture capitalists – all of which are extremely risky. It appears the bank was more interested in obtaining high ESG scores than acting appropriately. We have also learned that SVB went without a top risk officer for nearly a year during one of the fastest rising interest rate environments on record. To top it off, their chief administrative officer was the CFO at Lehman Brothers before it collapsed in 2008. (I wouldn’t want that on my resume.)
 
How will this impact credit unions and our members? Is this an opportunity for our movement, or are we at the brink of even more regulatory scrutiny, or worse, a centralized digital financial system run and controlled by the Federal Government?  Many will say that is a conspiracy and a crazy idea. However, that system is already in place in other countries (China) and others (Europe) are pushing for it. Will this lead to even more scrutiny on concentrated lending by financial institutions, especially here where we do have large portfolios in agriculture and food production lending?  You can surely bet that the NCUA will use this incident to get third party vendor oversight.
 
Once again, could these bad actors lead to credit unions and our members being the ultimate collateral damage? Or should we push back aggressively and make a case for our financial cooperative model? For example, smaller financial institutions such as credit unions manage risk daily. Even during exams, you all spend hours showing how you manage interest rate and liquidity risk, regardless of the rate environment. Credit unions can pivot and manage balance sheets when rates crash overnight.  
 
This is certainly another example of where and why consumers choose to put their money really matters. Credit unions by nature do not take on this level of exposure and risk. We live and work in the communities we serve, we are owned by our members, and we take local deposits and make local decisions on loans. More importantly, we properly manage our risk so that we remain safe and sound in any environment.

​Credit Union Day at the North Dakota Capitol scheduled for Wednesday, March 22nd.
We are looking forward to hosting many of you in Bismarck next week at the North Dakota State Capitol. “North Dakota Credit Union Day at the Capitol” is set for Wednesday, March 22 starting at 7:30 a.m.
 
It’s been several years since we asked credit unions to do this. In fact, we haven’t gathered this way since the establishment of the North Dakota Ethics Commission, which determined that any event held for legislators must be educational, and if food and beverages were being provided, the sponsoring organization could not use the opportunity to advocate lawmakers on any policy that is being considered by the legislative body. (These limitations really defeat the purpose of hosting a legislative social with all the expense and coordination.)
 
However, with our important field of membership modernization bill – SB 2266 – we need to pull together and demonstrate to our elected representatives that our industry needs this.  
 
Click here for specific details and an outline of expectations. Don’t hesitate to contact me or Jay Kruse if you have any questions about the day.
 
TV Commercials supporting our FOM modernization bill running now!
To further advance our ND field of membership modernization legislation, we are currently running TV commercials in multiple viewing areas statewide on stations WDAY, Valley News Live, KX News, KFYR, KQCD, KUMV, and KMOT. If you haven’t seen the ads, you can find them at the links below. Please help us spread the word by sharing on your social media platforms!
 
Credit Unions and Banks are not alike – Support SB 2266
 
Credit Unions Support Family Farmers and Ranchers
  
Foundation Town Hall Planned for Friday
In closing, please note that invitations have been sent to all CEOs and credit union marketing staff to attend a special Dakota Credit Union Foundation Town Hall on Friday, March 17 at 10:00 a.m. (CT). The primary purpose of this meeting is to explain grants/scholarships that are available and to launch our exciting Vacation Sweepstakes.

One lucky winner will receive a vacation voucher worth $5,000 for a trip of their choice! The drawing will take place during the Awards Banquet at the Summit in Fargo. This Town Hall will be brief, lasting approximately 20 minutes. Please plan on attending or have someone from your staff attend, we are counting on our credit unions to help us promote this important fundraising effort. If you have any questions about the sweepstakes or the Town Hall, please contact Shawn Brummer.
 
I look forward to seeing many of you next week in Bismarck!

DakCU President/CEO