“They were classic investors of what we sometimes call ‘patient’ capital, which is to say they made money available to startups even when those startups did not promise any profits until three or four years down the line,” Hockett said.
Despite what Hockett described as “boneheaded” managerial mistakes, the bank’s core business - providing financing for new companies that wouldn’t get the time of day from a larger national bank - is exactly the kind of activity policy makers want to encourage. Take Silicon Valley Bank, the go-to tech startup lender in the Bay Area before it was felled by a frenzied bank run on March 10. Regional and small banks also tend to develop expertise that businesses rely on.
Small businesses, which employ roughly half of private-sector workers in America, overwhelmingly prefer to bank with small or midsize lenders because they prefer the customer service. These banks are sometimes known as “G-SIBs,” or “global systemically important banks.”Īs such, they are typically much more interested in investing abroad and in global capital markets than they are in domestic production, Hockett says. “They basically tend to turn everything into securities trading.” The differences between them and the too-big-to-fail variety boil down to a lot more than just size.īig banks like JPMorgan Chase, Citi, Bank of America or Wells Fargo are sort of “one size fits all” financial conglomerates, says Robert Hockett, a law professor and expert on public finance at Cornell University. This week, Wall Street turned its focus to PacWest, another similarly midsize, West Coast regional, after it revealed customers pulled 9.5% of its total deposits after First Republic failed on May 1.Īll of those banks share a status in common as a “regional” or “sector-specific” lender. (They represent the second-, third- and fourth-largest bank failures in US history.) Already, three lenders - First Republic, Silicon Valley Bank and Signature - have failed. In just two months, a spark of panic has turned into a conflagration that has put America’s regional banks on notice. That’s a perfectly rational decision for most people who just need a place to deposit their paychecks and occasionally withdraw cash to pay the dog walker.īut those mega-banks lack the dexterity and regional specialization that small businesses crave, which is partly why Corporate America and policy makers alike are worried about the continued turmoil among regional banks.
To some, the question of where to keep your money safe might seem obvious - go with one of the big guys, the banks that have been deemed “too big to fail.” Their ATMs and branches are ubiquitous, their mobile apps sleek and user-friendly.
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