by Jay Davidson | Apr 17, 2023 | First American State Bank, News
Don’t be confused by fear into thinking that a lot of banks make the same mistakes as did SVB.
Perfect storms occur in batches. It’s never a single event, a single wave. Bank executives, like ship captains, earn their keep during times of upheaval. The good ones anticipate events, examine cause and effect, assess risk, and chart the best course through rough seas.
Silicon Valley Bank grew deposits by $100 billion in a year and a half. That was the first wave in a perfect storm. The problem/opportunity originated from the easy money that the Federal Reserve flooded into the economy (printing $9 trillion via quantitative easing). SVB depositors were high-tech recipients of government spending on ESG and DEI projects. Those deposits are considered hot, subject to withdrawal at a moment’s notice.
SVB’s mistake was to mismatch volatile deposits by investing in long-term bonds. It invested those deposits in 10-year Treasuries that yielded 1.6 percent. Moreover, SVB execs and bank examiners were distracted by meaningless woke activity; they spent more time on social justice than on bank fundamentals.
The next wave was, once again, Fed action. This time, it was interest rates and Fed tightening. The Fed raised rates in 2022 by 4.5 percent in a year. That was way too rapid. It caused an inverted yield curve, thereby squeezing net margins, and caused a massive decline in the face value of bonds. The decline in the value of bonds only matters if a bank has to sell that bond for liquidity purposes.
When you operate a bank so close to the edge, as did SVB, it doesn’t take much to push it over the precipice. In this case, it may have been a tweet. The hot deposit owners, the tech giants, got wind of an issue at SVB and tweeted about the alarm. That final nail caused the run that brought them down.
The vast majority of banks and bankers appreciate the dangers of perfect storms and manage their banks in a moderate, balanced, and conservative manner. Don’t be confused by fear into thinking that a lot of banks make the same mistakes as did SVB. Understand the clear (in hindsight) path that SVB took to destruction and realize that bank owners don’t want to suffer the same, and inevitable, consequences for poor management.
Jay Davidson is founder and chairman of a commercial bank he started in 1995. He is an adherent of the Austrian School of Economics and an ardent believer in individual freedom and capitalism.
by Jay Davidson | Mar 14, 2023 | First American State Bank, News
Regarding concerns over banking and banks.
The past few days have been interesting. Thankfully, even with all the news about Silicon Valley and Signature, our bank gained deposits because we have a reputation for careful and safe management, high standards, personal and caring service and honest dealings. In fact, those are some of the key principles in our culture statement.
It is only natural that our friends and depositors should ask if their deposits are safe. The bank has a strong liquidity profile, and its business strategy varies from SVB’s in a variety of critical ways, including:
- SVB was not a traditional bank in most ways. It maintained a client base comprised of a heavy concentration of tech startups and the venture capital firms that financed them. These are high-risk and high growth clients, that are especially susceptible to recent economic challenges. Colorado banks, including our bank, predominantly lend on real estate and accounts receivable. These are much less prone to volatility.
- SVB grew deposits more than $100 billion to $220 billion from $116 billion in one year. Doubling the size of a bank in one year is inherently risky. This placed great stress on SVB’s deployment of those deposits into assets. It led to their demise. They were the 16th largest bank in the nation. Traditional community bankers, including our bank, manage their deposits growth carefully and maintain much more granular deposit relationships. See the last point below.
- The majority of the highly-concentrated deposit balances in SVB’s customer accounts were uninsured (95%). When the start-up technology sector experienced a cash crunch, SVB experienced material deposit outflow, leaving it with a liquidity shortage. Our bank has about 29% of its deposits uninsured.
- SVB invested $100 billion of new deposits in Treasury bonds. There is little default risk in full faith and credit Treasuries, but all assets have interest rate risk when bond terms are mismatched to deposit maturities. Community banks manage interest rate risk very carefully. We use sophisticated models to match maturities of assets and liabilities to remain neutral in either an up or down rate environment. SVB did not and when it was forced to sell securities to fund its liquidity (deposit outflows) it resulted in a material hit to capital.
We welcome questions and comments and deeply appreciate your business.
