How are Colorado’s banking regulators responding?
The Colorado Division of Banking and the Colorado Division of Financial Services supervise the state’s commercial banks and credit unions. In a joint statement, the regulators said Colorado’s state-chartered financial institutions are routinely monitored and in sound condition.
“They have diversified deposits, loans and investments,” according to the statement. “No Colorado state-chartered bank has significant concentrations in a single industry or economic sector.”
Earlier this week, the Colorado Bankers Association sought to reassure people that the troubles aren’t likely to impact regional banks here.
“Colorado banks maintain strong capital levels and record levels of loan loss reserves, allowing them to successfully absorb economic shocks,” the group said in a statement, noting that the SVB and Signature bank closures, “appear to be outliers and not reflective of the norm for banks across the United States and Colorado.”
Why is this happening now?
The big driver behind the shakeup in banking is rising interest rates. The Federal Reserve is trying to tame inflation by making it more expensive to borrow. Rapidly rising interest rates have ripple effects throughout the banking system. Companies that relied heavily on cheap money, like some of the early-stage technology companies that banked at SVB, are feeling the effects of higher interest rates first and most heavily. Those rising rates are also a drag on investments the banks made when interest rates were lower.
What happens next?
Federal regulators stepped in and created a backstop for SVB and for Signature Bank, the New York-based bank that failed. That means everybody will get all their money back. But now investors are nervous about other regional banks that could be in trouble, like First Republic Bank in California, which got a $30 billion bailout from the country’s biggest lenders, including JPMorgan Chase and Wells Fargo, among others. It’s important to note that those giant banks have enormous deposit bases and nobody is worried about them failing. These banking behemoths are where many people in Colorado keep their money.
The government also created an additional $25 billion backstop for banks that run into trouble.
— to www.cpr.org
