How are Credit Unions different Than Silicon Valley Bank?
It’s safe to assume that millions of Americans who bank locally with regional financial institutions experienced at least a bit of anxiety over what happened to Silicon Valley Bank (SVB) and Signature Bank. There’s a reason that PacWest Bancorp (California) lost 40 percent of its value, Western Alliance Bancorp (Southwest U.S.) lost 30 percent and even a nationwide institution like Charles Schwab dropped 20 percent in valuation in the immediate aftermath of the mini bank run in March 2023.
It is vitally important for consumers to have faith in their financial institutions. In a ranking of important institutions for society as a whole, modern consumer and business banks are up there with health care and functioning emergency services. The consequences of things like bank runs, if they became systemic and widespread, would be catastrophic.
So why weren’t all regional banks affected?
Structure and Ownership
Credit unions like OnPath Federal Credit Union are non-profit, member-owned financial cooperatives, which means they are owned and operated by their members. The profits generated by credit unions are returned to members in the form of lower fees, better interest rates and other benefits.
Silicon Valley Bank (SVB) was a for-profit, publicly traded commercial bank, with shareholders who expected a return on their investment. SVB was focused on generating profits to enhance shareholder value.
OnPath FCU serves our local New Orleans community. We provide both business banking (often small businesses and regional businesses) and traditional consumer banking services like checking accounts, mortgages and personal loans. We also have more specific membership criteria since we are committed solely to the people in and around New Orleans.
Silicon Valley Bank primarily serves technology, life science and clean technology companies as well as venture capital firms and private equity firms. There’s inherent risk in any type of venture capitalist investments. While what happened to SVB can’t be entirely attributed to the issues facing crypto currencies or instability in the tech sector, those modern challenges certainly didn’t help with the bank’s stability. It specialized in providing banking and financial services to innovative and high-growth (and often risky) sectors, with a strong focus on the needs of entrepreneurs and startups.
OnPath FCU offers traditional consumer and business banking products and services, including checking and savings accounts, loans (such as personal, auto and mortgages) and credit cards.
SVB offered a more specialized range of services tailored to its clientele. These services include commercial banking, lending, cash management, foreign exchange, investment services and other specialized financial solutions for VCs, entrepreneurs, startups and tech businesses in general.
OnPath FCU, like all chartered and National Credit Union Administration (NCUA)-insured credit unions in the U.S., is subject to different regulations than commercial banks. We are regulated by the NCUA and all member deposits (both business and personal) are insured up to $250,000.
Silicon Valley Bank was a commercial bank, and its operations were regulated by the Office of the Comptroller of the Currency (OCC). Deposits at SVB are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor.
The insurance cap was of particular importance in the case of SVB. Technically, from a regulatory and insurance standpoint, every personal checking account holder at OnPath has the exact same level of insurance as those VCs and tech companies using SVB – $250,000.
For the average OnPath account holder that’s more than adequate coverage. For SVB’s depositors, who often had millions (sometimes even tens or hundreds of millions) in their accounts, that $250,000 was a drop in the bucket – the remainder in those accounts were technically uninsured deposits.
Risky Behavior Is Just as Dangerous for Banks as It Is for Everyday People
There were a variety of factors that led to what happened to SVB and Signature bank, including things like extremely high rates of uninsured deposits and investing customer deposits in a hold-to-maturity fixed-income and mortgage-backed securities strategy that resulted in losses when the Fed increased interest rates.
Many industry experts have questioned that investment strategy, its implementation and the bank’s failure to course correct – but those questions justifiably don’t matter all that much to everyday banking customers. What matters to the average New Orleans saver or business is the answer to the question, “Is my money safe?”
At OnPath FCU the answer is yes. We are significantly different from those banks in the ways previously listed and more. When New Orleans families and businesses are looking for a safe and reliable financial partner, we’re proud to confidently fill that role.
To learn more about our services or why we’re a safe financial partner, call us at 800.749.6193.