Laura Glesby Photo
Banking Commissioner Perez at a New Haven Hill neighborhood housing groundbreaking.
Jorge Perez had a message for Connecticut Monday: “Don’t panic.”
Perez has served as Connecticut’s banking commissioner since 2015. That puts him at the center of the response as banks open for business this week in the wake of two bank failures in other states over the past three days — including the second-largest failure in U.S. history, at California’s Silicon Valley Bank (SVP).
The failures have officials worried enough about a rush on other banks that President Joe Biden held a press conference Monday morning to reassure people that no 1929-style string of bank failures is imminent.
Perez, a former New Haven Board of Alders president, sounded a similar note in an interview on WNHH FM.
“The first thing I would like to say to people is don’t panic. The banks in Connecticut are strong. The situation [that] happened in California and New York is much different than what you find in Connecticut,” Perez said.
He noted that SVP relied on exclusively on a narrow base of customers: high-tech and fintech startups, most of which had deposits exceeding the $250,000 maximum covered by the Federal Deposit Insurance Corporation (FDIC). The other failed bank, New York’s Sovereign Bank, relied heavily on the crypto industry.
“This is a bank that grew real fast in the last six to eight years because of the fintechs and the high tech companies,” Perez said.
“It took their money and invested it in U.S. bonds. They did that two, three years ago when the rates were lower. And the average yield on the portfolio was 1.79, which was a good yield back then when the prime rate was zero. But today the prime rate is 7.75. On Friday the three-month T bill was 4.89. The one-year T bill has been going back and forth between 4.9 to 5.18. So in today’s market, that 1.79 yield is no longer good. … Because they were having cashflow issues, and some real famous big-time brokerage firms were starting to recommend that people withdraw the money, on Thursday alone $42 billion was withdrawn from the bank. So they tried to sell their bonds to come up with cash to try to sell part of their portfolio. Because they were selling early and the rates have gone up and their yield was so low, they sold at a $1.8 billion loss, which only made the cash flow problems worse.”
Connecticut’s chartered banks are far smaller than SVP, which had $212 billion in assets. And larger regional banks have diverse customer bases, Perez said.
He said he knows of no Connecticut banks demonstrating any of the danger signs similar to those at Sovereign and SVP. His staff is putting together a more “concrete analysis” that will offer a detailed picture to be released later Monday.
Also Monday, Perez was scheduled to meet via Zoom with CEOs of state-chartered banks and regional presidents of national banks doing business here, along with the Connecticut Bankers association. They plan to review the developments of the weekend, share what they’re hearing. Perez plans to “encourage” them to “communicate with customers” better than SVP did.
Perez knows what it’s like to work at a failing bank: He was starting out as an assistant vice-president at New Haven First Constitution Bank when the FDIC took it over three decades ago due in part to losses suffered in risky “co-development deals” in which it took ownership shares in projects to which it was also lending money.
“It was not fun” to watch colleagues worry about their jobs, to see local businesses and charities worry about support they depended on from the bank. As of Monday morning, Connecticut’s banking commissioner wasn’t seeing similar storm clouds in sky this time around.
Click on the video to watch Monday’s interview with Jorge Perez on WNHH FM.