Industry leaders say bank failure unlikely in Wisconsin as Silicon Valley Bank collapse spreads fear

 

WISCONSIN (CBS 58) -- Jitters from investors across the country Monday night after the second largest bank failure in history. But industry leaders say what happened to Silicon Valley Bank would be unlikely to happen to Wisconsin banks.

The Wisconsin Bankers Association issued a statement Monday, saying, "Wisconsin banks do not operate in the manner that caused the failure of Silicon Valley Bank in California and Signature Bank in New York," and for that, investors here can find peace.

The collapse of the nation's 16th largest bank has spread fear. President Biden is trying to calm it, saying the rest of the banking system is safe, even assuring Silicon Valley bankers that the Federal Deposit Insurance Corporation (FDIC) will cover their loss even above the $250,000 that the FDIC presently assures. 

"In my opinion, they did what they had to do to ease off major concerns," said Giorgo Sertsios, Sheldon Lubar associate professor of finance at the University of Wisconsin-Milwaukee. 

"Well, I think the question is, will there ever be taxpayer dollars on the line, and so far, we've been told that that's not going to be the case, that they'll figure out within the federal government a response that won't require taxpayer contributions. We'll keep a strong eye on that, I promise you," said Senator Tammy Baldwin. 

Sen. Baldwin says it's been all hands on deck since the bank run Thursday when depositors withdrew a total of $42 billion.

"If there's panic, there could be a collapse. But this is what we call a self-fulfilled prophecy. If we all believe there's going to be a collapse, there's going to be a collapse," said Sertsios.

Word broke last week that Silicon Valley Bank was in trouble.

"So that generated a bit of a rush to get the funds, so everyone was trying to withdraw their money at that point, and this typically accelerates the process of insolvency," Sertsios said. 

The last failure of this magnitude was in 2008 when people were given loans they couldn't repay. Sertsios says what's happening today doesn't even compare. 

"So, it's really hard for me to believe that we're gonna have a collapse because I don't see the full dimension for the collapse. Sure, there are a couple of things going on, higher interest rates, but banks have high risk management teams, so they should be able to deal with that," Sertios said. 

In Wisconsin, specifically, we're told the customer base is much more diversified than that of Silicon Valley's and that the banking system is on solid footing, according to the most recent report from the FDIC.