While high-profile bank failures have grabbed national headlines in recent weeks, Iowa’s community banks remain steady and resilient, according to John Sorensen, CEO of the Iowa Bankers Association. 

The investment strategies and management structure of Iowa banks are vastly different than those of Silicon Valley Bank in California and Signature Bank in New York, which collapsed last month, Sorensen explained. The two banks represent the second and third largest bank failures in U.S. history.

The turmoil caused by the bank failures has been largely contained, and calm has returned to the marketplace, Sorensen said. 

“These two banks utilized a very different business model than that of a typical Iowa bank,” he said. "They were fast-growing. Their assets grew about 187% in three years. They served niche markets; typically, venture capital-funded tech, biomed and crypto activities made up the majority of their customer base. Not that those are bad, but when the Fed started increasing interest rates, it made funding for those types of companies a little more volatile.” 

Sorensen emphasized that Iowa banks are primarily relationship lenders, with strong ties to local businesses, farms and communities. They are funded principally through local deposits and lend locally, which contributes to their stability. Iowa banks also employ a range of strategies to hedge against interest rate volatility, he said.

“This business model has stood the test of time,” said Sorensen. “Bank ratings in Iowa have never been this good ... 97% of Iowa banks are rated in the two highest classifications when ex­amining capital adequacy, asset quality management, earnings, liquidity and sensitivity.”

Part of the reason for the Silicon Valley Bank failure stemmed from the fact that more than 90% of its deposits were uninsured, which is highly unusual, Sorensen noted. News of the bank’s stressed financial situation quickly spread, sparking a run on the bank as depositors withdrew $42 billion in a single day. 

"A lot of those deposit movements happened through smartphones, and it was caused by venture capital funds telling their start-up networks to do the same,” Sorensen said. “This is something the industry needs to be cognizant of going forward, as funds can move much more quickly today than they have in the past."

By comparison, the level of uninsured deposits in Iowa is around 17%, Sorensen said. He encourages individuals to meet with their banker to maximize their insured deposits covered by FDIC insurance, which protects up to $250,000 per depositor.

“Each individual is different based on their needs and the types of accounts that they have,” he said. 

He said the FDIC insurance fund is financially strong, which makes banks safe.

“(There aren’t) many other entities or places where you can put your money where it has FDIC deposit insurance, so it's still your best place for safety and soundness.”