Eighteen Months After

Assessing the Dynamics Behind the 2023-2024 Banking Crisis and Fieldpoint Private’s Stance in the Aftermath

The circumstances that drove Silicon Valley Bank, Signature Bank and First Republic Bank into the hands of regulators are still on the minds of private and institutional clients across the country. It has been the most significant financial crisis since the Financial Crisis in 2009. Unlike the Financial Crisis in 2009, the specific triggers of which were complex and murky as events unfolded in real time, the dynamics underlying the 2023-2024 banking crisis were clearer, and quickly became widely understood. As signals of a shift in Federal Reserve (the “Fed”) policy have become clearer, we wish to share our assessment of where Fieldpoint Private stands today relative to these dynamics.

What Happened?

While this will be a matter for regulators to unpack and, no doubt, entire books will be written on this question, based on publicly available data and in our judgment, there are several risk factors that converged to expose certain banks to the challenges posed by the crisis last year.

Illiquidity. We believe the most-stressed banks were marked by a lack of liquidity (access to ready cash) in their cash and securities portfolios that are supposed to function as sources of funds for client withdrawals. In one case, these portfolios held more than half of the bank’s assets in securities as opposed to cash. The risk was then compounded because the bank held a high proportion of “long dated” securities that are characterized as held-to-maturity (for example, 10Y Treasurys). In the rapidly rising rate environment, as the Fed fought inflation, these securities lost value. In time, when resulting earnings and other concerns among depositors prompted mass withdrawals, the portfolio intended to fund such withdrawals lacked the ready cash necessary, creating the seeds of a crisis.

Concentration Risk. Some banks operate business models that focus on certain clientele which match core competencies. This allows them to differentiate themselves, which is a good thing. However, that concentration of certain clientele can create risk when the proportion of certain clientele becomes too great. When market stresses occur in the industries of the bank’s clientele, the clients may all behave similarly, negatively, magnifying the risks versus a more diversified clientele. For example, we have seen a high concentration of tech startups or cryptocurrency-based businesses negatively affect banks.

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. For example, as mentioned above, the banks that held a high proportion of long-dated securities were not only liquidity-challenged, but were subject to declines in value when the zero interest rate policy (“ZIRP”) interest rate environment reversed itself.

Why Has Fieldpoint Private Fared Differently?

While 2023-2024 has been, without question, the most challenging period in its history, Fieldpoint Private continued to be well-capitalized under applicable regulatory standards. Prudent risk management has limited our investments in available-for-sale (“AFS”) securities and held-to-maturity securities at 12.0% and 2.8% of total assets ¹, respectively. These ratios are, and were last year, far lower than other banks that experienced stress.

We believe Fieldpoint Private’s balance sheet has been carefully managed to provide sufficient liquidity, with a buffer that is regularly stress tested for the ability to deliver cash in a range of extraordinarily challenging market circumstances and withdrawal scenarios. As the rate environment shifted to one of rising rates, in our view this approach positioned our portfolio well and has helped ensure our clients could access the liquidity they need when they need it.

That being said, the environment created enormous challenges. Ensuring liquidity required investing extensively in additional wholesale funding and Fed borrowing – a costly endeavor to say the least. Beyond this, we absorbed the expense of selling a portion of our commercial loan portfolio in order to create capacity on our balance sheet for new loans in what was becoming a more profitable rate environment. While protecting our franchise and client experience, these and other factors forced a pause on Fieldpoint Private’s years-long track record of profitability, including the eight years prior to the Fed tightening cycle.

Finally, our clientele is diversified across successful private clients and a 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. Additionally, in 2024 we undertook an initiative to further diversify our base of business, entering into a partnership with an online client cash allocation tool and adding thousands of new relationships.

Port in a Storm

As the ZIRP environment transitioned into a rising rate environment last year, Fieldpoint Private simultaneously expanded with a new channel as the boutique private banking solution to independent advisory firms. In turn, we began work to develop industry-leading solutions for clients seeking both strong returns and unimpeachable safety.

As part of this, we grew our access to FDIC insurance that aggregates the collective insurance power of much of the U.S. banking system, and makes FDIC insurance available to individuals, families and businesses for checking, money market and “sideline” cash in investment accounts. We now offer FDIC coverage up to $300 million per relationship. As a result of this and our other efforts, with rare exceptions related to client reinvestment opportunities, our clients remained with us.

We have continued to work closely with our regulators in mutual transparency, collaborating as circumstances and the environment evolved, on each of the steps taken to protect our liquidity and capital strength.

We have become a sought-after home for high-performing bankers displaced by the challenges endured by other banks, including a dozen in the New York metro area who, in a very brief time frame, have attracted $60 million in new deposits and are just getting started.

Our above-mentioned partnership with an online client cash allocation tool has added thousands of new relationships and more than $100 million in diversified client core deposits. And to-date, the bank has entered into agreements with 15 Registered Investment Advisor firms to serve as banking partner on behalf of the firms’ advisors and clients. The firms represent a combined $64 billion in client assets under management, and more than 50,000 client relationships.

Throughout, we have been honored to have tremendous investment partners who have continued to provide additional capital as circumstances have indicated. And as of this writing, our Board of Directors has approved an investment term sheet from one of our current shareholders and we are working toward a definitive agreement. Subject to regulatory approval, we believe the proposed investment will enable us to strengthen our liquidity and capital, and position Fieldpoint Private for our next phase of growth.

While we all wish the current circumstances were different, we are proud of the efforts of our team and the trust of our regulatory and business partners. These challenges remind us that our business model is as philosophical as it is strategic: true opportunity thrives when the client comes first.

1. For the quarter ended June 30, 2024.

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.