Over time we will know more about what the collapses this month of Silicon Valley Bank and Signature Bank mean for U.S. banking. Some financial analysts say there is not a systemic banking problem. Others point to poor governance in the current system.
Reasons for the collapses were specific to these banks and include having a very high percentage of deposits not covered by FDIC insurance, a run on the banks when depositors panicked, and over-concentration in tech, cryptocurrency, and venture capital in pursuit of profit.
“With regard to who’s to blame here, I think that the greed and avarice that has long been present in Silicon Valley has come home to roost,” said Keith Fitz-Gerald, analyst, market educator, trader, investor and principal at the Fitz-Gerald Group.
Following the 2008 financial crisis, the Dodd-Frank Wall Street Reform Act was passed to rein in risky bank behavior. These strong provisions to protect the economy were then weakened by the Trump administration, opening the door to a less secure financial system. A number of mid-sized banks, including Silicon Valley Bank, lobbied for the weakening of regulations.
We should be prepared for future crises unless strategic regulatory action is taken. Findings by the Federal Reserve’s investigation into Silicon Valley Bank are expected in May.
Another danger that the United States along with the global community face from large banks is their continued financing of the climate crisis.
Investing over $1 trillion in fossil fuels
Of all the banks in the world, mega-banks Chase, Citi, Wells Fargo, and Bank of America are the biggest funders of fossil fuel infrastructure. Since the Paris Agreement, they have invested over $1 trillion in oil, natural gas, and coal – including the unconscionable expansion of fossil fuel exploration and development.
This lending creates enormous risk for us all – economically, environmentally, and socially. It has the greatest impact on communities of color, who are experiencing the ravages of climate change with the most devastation.
As Ben Jealous and Bill McKibben co-wrote on March 16: “It’s entirely clear who is hit the hardest by the impacts of the climate crisis. Both in the U.S. and around the world, the poorest and most vulnerable people disproportionately suffer the effects of a warming planet, despite having done the least to cause it.”
Unfortunately, the downfall of Silicon Valley Bank and Signature Bank may enlarge these four big banks as they are deemed more stable since mega-banks are considered too big to fail.
You don't have to use a big bank
Fortunately, however, there are many better banking options! You don’t have to use a big bank that is destroying the climate and wreaking the direst consequences on the most vulnerable people.
Community banks and credit unions typically have diversified portfolios and mostly small dollar depositors. They engage in lower risk lending as well. There are federally insured community development banks and credit unions, and minority-owned-and-operated financial institutions (known as Minority Depository Institutions) to choose from across the country.
Community development banks and credit unions invest in local economies by supporting small business, affordable home ownership, community infrastructure and job creation. They provide real economic opportunity -- and technical support to help ensure success -- to underserved and underestimated communities, both urban and rural.
Similarly, Minority Depository Institutions play a crucial role in economic uplift and fostering broad-based prosperity. They advance sound banking practices that especially serve Black Americans, Asian Americans, Latinx/Hispanic Americans, and Native Americans. These institutions have a key role in eliminating the racial wealth gap and are open to people of all races and ethnicities so long as a majority of those served are people of color.
Learn how to switch to a better bank
Where we bank has real implications for people and the planet. Learn how to align your banking with your values and find a better bank or credit union that meets your needs with Green America’s better banking resources. You can put your money to work for the climate and communities today! Many people have switched to better banking – join us!