The failures of New York-based Signature Bank and California-based Silicon Valley Bank, and the federal takeovers that followed, have stoked fears about the possibility of spiraling financial instability.
President Joe Biden on Monday sought to assuage Americans’ fears by urging confidence in the banking system. Locally, the Credit Union Association of New Mexico in a news release Monday said, “New Mexico credit unions do not make risky investments in Wall Street or Silicon Valley, but instead use member deposits to invest in our community members right here at home,” adding that “Each credit union member has at least $250,000 in total deposit insurance coverage.”
The Journal reached out to experts about what this means for New Mexican startups, consumers and financial institutions. Below are responses from Southwest Capital Bank CEO Chez Steel, OneTen Capital Managing Partner Dorian Rader and local economist Kelly O’Donnell.
Responses have been lightly edited and condensed for clarity.
Q: The collapse of New York-based Signature Bank and California-based Silicon Valley Bank has raised concerns about broader economic instability. How do you see New Mexico banks, startups and consumers being affected by what has transpired over the last few days?
Steel: “Let me start with New Mexico banks. I monitor my peers and as an industry in New Mexico, we are healthy with solid balance sheets and good income over the past several years. In the early 2000s companies were required to mark fluctuating assets to the current market value. In my career since then, mark to market has been negative and positive several times. We meet monthly to discuss and actively manage that risk to the marketplace. Generally, a bank purchases investments with the intent to hold until maturity and spreads out the purchases over a series of months and years.
“New Mexico consumers are not wealthy, but we tend to mirror other markets. Consumers in general are pretty healthy. As a banker, I watch early past dues as an indicator of bad things to come. Early-stage past dues, while up ever so slightly, are minimal and in line with pre-pandemic levels.
“As for startups, from what I am hearing and seeing in new deposit accounts and loan (applications), post-pandemic activity is beginning to pick up… slowly. I think it is important to note that New Mexico has and continues to be the odd man out in comparison to the states that surround us and that will only change with a more business and tax-friendly political environment.
“I think it is telling that the (Federal Deposit Insurance Corporation) was unable to find a buyer for (Silicon Valley Bank). In the 2008-2010 crisis, the FDIC was able to sell within a weekend almost all the banks that failed. That should tell all of us a little about the ‘unicorn’ that SVB was.”
O’Donnell: “Now that the FDIC has committed to fully protecting all depositors, the direct impact on New Mexico depositors should be minimal. The (banks’) shareholders are a different story. The potential impact on the state’s investment funds might be worth exploring with someone at the State Investment Council.”
Rader: “SVB has been regarded as a go-to bank for startups for many years. There was a time when they were very active in the New Mexico entrepreneurial scene, so I believe there is likely to be some impact here from their collapse.
“1. Early-stage companies are losing a big banking player in the market that was fundamentally designed for them. Historically it has been a challenge for startups to get a bank loan. SVB was also addressing banking, payment systems and payroll transfers for startups.
“2. Although the FDIC has stepped in, startups, (venture capital) funds and their portfolio companies are all likely to be impacted, if nothing else, by delays in access to their own capital. As you can imagine for cash-strapped startups, that can be hugely detrimental to them.”
