The epicenter of recent events is Silicon Valley Bank (SVB), which took most of its deposits from venture capital related private companies, especially in the past two years, and invested those short-term demand deposits in long-term Treasury and agency securities. Depositors began last week to make substantial withdrawals of their funds at SVB based apparently in part on rumors in Silicon Valley 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 a few other smaller banks.

The response to this event was almost as swift as SVB’s downfall. The Federal Deposit Insurance Corporation and Federal Reserve, in coordination with the U.S. Treasury, have established a Bank Term Funding Program (BTFP) to backstop customer deposits above the current $250,000 FDIC limit. SVB customers have access to all their deposits (insured and uninsured). The government was clear to state that this was not a bailout of the banks as in the Global Financial Crisis. While depositors would be generally protected at most banks facing similar challenges to raise funds to meet deposit withdrawals, shareholders 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. More information will certainly surface over the coming days and weeks.

Our assurances to you come in two forms:

For our annuitants, there will be no interruption at all in our monthly payments to you. These payments are backed by ample liquid assets at Northern Trust in a treasury money market fund. Most importantly, our obligations to you over your lifetime are backed by tradeable assets matched to those payments with no timing mismatches as in the SVB situation.

On the asset management side, for accumulating members and annuitants, we have minimal exposure to Silicon Valley and Signature Bank, but only in our equity index (passively managed) portfolios, and in total value of less than .03% of total assets even including other “in the news” companies like First Republic Bank and Charles Schwab. Investor concerns have recently been reflected in drops in the share prices of many publicly traded regional banks. We believe the portion of our equity portfolio invested in the banking sector will generally rebound from its current drop in value.

We will keep you informed as to developments in a fluid situation, but please be assured that our Board of Trustees, executive team, and investment staff are on top of the situation. Our Member Services team, at 1.800.642.6543, is also here to answer your questions.