Why Do Banks Fail?
Why do banks fail? After the events of March 10-12, this has become a widely asked question. In one word, the answer is, “liquidity”. Putting it another way, it is the inability for banks to meet the needs of their depositing customers that overwhelmingly causes banks to fail.
The two most recent examples - Silicon Valley Bank (SVB) of California and Signature Bank of New York - an old-fashioned run on the bank caused these institutions to be closed by State Regulators (think Bailey Building & Loan from the movie, It’s a Wonderful Life.). Both of these banks specialized in serving customers in the tech industry and had a large percentage (up to 90%) of their deposits uninsured by the FDIC – they exceeded the $250,000 insurance limit. When speculation got out that these banks may be having trouble, their depositors immediately withdrew huge amounts of money from each bank, leaving them unable to access cash quickly enough to meet the ongoing demands.
It’s important for everyone to know that banks in the Midwest have a very different business model from either Silicon Valley or Signature Banks. We focus on our entire local communities, not one industry nationwide. We are much more conservative in nature and manage our risks much more closely. Most importantly, we live and work alongside the customers we are privileged to serve.
With your continued trust and support, Peoples Bank will be here to serve all your needs well into the future!