Do you know where your money spends the night?
When you deposit your dollars in a bank, they do not sit in a safe. It's a Wonderful Life might come to mind. All banks invest their deposits, generally by lending them out to other consumers and businesses. Banks are also required to keep some dollars in reserve, so that when you ask for your money back, withdrawals can be processed on demand.
Two to three years ago, Silicon Valley Bank (SVB) was quite flush with deposits as the venture capital world boomed. But without enough loan demand to place all those deposits, SVB invested in ultrasafe US Treasury bonds. Instead of short-term bonds (which might last 1-12 months), they invested in 10-year bonds to try to increase their profits (as, in normal times, longer-term bonds typically pay more interest than short term bonds). If redeemed at 10 years, these bonds are "risk-free:" they will always pay back their full value. But if you have to sell them in, say, years 2, 4 or 7 they are valued at whatever someone else will pay. If interest rates have gone higher since you bought them... the buyer is going to want a big discount to buy your bonds that pay lower rates than they could get than if they just bought the very same bond from Uncle Sam.
When venture capital investments hit a wall over the past few months... so too did SVB's deposits from startups. By the beginning of this year, things had gotten tight enough for SVB to sell a huge amount of long-term treasuries at a loss and even try to sell stock to make up the gap. Depositors caught wind of this, got spooked, and in 24 hours pulled $40b in deposits out. A classic "run on the bank." We all know what happened next.
The twitter-driven contagion behind the run on SVB could have been targeted at any bank, and few banks can survive an overnight $40B withdrawal. But SVB was making long term investments to reach for profit in a way that dramatically increased the bank's risk profile if rates were to increase. And increase they did. Most other banks take pain staking steps to avoid interest rate risk of any kind - SVB wagered it all on Black.
How is Walden Mutual different?
As a mutual - a cooperative - our bank is owned by depositors, not stockholders. Unlike the big banks, our depositors are quite literally our partners. So our intention is to create the most long-term value for our community, not just investors. We set out to build a 100-year institution, not to achieve next quarter's earnings. So we'd never put our future - or the safety of your deposits - at risk for a few additional dollars in profit.
We invest with intention and purpose: in farm, food and other natural resource-based businesses here in New England and New York that are making a difference in the community. Most banks invest mostly in commercial real estate in the surrounding town or region. SVB invested mostly in the startup economy. Big banks often invest in complex derivatives, "collateralized debt obligations," and some invest in cryptocurrency. Our approach could not be more different. We balance risk by working with a diversified portfolio of partners across the entire value chain in our whole bioregion. Our team and board intimately understand this ecosystem, and we stay within our sphere of expertise. Our partners aren't the flashiest or the highest growth businesses - but they produce staples that have historically stood the test of time and always show resiliency in times of economic upheaval.
What should I do now?
Our hope is that this crisis is a wakeup call. Where you bank matters. It is not only important to bank somewhere committed to your best interests and the safety of your deposits, but it is also one of the most impactful purchasing decisions you can make from an environmental perspective. As Kat Taylor and Bill McKibben described persuasively in the LA Times recently – when you bank with the top-five banks, $125,000 in a savings account is equivalent to an entire year’s worth of the average American’s carbon impact (driving, flying, eating, buying, etc. – everything).
Your bank can focus on rewarding shareholders… or it can support and nourish a more sustainable local food ecosystem. Come bank with us!