Jay Davidson, Chairman, CEO, Founder
First American State Bank
First American Bancorp
by First American State Bank | Feb 24, 2023 | First American State Bank, News
BIOMETRICS – SECURITY MADE SIMPLE
Overview
Do you hate passwords? Are you tired of constantly logging into new websites or can’t remember all of your complex passwords? Frustrated by having to generate new passwords for new accounts or having to change old passwords for existing accounts? We have good news for you. There is a solution called biometrics that helps make cybersecurity easier for you. Below we explain what biometrics are, how they make your life simpler and why you will start seeing more of them.
First, Why Password?
Passwords are part of something called authentication, the process of proving who you are. There have typically been two things you can provide to prove your identity: something you know (like your passwords) and something you have (like an ATM card or your mobile device). Traditionally authentication has been done with passwords. Passwords were first adopted as it was one of the easiest authentication solutions to deploy. However, over the years our lives have become far more complicated with far more accounts than anyone ever expected. It is quite common for a person to have over 100 passwords in their work and personal life.
In addition, cyber attackers have become quite good at guessing, stealing or cracking passwords.
This is why you see so many rules about passwords, such as making them long (so they are hard to guess) and using a unique password for every account (so if one of your accounts is hacked, your other accounts are still safe). The problem with all of the password requirements is they make being cybersecure more difficult. Password managers dramatically help as they securely remember all of your passwords and log you into websites for you, but is there a better way? This is where biometrics can help by providing a third thing to prove your identity – something you are.
Biometrics
Like passwords, biometrics are another way to prove who you are. The difference is instead of having to remember something (like your passwords) you use an element of who you are to prove your identity, such as using your fingerprint to gain access to your phone. Biometrics are much simpler as you don’t have to remember or type anything, you just authenticate using who you are. There are many different types of biometric such as your voice, how you walk, or your iris prints. However, fingerprints and facial recognition are the two most common, especially for mobile devices. While biometrics have a tremendous number of advantages, they also have some disadvantages, one of the biggest being if your fingerprint or face is copied by cyber attackers, you cannot change them.
Passkeys
Over the coming months and years, you should start seeing biometrics replacing passwords with a new technology called Passkeys. This technology is being adopted by Microsoft, Apple and Google and you should soon see it being adopted at more and more websites over time. Passkeys replace passwords by allowing you to prove who you are by simply using biometrics combined with your mobile device. When you create an account at a website (such as Google or Apple) instead of creating a password you register your mobile device. Moving forward you log into that website by authenticating with your mobile device using biometrics, such as your fingerprint or facial recognition. The website trusts your mobile device, and your mobile device confirms it’s you using biometrics. In addition, your biometric data (fingerprint or face) is not sent to any website. Instead, your biometrics is securely stored locally on your device. It’s just used to unlock the “Passkey”, a unique key, created for each site, which your device sends to the site while protecting your biometric data. While no solution is perfect, biometrics and solutions like Passkeys can help keep you secure while simplifying security.
by First American State Bank | Jan 9, 2023 | Colorado Expression Magazine, News
FIRST AMERICAN STATE BANK SPREADING JOY WITH THEIR 9TH ANNUAL VILLAGE TOY DRIVE
First American State Bank held four parties to collect and wrap toy donations to give to Volunteers of America for children in need
The Village Toy Drive was a huge success with 2,100 gifts donated to Volunteers of America with a value of approximately $50,000. This 9th Annual event is presented by First American State Bank and Gruber Commercial Real Estate, Inc.
First American State Bank held 4 separate parties to collect toys. In addition, students and staff at
West Middle School collected 400 gifts this year. Toys are wrapped and bundled together per age group so that each child receives a lovely gift.
The final wrapping party was held on Thursday, December 15th at First American State Bank with Vice President, Michelle Gruber at the helm busily wrapping and responsible for coordinating this amazing toy drive. Every employee along
with Volunteers of America staff, West Middle School students along with other volunteers were on hand to help with the final “wrap up” so that less fortunate families the Denver Metro area would have a wonderful Christmas.
Toys were delivered to Volunteers of America and handed out the Monday before Christmas along with 1,500 Christmas baskets to families in need.
by First American State Bank | Dec 27, 2022 | First American State Bank, News
VOA- THE VIEW – CHAG SAMEACH!
Click HERE to read the latest newsletter from our friends at Volunteers of America – Colorado.
