Bill Morris in Legal/Financial for HABITAT Magazine
In the wake of the second- and third-largest bank collapses in U.S. history — and the ensuing tumble of stock markets around the world — jittery co-op and condo boards in New York City are asking a chilling question: Is our money safe?
The answer, most likely, is yes — given the Federal Deposit Insurance Corporation’s backing of all deposits up to $250,000, the federal government’s promise to make all depositors whole at the two failed banks (without using taxpayers’ money), plus the fact that the big national banks and most large regional banks are on solid financial footing. But that doesn’t mean boards don’t need to be careful when they park their money, either for operating budgets or reserve funds.
Experts from the banking, legal and property management professions offer the following tips.
“Your property manager should check out the financial health of a bank before you deposit your money there,” says Adrian Martin, a managing director at Webster Bank.
While most property managers are not trained financial analysts, Martin and other bankers note that much information is public record, including earnings reports, credit ratings, portfolio diversity and whether a bank is open to risk, such as the cryptocurrency depositors who helped bring down Silicon Valley Bank in California and Signature Bank in New York. Also, the percentage of a bank’s deposits that are not F.D.I.C-insured can be a barometer of potential trouble. At 93.9%, Silicon Valley ranked second highest in the nation, and at 89.7%, Signature ranked fourth highest, according to Standard & Poor’s. Bank of America is at a comparatively modest 47.1%.
“I advise boards not to just look at the interest rates a bank is offering,” says Thomas Thibodeaux, chief financial officer at New Bedford Management, who has a banking background. “I resist when boards tell me about an online bank that’s paying high interest rates. I’ve advised boards it’s not a good idea to put their money in a bank nobody’s heard of. I don’t need to see a branch on every corner, but I do want to see profitability and stability. We want a conservative bank. Our bank gives us quarterly financial reports, and we look at them. Property managers should pay attention to that.”
Personal relationships also matter. “Boards should be working with a bank that has a real-estate team that’s familiar with the needs of co-ops and condos,” Thibodeaux adds. “You want to be able to speak to a banker.”
Many co-op boards that refinanced their underlying mortgages when interest rates were at historical lows are now holding sizable funds. One way to keep that money safe is to use a service that deposits the board’s money in a nationwide network of F.D.I.C.-insured banks, with a maximum $250,000 per bank. This option offers the trifecta of protection, interest accrual and liquidity. Experts agree that protecting funds should be a higher priority than seeking a high return on investment. Another option for a board with $1 million is to open $250,000 accounts at four banks. But that can lead to headaches.
“Boards and management companies change, and those arrangements can become very problematic,” Thibodeaux says. “You can lose track of who the signatories are. You would rather deal with one representative inside one bank.”
Steven Sladkus, a partner at the law firm Schwartz Sladkus Reich Greenberg Atlas, spent a recent day dealing with a representative inside Signature Bank’s midtown offices — trying to withdraw sizable accounts held by his individual clients (not co-op or condo boards).
“I had to fight for my clients’ money because the bank was inundated with thousands of requests to withdraw money,” Sladkus says. “As fiduciaries, co-op and condo boards want to take utmost care where their money is placed. The bank might offer a high interest rate, but you can’t get a banker on the phone. It’s also helpful if you have financial people on the board who can chime in. At the very least, consult a financial professional if you’re unsure where to put your money. There’s nothing shameful in seeking professional advice.”