Before federal regulators shut Silicon Valley Bank down last week, the nation had gone a long time since it saw a similar crash-and-burn situation. Still, Delaware has not been exempt from banks taking a dive. A little more than a decade ago, many of us were shocked when Wilmington Trust suddenly collapsed due to a series of bad loans.
The Wilmington Trust board, with federal regulators looking over their shoulders, sold the company to Buffalo-based M&T for $300 million for what at the time was described as a “take under.” The $300 million price tag gave M&T, Wilmington Trust’s lucrative wealth management business, and the state’s biggest full-service bank. As a “super-regional” bank, M&T had the resources to work through the problem loans and has quietly grown the wealth management side.
While events unfolded too quickly to result in the run on the bank, Delaware lost several hundred good jobs, not to mention losses by stockholders who had invested in a company that had been considered a reliable “widows and orphans” stock. The disbelief over Wilmington Trust’s collapse continued for a time leading the late M&T CEO Robert Wilmers to bluntly tell businesspeople at a chamber gathering that the former Wilmington Trust had indeed been in dire straits.
Prosecution of key executives, but not the company’s CEO, over allegations of concealing bad loans from regulators led to jury convictions later overturning by the U.S. Court of Appeals. It remains to be seen what will happen on the legal front with far larger Silicon Valley Bank, which had dangerous exposure of a tech customer base with deposits above the $250,000 insurance guarantee from the FDIC.
Regulators worried about a collapse in the banking system, guaranteed that those investing more than a quarter of a million dollar maximum would be made whole without waiting for the federal takeover and sale process that gets at least some of that money back.
The developments led to criticism of a loosening of banking restrictions a few years earlier and claims of “corporate welfare” for tech and crypto investors foolish enough to park their money in a rapidly changing interest rate environment.
Late this week, major banks chipped in funds to to support San Francisco’s troubled First Republic in what Wall Street saw for a time as a positive sign that the crisis was contained. Overseas, long-troubled Credit Suisse was acquired by another Swiss bank for $2 billion, a paltry sum for the massive bank.
On Monday, assets of the other failed bank, Signature, which had exposure to crytocurrency, will be acquired by Flagstar, another New York financial institution.
Critics have a point when it comes to favored treatment but regulators and the Biden Administration were left with no good choices. – Doug Rainey, chief content officer.