FFA Statement of Support
A message from the FFA Board on the recent events in the banking industry and fund finance community.
First, to all of our friends and colleagues who have been directly or indirectly impacted by the stress in the fund finance industry, we’d like to express our empathy and support as you continue to navigate through these challenging and uncertain times. This is not the first, nor will it be the last, period of strain and turmoil in the banking industry. Your leadership is needed for your clients, your colleagues, your friends, your family and yourself.
While we are not looking to dissect the causes of the current market stresses, we wanted to provide a few comments:
- Silicon Valley Bank and Signature Bank have been two leading lenders in the fund finance industry. While their histories and portfolios may have been very different, they did share the common fabric of being influential and leading banks in the fund finance space and having incredibly talented and devoted bankers and teams with strong client followings. We have been pleased to hear that each of the newly-formed bridge banks are actively continuing to support both the fund finance clients and the bankers.
- The continued stress on some regional banks, including some that are very active fund finance providers, is troubling and problematic, as is potential overreaction by the media, regulators, customers and market participants. Diversity in the US banking system has been an important bedrock to the economic prosperity of this country and has enabled local and regional businesses to have access to credit where larger banks may not be able to offer the same level of interest or be positioned to provide an equivalent service level.
- One of the original and continuing core purposes of the Fund Finance Association has been to increase the number of market participants. We firmly believe that having a large and diverse community of fund finance providers creates a more stable and productive marketplace for everyone involved. While many of the founders of this organization have come from ‘market leaders,’ it has always been our goal to grow the reach of the industry and increase market participation. We firmly believe in our goal and have been pleased with the increased participation by smaller and regional banks in recent years. By our estimation, large US commercial banks above $250 billion in assets account for ~33% of the fund finance commitments globally. This number would have been significantly higher 5 or 10 years ago. Global banks, super regionals & regionals, small banks and now non-banks continue to play an increasing role in the fund finance ecosystem. Importantly, many regional banks below the $250 billion threshold have played outsized roles in providing management company revolvers, GP financing and other products not broadly marketed by the largest banks. The market needs their continued support and involvement and is better for it.
- We would suggest market participants do their best to stay calm and use sound logic and decision-making when navigating these markets. There have been good pieces written by members of our community addressing the legal rights and risks associated with actions at this time, and we suggest consulting those and engaging with seasoned legal counsel on decisions related to transactions.
The FFA applauds the Federal Reserve, FDIC and other regulatory bodies involved in their actions to support the stability of the US banking system. We do however believe the storm is not over and it would be prudent to consider further actions to both temporarily stem the deposit run stress on subsets of banks, while constructing a long-term structure that supports a competitive marketplace for the thousands of banks in the US. Consumers, small business owners, and corporate treasurers do not want to think about the creditworthiness of their deposits – nor are many well-equipped to appropriately do so, especially in the current digital world where Tweets can move billions of dollars within moments, potentially on rumor or unfounded reasoning. A fractional reserve banking system needs stability of deposit flows; the system – and the consumer – will be better protected with comfort and corresponding confidence that deposits are safe within banks of all sizes.