This regional banker cheered by sector’s resilience, disturbed by potential regulation
This regional banker cheered by sector’s resilience, disturbed by potential regulation
Over a year ago, the sudden collapse of Silicon Valley Bank looked like it might be the start of a larger crisis among regional banks. And while meltdowns of Signature Bank in New York City and First Republic in San Francisco followed, the larger crisis never materialized.
Yet that’s not to say that the banking sector has gone unscathed. Troubles in the commercial real estate sector have left another regional, New York Community Bancorp, in a bad way, and regulators have proposed new, stricter capital requirements.
But what is it like to work in the regional banking world right now? “Marketplace” host Kai Ryssdal gave Laurie Stewart a call to find out. Stewart is the president and CEO of Sound Community Bank, headquartered in Seattle. The following is an edited transcript of their conversation.
Kai Ryssdal: How are you feeling about the kind of banking you do these days?
Laurie Stewart: You would be surprised that I’m actually very, very confident in the kind of banking that community banks are doing. And I want to say, before we get too far along, that your mom should still be feeling really good about her certificate [of deposit] rates, because rates are still high.
Ryssdal: She’s gonna email me. She’s already writing that, I can tell.
Stewart: But you know, community banks are resilient, and we serve the markets where we do business. And I think banks as a whole have demonstrated they can do that a year after the failure of some regional banks. So that part I feel really supergood about. I’m a little less positive on some of the potential regulation that will require holding more capital and more liquidity, and what that impact will have on both borrowers and investors and banks. So that’s where I’m less optimistic.
Ryssdal: We’ll get to that in a minute, but I do want to talk about sort of the, the regional tier of banks in this economy. When you have people like [Federal Reserve Chair] Jay Powell saying no parts of it are really challenged and when you have people reading about New York Community Bank and the exposure to commercial real estate, do you understand why there’s some agita out there?
Stewart: Oh, I totally get it. But again, we need to think about the perspective and who’s in commercial real estate, and where are the problems, right? So in a city like Seattle, where we’re headquartered, we’re not in downtown commercial real estate. Most of the regional banks aren’t in those megasized deals in cities’ central cores, either. The great, big banks are, but again, they’ve demonstrated their ability to maneuver through multiple cycles. Now, there are regional banks with more exposure to commercial real estate. But when I looked at the statistics, Kai, there are 4,587 banks in the country at the end of the year. Fifty-two are troubled banks. So 1.1%. Not many. And we had one bank failure in the fourth quarter. So the concern might not be appropriate to the data.
Ryssdal: Fine, and I appreciate the statistics, but if things are as hunky-dory as you say they are, to get back to your point of regulation, why do the people who are in charge of supervising banks in this country think there is more regulatory oversight needed, some more capital requirements that are required? I mean, you know, they presumably know what they’re talking about too, just like you do.
Stewart: Sure. I mean, I think we all have a perspective on this. But more capital has always been the solution. More capital has been what regulators have talked about for decades. Is the regulatory solution the right solution? And if it is, OK, give those regulators full credit for doing their homework. If it is, how do we go forward as an industry? You know, we’re businesses too. We have a requirement to make a profit, to keep building capital. So how do we do that under those constraints? That’s, again, where I’m less optimistic and think we have to ask questions.
Ryssdal: Last thing, and then I’ll let you go. Risk is part of your job. Managing risk, keeping an eye on risk, knowing what risks are coming is literally why you get paid. What risks do you think are coming to banking?
Stewart: That’s interesting. I’ve just been in a leadership meeting with our executive team, and we’ve been talking about enterprise risk management. As bankers, we’ve always thought, OK, credit risk, and that’s something I don’t want us to take our eyes off of. Not just commercial real estate, but credit risk overall. Right now, we can live with some of these lower interest margins because credit quality has been great, but I think we should all be focused on, are there any early warning signs after this much inflation in the economy that suggests credit could be our next big, big problem? So that would be on my keep-me-up-at-night list. Cyber risk is always going to keep me up. You know, it just takes one employee clicking on a malicious link to bring down a system.
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