ANDERSON – As domestic and international markets struggled to regain their footing after the collapse of two U.S. banks, local financial advisors and bank executives said that while there are legitimate concerns about the circumstances that led to their demise, there is no reason causes concern on the part of their customers.
“I think the bigger concern for me is, will the Federal Reserve raise interest rates too quickly and cause a recession?” said Philip Lavelle, an Anderson-based financial advisor at Thurston Springer Financial in Indianapolis.
Lavelle said recent speculation has focused on how steep the Fed’s next rate hike could be, noting that many financial analysts expect a hike of around half a point. The collapse of the two banks — California’s Silicon Valley Bank and New York’s Signature Bank — could prompt the Fed to reconsider, he said.
“There was a kind of relief or anticipation that the Federal Reserve might not be as aggressive in raising interest rates because the collapse of these two banks could help dampen inflation,” Lavelle said.
Local bank executives have taken the week’s news and the resulting market volatility in stride, noting that the two failing banks had investment portfolios – mostly aimed at tech workers and venture-funded companies – that were fundamentally different from their holdings.
“The closed banks had unique risk profiles that differed from First Merchants Bank’s risk profile,” said Mike Stewart, president of First Merchants. “We are keeping a close eye on special programs and actions by federal regulators to ensure the stability of the financial industry.”
Stewart said First Merchants’ offices in Indiana and three other states have operated under “business-as-usual” protocols, but that employees have received answers to common questions about the topic that customers may have.
Lavelle said another factor in the demise of SVB and Signature — the second largest bank failure in US history — is likely a lack of diversity among the customers those banks lend money to.
“I think their exposure to cryptocurrency-related companies really doomed them,” he said. “They are not diversified banks. They have a very unique niche of customers that they serve and I think that’s really what brought them down.”
In other words, Lavelle said larger national and regional banks are not at risk.
“I think the word would be that this (situation) is not indicative of systemic risk,” he said. “It’s just very localized and specialized.”