BankSouth CEO Harold Reynolds: The Case for Your Community Bank

Harold Reynolds

Thursday, April 6th, 2023

Recently the failures of a few unique and highly specialized banks have naturally caused depositors to pause and attempt to assess if their deposits are safe. Certain media professionals, bloggers and financials commentators seem to have a personal interest in promoting fear. Comparisons to the banking crisis kicked off by the Great Recession are overblown, irresponsible and are intended to create “likes” and headlines. In some small way, I want to take an opportunity to respond to the message of those who would stoke fear and share the perspective of a community banker, since it’s unlikely they have ever engaged with a community bank. 

Looking back at the period known as the Great Recession, 468 banks were closed nationwide after the failure of Lehman Brothers in 2007 through 2012. While those economic times were terrible for everyone, you probably do not recall one thing: you probably do not recall hearing of any depositor losing money from their account, regardless of the deposit balance. There is a simple reason for this - when banks fail the FDIC sells those deposits to another FDIC insured bank that honors them. The common characteristic of failed banks then was a narrow focus and concentration in highly leveraged real estate development loans. Since the Great Recession, bank managers, boards and regulators implemented enhanced risk mitigation strategies including stress testing and stringent capital policies. Despite the stressful environment that even resulted in bank closures, every dollar of depositors’ funds was fully protected. 

The banks that recently failed in California and New York were unique companies that focused on serving a very, very narrow segment of our national economy such as early-stage venture capital and crypto currency exchanges. Because of their focus, the number of depositors were small, and each controlled very high balances. Additionally, those depositors were very intertwined because they worked with and competed against each other in the same industries. When mismanagement of interest-rate risk became public at one of these banks, this group of depositors panicked and moved their funds all at once – $42 billion in one day according to news reports. Logically, the FDIC closed the bank to protect the remaining depositors. Many fund managers now regret their impulsive behavior when they realized they eliminated a primary financial institution that has served their deposit and borrowing needs for 20 years. You may have noticed that First Citizens Bank purchased the remainder of Silicon Valley Bank and consequently saw their stock soar by 50% the day the purchase was announced. 

Contrast the narrow focus of those failed banks on digital assets and venture capital with the broad customer base of your local community bank. Your local bank has long-term relationships that have lasted generations. From your local mechanics, shops, restaurants, hotels, manufacturers, and farmers, to civic organizations, schools and local governments, to teachers, first responders and professionals of every kind – your community bank serves the families and businesses that you know. 

There are nearly 140 community banks headquartered in Georgia. If you are concerned with the safety of your deposits, take advantage of the most unique thing about your community bank – go speak with your banker. They have solutions and the ability to answer your questions. I believe in the fundamental strength of community banks but if for some reason you are not able to get your questions answered, we are happy to answer them for you too – even if you’re not a customer here. Until then, I encourage you to stay invested in your local community by banking with your community bank.