Bankers say local institutions in no fear of failing
Three presidents of local financial institutions said last week they do not expect the surprisingly swift bank failures that caused shock waves nationally this month will be a cause for concern locally.
"We're all very well capitalized," said Tony Joyce, president and chief executive of Groton-based Chelsea Groton Bank, which has well over $1 billion in assets.
"We don't have a concentration of customer types, we didn't get into cryptocurrencies and we don't have a large number of depositors over the insurable limit (of $250,000 per account)."
Joyce, in a Zoom interview, was comparing local banks with two regional banks that were shuttered mid-month by government authorities, Silicon Valley Bank, based in Santa Monica, Calif., and Signature Bank, based in New York City. The March 10 demise of Silicon Valley, now in receivership, was the largest bank failure since the financial crisis of 2008, sparking fears among a number of depositors at other financial institutions that another nationwide banking collapse could be imminent.
The fears worsened last week when the venerable Credit Suisse, a Switzerland-based international bank, went belly up in a forced sale to another banking giant, UBS. About the same time, a report from four academics noted that as many as 186 banks nationwide could fail if just half of the money deposited with their institutions were withdrawn by customers.
The study noted the new "fragility of the U.S. banking system" as bank assets such as government bonds and other securities were hammered by the effects of aggressive interest-rate hikes propelled by the Federal Reserve as it tries to battle inflation. The Federal Reserve raised its benchmark interest rate another quarter point Wednesday to just under 5 percent.
Brian Orenstein, president and chief executive of Waterford-based Charter Oak Federal Credit Union, said he has noticed some jitters among customers ―and not just those with deposits over the $250,000 threshold ― although not a huge groundswell of people withdrawing funds.
"We are telling people to stay the course," Orenstein said in a Zoom interview. "The majority of our members (97%) are fully insured."
Orenstein said banking conditions are much different today than in 2008, when credit issues related to the subprime mortgage lending market sparked the financial crisis. He said he believes the most recent bank failures were related to rising interest rates, too many accounts over the Federal Deposit Insurance Corp. insurance limits and overinvesting in Silicon Valley tech companies that have been hit hard by the bear market in stocks.
Signature Bank was also buffeted, according to reports, by the downturn of cryptocurrencies.
“That’s not something we’re remotely connected to,” said Nicholas Caplanson, president and chief executive of Dime Bank in Norwich, in a phone interview. “Hopefully the public doesn’t get overly concerned. That would create more problems than the actual economics.”
Yet Caplanson, like others, noted that his more than 150-year-old institution has actually seen a net influx of deposits after the banking failures were announced. He said it is unclear why, though he said people here feel confident in their local banks and know that they are not involved in any speculative investing that could put them out of business.
“It’s not a big systemic issue,” he said in a phone interview Friday, responding to recent media reports that have fanned a sense of crisis. “It’s a handful of institutions that have had systemic failures. It’s nothing like 2008.”
Orenstein saw it as a good sign that the government has decided to guarantee payments beyond the $250,000 insurance limit to depositors at the two failed U.S. banks. The move has settled markets rattled by the sudden closures, he added.
Locally, loan quality is still good, said the three financial experts, as there are few outstanding loans in arrears. New residential loans, however, have dipped as higher interest rates in the 6% range make it harder to buy a home, and mortgage refinancing has nearly dried up entirely, they said.
Meanwhile, higher interest rates have convinced depositors to try to fight inflation by taking their money out of very low interest rate savings and checking accounts and buying certificates of deposit and U.S. Treasuries or opening money market accounts with interest up to 4%, they said.
Caplanson and others noted that virtually all of the financial institutions in southeastern Connecticut are managed very conservatively, which is why many of them have been in business a century or more.
"We take deposits from this area, and it stays in the area," Joyce of Chelsea Groton said. "We don't deal with venture capital and crypto. It's not in our DNA. ... We make or break things in this marketplace."
And Joyce sees the economy here as very strong, especially with all the employment gains at Electric Boat over the past few years, and another 5,750 hires expected this year.
The biggest problem, he said, is finding people to hire. Ever since COVID-19, he noted, the labor market locally has been tight.
As for the possibility of recession down the road, Joyce, Caplanson and Orenstein admitted the possibility, but said they were prepared for whatever comes.
"For us in southeastern Connecticut, we shouldn't be impacted much by that," Joyce said. "If there is a recession, I think it will be on the mild side."
“If employment stays where it is now, people are going to pay their bills and things are going to be OK,” Caplanson added.