Why has the interest rate hikes caused midsized banks to fail (3 so far) in the US but NOT small banks? Note: I know why the banks failed just why the reasons don’t seem to affect smaller banks!
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Midsize banks are generally large enough to invest in investment markets. That leaves them exposed to the same macroeconomic issues that large national banks must also navigate. But on the other hand, they’re still smaller and not as well capitalized to weather storms; or alternatively, they try to make riskier bets in order to get better returns.
Small banks may only operate a handful of locations in a few cities or counties. Their business is so small that they don’t get involved with more speculative investments. That tends to make them dull from an investment perspective and slow to grow, but insulates them a bit from economic downturns since they’re more interested in the day-to-day business of bank services such as customer deposits and small loans.
That’s not to say small banks are *immune* to increasing interest rates. Small banks probably close with some amount of regularity. But neither do they represent some kind of larger risk that something like SVB or First Republic did, so they don’t get mentioned in news.
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