When Central Pennsylvanians see two of the largest bank failures in American history occurring mere days apart, it’s understandable that they would have questions about their own local banks. The federal government’s decision to back 100% of all deposits at the banks notwithstanding, there isn’t a guarantee that such protections will be extended in the future.
Fortunately, you can determine the health of your bank through information that is readily available at your local community bank.
I believe that the United States has the best economy in the history of the world precisely because of the community banking industry. A community bank is a place where a customer, big or small, can find great deposit, loan, and money management solutions from people who shop at the same places they shop, eat at the same restaurants they eat, and worship in the same places they worship.
All business is conducted in a community environment where all players have a vested interest in that community. Now more than ever, it’s important for Americans to feel comfortable that they know their banks and can get questions answered easily. Community bank CEOs in this region interact personally with customers and even provide their direct office and mobile phone numbers – because they want to hear from you.
Another good place to find information on any bank is its website, which will include a host of information, including financials, charts, loan information, filings with the Securities and Exchange Commission, and a five-year trend of the bank’s most important financial measures, among others. The information is found in easy-to-read summaries to help identify your bank’s strengths or weaknesses, including in the bank’s Tier 1 Capital ratio. This ratio shows the ability to deal with, or absorb, losses in the event of a financial downturn, shock, or crisis. Regulators maintain that 6% is the minimum for a bank to be considered well-capitalized. Many community banks have ratios that are significantly higher.
Banks also provide vital information in their annual reports, which includes the bank’s financial condition and operations. Just ask your community bank for a copy or a link. Included in annual reports are letters from leadership that help describe in plain language the relative health of the institution. Letters typically include information on loans, revenue, and economic challenges such as inflation.
Upon reviewing the information, you can develop a full picture of your community bank. Strong financial institutions have safeguards in place to ensure compliance with all laws and regulations. Banks typically have extensive risk management protocols and regularly undergo rigorous regulatory exams and financial audits. As a result, banks with a strong balance sheet, management practices and investment discipline are considered “well-capitalized” by regulators, a key designation in assessing their overall health.
Well-capitalized community banks typically take a conservative approach to growth, as opposed to what we saw with two recently failed banks that had a high concentration of deposits in a particular industry or in risky or volatile commodities, like cryptocurrency. Community banks focus on a broad range of commercial, consumer, municipal, and nonprofit customers. They also limit their securities investments to safe levels that won’t jeopardize their customer deposits if losses accumulate.
Let’s learn from the recent unsettling news in the banking industry. This is an important wake-up call for everyone to take some time to get to know their bank and its people. Be curious. Ask questions. Develop a rapport with your bank’s leadership. Community banks welcome the opportunity to help.
It’s more important than ever to take advantage of the unique access community banks can provide. By doing that, you’ll feel better about your bank – and your financial future.
Rory Ritrievi is the president and CEO of Mid Penn Bank.
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