We want to update you on recent events regarding regional banking failures here in the U.S. and overseas, as well as to clarify any potential exposure for United Church Fund’s managed assets.

The epicenter of concern is Silicon Valley Bank (SVB), which took most of its deposits from venture capital-related private companies, especially over the past two years, and invested those short-term demand deposits in long-term treasury and agency securities. Depositors made substantial withdrawals of their funds at SVB based, apparently in part, on speculation about SVB’s stability. SVB’s own cash and capital needs accelerated due to losses on sales of its securities to fund the customer withdrawals.  In other words, we have seen a classic “run on the bank.” The same concerns of depositors also triggered similar behavior at several other regional banks, including Signature Bank and First Republic.

The response to this event was almost as swift as SVB’s downfall. In coordination with the U.S. Treasury, the Federal Deposit Insurance Corporation and the Federal Reserve Bank (Fed) have established a Bank Term Funding Program (BTFP) to backstop customer deposits above the current $250,000 FDIC limit. As a result, SVB customers have access to all their deposits (insured and uninsured). While depositors would generally be protected at most banks facing similar challenges to raise funds to meet deposit withdrawals, shareholders and bondholders of those banks would not be protected.

This assurance has not completely quelled concerns about the viability of the U.S. regional banks and the global banking system. In Europe, Swiss authorities engineered UBS’s takeover of Credit Suisse to alleviate banking stresses. With recent developments in the financial sector, market participants expect that the Fed may pivot its policy at its upcoming FOMC meeting.

As for United Church Funds, our portfolios have minimal exposure to Silicon Valley Bank, Signature Bank and other regional banks in the news, such as First Republic Bank. Any exposure we do have is concentrated within the equity index (passively managed) portfolios, with a value of less than 0.03% of total assets. Investor concerns have been reflected in declines in the share prices of many publicly traded regional banks. However, the larger market indices have been somewhat stable and are still positive in 2023 as of this writing. Fixed income prices have increased, particularly U.S. Treasuries, reflecting their safe haven status and the possibility that the Fed will pause rate hikes.

We will keep you informed as to developments in this fluid situation, but please be assured that our investment team, investment committee and managers remain on top of the situation. Please contact us at [email protected] or 877-806-4989 if you have further questions and concerns.