Message
As the news of the Silicon Valley Bank and other bank failures hit over the weekend, my work and home phones have been ringing most of the day and night, along with numerous emails from Members worried about another 2008 like banking crisis.
I want to assure everyone that, while no one can predict the future, Old West (as are most credit unions in general) is well-suited to weather this particular storm. I think once the smoke clears from this latest big bank fiasco it will again become very obvious that true strength, safety and accountability exist in small, locally owned financial institutions like Old West.
Although it’s early in the process, if I understand correctly the situation with Silicon Valley Bank was a failure to manage a very specific type of risk (Venture Capitalism financing) and a failure to prepare for inflation and rising interest rates, being heavily vested in long term assets/securities. When they had to sell those securities to meet depositor withdrawals, it meant realizing what was previously categorized as an unrealized loss. That loss caused subsequent panic with depositors which meant the bank had to sell more long term assets at a loss; this loss of depositor confidence became a cascading, self-fulfilling prophecy as the bank took steep net income loss to meet depositor demand. The challenge for any financial institution is to balance liquidity (cash) needs against the need for yield on assets and expense control; This process is known as asset liability management, or ALM. A failure to properly conduct ALM is generally the reason most financial institutions experience insolvency. It is literally a day to day, month to month, and year to year balancing act to remain competitive relevant to your members and maintain safety and soundness.
Comparatively, Old West’s ALM fundamentals are stronger than ever, and we are well insulated from any interest-rate shock or market volatility that the industry might see.
It’s because of our commitment to local businesses and local borrowers that we weathered the 2008 financial crisis, coming out of that stronger than ever. We’ve always approached business with the philosophy that the best investment we can make is in loans to our members, and that’s where our focus remains. Our entire ALM philosophy remains very conservative, focusing on those fundamentals that will allow us to offer value and relevancy to our members, and eschewing those short cuts that might mean a higher short-term yield at the expense of safety and soundness.
As a not-for-profit financial cooperative, we have little pressure to make operating decisions for the sake of stock value or market performance. Transparency and accountability are the hallmarks of our business model.
From a macroeconomic perspective there is much that concerns me, and as an industry I’m sure we will see some unanticipated ripple effects. I’m sure SVB will not be the only bank, or credit union for that matter, to suffer from the fall-out brought about by the liberal (not using this as a political term – as both parties share responsibility) easy-money (Quantitative Easing) era and the subsequent and necessary de-leveraging.
Lastly, your shares at Old West are insured up at least $250,000.00 by the full faith and credit of the United States. We are insured and regulated by the National Credit Union Administration (NCUA), a fully independent agency of the United States. As an independent agency, one thing unique about NCUA is the fact that its operating budget is not derived from taxpayer funds, but rather from fees of the credit unions (like Old West) that it regulates.
There are additional ways to obtain insurance above $250,000.00, and NCUA has this handy insurance calculator for your use. You can find the link here: Insurance Estimator | MyCreditUnion.gov
If you have any questions about how your funds are insured, how to obtain insurance on more than $250,000.00 in deposits or about any of the products or services we offer, please don’t hesitate to call or stop by any Old West branch.
If you have any questions or concerns about Old West in general, please feel free to email me at [email protected]. I will respond to each and every email personally.
Thank you for your faith and believe in Old West and our mission!
Best to you and yours,
Ken
Ken Olson President/CEO
Ride for the Brand!