Another Voice: Community banks and their customers shouldn't have to pay the cost of Silicon Valley Bank's failure

Since 1985, deposit insurance has stabilized the banking system in our country. It promotes public confidence through safe and secure deposits made by individuals and small businesses. Federal Deposit Insurance Corp. must protect depositors' money and cover each account dollar for dollar, up to insurance limits. Since the FDIC's founding, nobody has lost any FDIC-insured money.

The public's interest in FDIC coverage increased during the failure Silicon Valley Bank, due to fears that deposit losses would exceed the FDIC limit. After the failure of Silicon Valley Bank, which was largely a result of mismanagement and an extremely volatile customer base and deposit base making it a model for potential instability and risk, it was suggested that banks pay a premium to cover deposit losses in large bank failures. The assessment would negatively affect the community bank's relationship-based and community-focused business model, which could impact small businesses. Community banks shouldn't be charged a premium for deposit insurance to cover recent failures of big banks. This would give big banks an unfair advantage. It is counterproductive to ensure that a similar crisis does not happen again if community banks are subjected to a special assessment.

A deposit insurance framework with appropriate risk-weighting and tiers would be more appropriate than imposing special premiums for community banks who are not like SVB (16th largest bank in the country at the time it was closed) or any other large banks. Community bankers must work with policymakers on legislative and regulatory solutions that will not harm community banks, but instead ensure the long-term viability and strength of a banking system.

Community banks are deeply rooted in the communities that they serve. They are part of their community, and they want to see it thrive. Community banks are innovative, customer-focused, locally oriented, and relationship-driven. They don't use 1-800 numbers that are impersonal or offshore to service their customers. Locally, they do well.

According to the FDIC’s latest Quarterly Banking Profile (QBP), community banks performed better than the rest of the industry in the fourth quarter. They had a broad-based growth in loans, high capital ratios, and favorable asset qualities.

According to Independent Community Bankers of America (ICBA), there are approximately 50,000 community banks in the United States. Nearly 700,000 Americans are employed by community banks and they are also the only banking institution in one out of three counties in the United States. Community banks hold nearly $5.8 trillion of assets, $4.8 trillion of deposits, and $3.5 trillion worth in loans for consumers, small business, and agricultural communities. They also channel local deposits to the businesses, Main Streets, and neighborhoods that they serve. This helps create jobs, fosters innovation, and fuels their customers' dream in America.

This strong presence and commitment to the communities and customer relationship is crucial during times of economic distress, when our country most needs a solid financial system. One example is the implementation of Paycheck Protection Program as a response to Covid-19. The PPP offered loans that were forgiven in large part to help companies keep their employees employed. Community banks became experts on the PPP immediately and gained the respect and trust of their customers.

Community banks, like ours, are economic engines that serve their communities. When another economic shock occurs, a relationship-based model of banking will prove invaluable.