Kansas’ banking sector remains sound, the state’s top regulator told lawmakers Monday, amid recent concerns about the state of the industry nationally following the collapse of Silicon Valley Bank in California.
The failure of Silicon Valley Bank, as while as Signature Bank in New York, has prompted a wave of concern, even weeks later, about the fate of banks across the country.
SVB, which holds an estimated $212 billion in assets, collapsed as depositors rushed to withdraw their assets earlier this month, after rising interest rates threatened the value of bonds held by the bank.
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Top federal regulators said they would ensure all deposits as SVB; generally Federal Deposit Insurance Corporation backing only covers deposits of up to $250,000. The FDIC has taken over the bank’s assets and is seeking to sell them in a bid to recoup funds for creditors.
Kansas State Banking Commissioner David Herndon said while Kansas banks are not immune to national economic forces, he was confident residents had no reason to worry.
In comparison to SVB, all Kansas chartered banks hold roughly $60 billion in assets combined.
“$60 billion by 176 banks in Kansas vs. $322 billion for two banks that failed in the last two months is really a stark and drastic difference in my mind,” Herndon told the House Financial Institutions and Pensions Committee. “And I believe that is reason for no depositor of any Kansas state-chartered bank should be concerned about the safety of their money.”
The last Kansas-chartered bank to fail was Almena State Bank in Norton County in 2020, with an FDIC review finding that bank had poor board oversight and a risky growth blueprint.
Currently, Herndon said four Kansas banks were rated as troubled, either because of balance sheet or compliance issues. That is a fraction of the 176 banks across the state, with all of those institutions insured by the FDIC.
But Alex Orel, a lobbyist for the Kansas Bankers’ Association, pointed to Kansas banks outperforming the national average on a series of metrics as a sign of the industry’s strength.
SVB had heavy investments in the technology sector, owing to its California location. Signature, meanwhile, had significant investments in the volatile cryptocurrency markets. That behavior, Herndon and Orel each said, is not indicative of most banks and that, generally speaking, Kansas banks were far more diversified.
While Orel acknowledged that the state’s agricultural banks could be in trouble if the bottom fell out of that sector but he said protections are far greater currently for farmers than in past years, helping to avoid future struggles.
He added, however, that the current landscape should not be confused with a nationwide “crisis.”
While a recent study found that as many as 186 banks are at risk of failure even if half of their depositors moved to withdraw their funds, Orel said this was still a small portion of all banks nationally. The study also noted this was absent any form of governmental intervention.
“These bank closures are an outlier and are not reflective of the norm or financial strength of banks across Kansas and across America,” Orel said. “We’re talking about two banks right now. There are over 4,300 institutions across this country. … Think about that, think about the news going on with these two when there are 4,300 others.”