If you’re paying attention to the news, you’ve probably heard about the failure of California based Silicon Valley Bank (SVB) on Friday and another New York bank over the weekend. Many pundits in the media have speculated about the possibility of additional bank failures. We can’t offer an opinion about other financial institutions, but we can share the reasons why the things that happened at these banks will not happen at Metro.
Based on news reports, these banks grew too quickly, purchased too many long-term investments, relied too heavily on groups of large depositors, and had insufficient cash and cash equivalents on hand (or accessible) for customer withdrawal. Metro, by contrast, is managed very conservatively, and we are extremely liquid. We never take short-term gains at the risk of long-term safety and soundness.
During the pandemic, interest rates were at historic lows. Instead of investing in long-term, fixed rate investment pools, Metro managed our assets for the possibility that rates could go up by making short-term consumer loans to our members and by keeping over 25% of our assets in cash or cash equivalents. We made a lot of mortgage loans to members when 30-year rates were at 3.0% or 3.5%, but we sold almost all those loans to investors. Today, the average institution in our industry holds two and one-half times more long-term, fixed rate assets than Metro. By being conservative with shorter-term loans and investments in 2020 and 2021, we sacrificed a lot of potential earnings, but we avoided the risks of a rising interest rate environment.
In addition, Metro doesn’t have a high concentration of ultra-large depositors. Nearly 95% of our deposits are insured. This means that we have almost six times the amount of cash and cash equivalents on hand as we have uninsured deposits*. According to media reports, over 80% of SVB’s deposits were uninsured, including one single account with $3.3 billion on deposit.
Based on reports, SVB had very little cash and cash equivalents, so when depositors sought to withdraw their funds, the bank didn’t have enough cash to meet withdrawal demand and had to sell investments to raise cash. The media has reported that SVB had invested over 50% of their assets in long-term, fixed rate securities when rates were at historical lows. These securities had dropped in value as interest rates went up, so SVB sold them at a loss. This resulted in SVB’s insolvency (SVB owed depositors more than it had in assets).
Operating conservatively results in many benefits for Metro members. It means long-term financial stability. It means we not only have some of the lowest loan rates for borrowers, but we also have some of the highest deposit rates for savers. Being conservative enabled Metro to eliminate $2 million in fees for services in 2022.
Accounts at Metro are safe, sound, and secure because Metro operates in a safe, sound, and secure manner. We operate conservatively because we work for you, and we’ll continue to be here to serve you long into the future.
*The National Credit Union Administration (NCUA) limit of $250,000 is per individual, not per account. This means that two joint owners on the same account can actually have $500,000 of federal deposit insurance. Two joint owners with two beneficiaries can have up to $1 million of federal deposit insurance.