What Just Happened

Assessing the dynamics behind the banking crisis and Fieldpoint Private’s current stance.

The circumstances that have driven Silicon Valley Bank and Signature Bank into the hands of regulators, while creating angina among the clients of numerous other banks, are still very much on the minds of private and institutional clients across the country. It is the most significant financial crisis since “The” Financial Crisis in 2009. Unlike that event, the specific triggers of which were complex and murky as it started to unfold in real time, the dynamics underlying the current situation are already clearer and more widely understood.
Here we will share our assessment and where Fieldpoint Private stands relative to these dynamics.

What Happened?

This will be a matter for regulators to unpack and, no doubt, entire books will be written on this question, but based on publicly available data, in our judgment several risk factors converged to expose certain banks to the challenges we see today.

Illiquidity The most-stressed banks are marked by a lack of liquidity (access to ready cash) in the cash and securities portfolios that are supposed to function as sources of funds for client withdrawals. In at least one case these portfolios held more than half of the bank’s assets in securities as opposed to cash, and then compounded the risk by holding a high proportion in “long dated” securities that are characterized as held-to-maturity (for example, 10Y Treasurys). In a rising-rate environment, as we have been experiencing, these securities have lost value; when resulting earnings and other concerns among depositors prompted withdrawals, the portfolio intended to fund such withdrawals lacked the ready cash necessary. Hence the seeds of a crisis.

Concentration Risk Some banks operate business models that focus on certain clientele that match core competencies that allow them to differentiate themselves. This is a good thing. However, that concentration creates risk when the proportion of concentration becomes too great – for example as we are seeing, with tech startups or cryptocurrency-based businesses. When market stresses appear in the industries in question, the clients may all behave similarly, negatively, magnifying the risks versus a more diversified clientele.

Risk Management Ill-Matched to the Environment In our judgment, the banks experiencing the greatest stress were not effectively positioned for the sharply rising interest rate environment experienced as a result of Fed inflation-fighting policy. This has been made manifest in the above-mentioned weighting of long-dated securities that were not only liquidity-challenged, but were subject to declines in value when the rate environment reversed itself.

How is Fieldpoint Different?

Fieldpoint Private continues to be well-capitalized under applicable regulatory standards. Prudent risk management limits our investments in available-for-sale (AFS) securities and held-to-maturity securities at 12% and 0.33% of total assets, respectively. This is far less than other banks now under stress.

Fieldpoint’s loan and investment portfolios are carefully managed to provide sufficient liquidity, with a buffer that is regularly stress tested for the ability to meet highly challenging and a range of market circumstances and withdrawal scenarios. As the rate environment shifted to one of rising rates, this approach has positioned our portfolio well and helps ensure our clients can access the liquidity they need when they need it.

Finally, our clientele is diversified across successful private clients and range of business and industry types. This diversity is based on client needs, not a self-selected specialty. And our practice of developing relationships directly and through the community of independent wealth advisory firms only adds to that client-centered diversification.

Port in a Storm

As the zero-interest-rate policy (“ZIRP”) environment transitioned into a rising rate environment last year, and Fieldpoint transitioned to serving as the boutique private banking solution to independent advisory firms, we began work to develop what we intended as industry-leading solutions for clients seeking both strong returns and unimpeachable safety.

Today we offer FDIC insurance that aggregates the collective insurance power of much of the U.S. banking system and makes it available to individuals, families and businesses for checking, money market and “sideline” cash in investment accounts. Fieldpoint offers FDIC coverage to $50 million for an individual, $100 million for a jointly titled account, and more available depending on account titling circumstances. In exceptional situations, additional insurance beyond these levels may be available.

While we all wish the current circumstances were different, we are proud to offer this to our clients and advisory partners. If of interest we encourage clients to discuss with their advisor or with a Fieldpoint private banker.

Today’s challenges remind us that our business model is as philosophical as it is strategic: true opportunity thrives when the client comes first.

To all of our clients, thank you for your trust.

About Fieldpoint Private

Fieldpoint Private is a boutique private banking firm established at the onset of the financial crisis by 31 individuals including former Chairmen and CEOs of some of the most well-known and successful financial and consumer firms in America. Their intent was not to craft a firm that would emulate the large, established institutions, but to serve as an alternative. Dedicated to meeting the comprehensive financial needs of highly successful individuals, families, businesses and institutions, Fieldpoint Private offers a powerful combination of private personal and commercial banking services directly and in partnership with our clients’ most trusted advisors. In 2021, Fieldpoint Private founded Fieldpoint Private Trust, increasing the breadth of capabilities available to serve our clients in both sole trustee and co-trustee capacity.

© 2024 Fieldpoint Private. Banking services by Fieldpoint Private Bank & Trust. Member FDIC.
Trust services offered through Fieldpoint Private Trust, LLC, a public trust company chartered in South Dakota by the South Dakota Division of Banking.