WORCESTER – Do two of the three biggest bank collapses in U.S. history impact those in Worcester who have their money deposited in a bank?

Silicon Valley Bank in California and Signature Bank in New York suffered catastrophic bank runs last week, ending the life of those financial institutions.

The White House stepped in and ensured depositors that their funds are protected including amounts above $250,000 insured by the Federal Deposit Insurance Corporation (FDIC). That move was taken to prevent a possible wave of hysteria that could lead to massive bank runs nationwide.

More:Silicon Valley Bank, Signature Bank collapses explained, live updates on new developments

So, bottom line, should Worcester residents be concerned about their money sitting in banks? Should they withdraw those funds or let them stay put? Did the collapses impact the financial health of smaller, local banks?

And what about the financial picture in the days and weeks ahead?

'Absolutely nothing'

“For the average person in Worcester, it means absolutely nothing,” said Robert Baumann, economics professor at the College of the Holy Cross, of the bank failures.

Baumann’s reasoning is most folks in Worcester don’t have more than $250,000 in the bank, an amount insured and protected by the FDIC.

“One sad” outcome Baumann noted is smaller banks running solid operations could experience a drop in their stock price because the perception is that banking is going through a rough patch. That in turn could result in job losses at those banks.

"An extended decrease in the value of stock could lower the value of a company and layoffs are one response," said Baumann. "It's not likely, but it's a possibility."

Two regional New England banks declined comment for this story - Berkshire Bank and Eastern Bank. Both experienced lower stock prices at close Tuesday, compared to Friday close, the day the bank collapses were announed.

Shares of Berkshire Hills Bancorp Inc. closed Tuesday at $25.20, compared to $25.57 Friday. Eastern Bankshares Inc. closed at $12.40 Tuesday, compared to $13.81 Friday.

Both stock prices didn't rebound at Wednesday's closing bell: Berkshire Hills was at $25.15 and Eastern Bankshares ended the day at $12.40.

As for larger local businesses with more than $250,000 deposited, Baumann suggests they look closely at a bank’s level of solvency, meaning assets (cash and loans) compared to liabilities (customer deposits). Also, study a bank’s management practices and spread deposited money around to several banks to minimize risk.

Unusual situation

That is how Baumann described the Silicon Valley Bank collapse, believing it doesn’t have much connection to how banks operate in Worcester.

Usually, a collapse occurs when entities that take out loans can’t pay them back. But in the case of Silicon Valley, Baumann noted it had plenty of cash, but made bad investments.

Given that outlier, Baumann said he hasn’t heard any "whispers" about local banks suffering ripple effects from the Silicon failure. But it could serve as a lesson for banks to be careful about how they manage and invest their deposits.

In agreement

Kathleen Murphy, president and chief executive officer at the Massachusetts Bankers Association, agrees with Baumann that the Silicon Valley collapse was unique. Murphy explained that Silicon Valley was focused on start-up companies in the high-tech sector, while all 132 banks in the Massachusetts Bankers Association are traditional institutions, with diversified operations that are FDIC insured.

Once federal regulators stepped in to protect depositors in the failed banks, Murphy said some of those depositors contacted association members to ask how they can put their funds in Massachusetts banks.

Members are reporting "large inflows" of account activity from former clients of Silicon Valley Bank, said Murphy.

Meanwhile, Murphy took issue with Baumann's point that falling bank stock prices could potentially result in layoffs. Bank regulators look at many factors to determine a bank's health, beyond stock price, including management, loans-to-deposits ratio and capitalization.

"There are many factors and it's an incredible disservice to the incredibly strong banking industry in Massachusetts to merely look at stock price," said Murphy.

The Worcester Regional Chamber of Commerce takes the position that what happened in California and New York is unlikely to happen here because local banks are rooted in good, fundamental business practices.

“Here in Central Mass., we are lucky to have a number of well-established banks that have been serving the community for generations," said Alex Guardiola, vice president of government affairs and public policy at the Worcester Regional Chamber of Commerce. “They have been able to do so by focusing on the fundamentals and engaging in good financial practices in compliance with state and federal regulators.”

'Felt like the sky is falling'

That was Jon Weaver’s mood Friday when news of the collapses went viral.

Weaver is president and chief executive officer at Massachusetts Biomedical Initiatives, a Worcester-based biotech incubator.

The Silicon Valley collapse reportedly threw haymakers at start-up businesses in the technology and life-sciences sectors and Weaver said he wouldn’t be surprised if some businesses in Worcester did business with the failed bank.

However, no one in the Massachusetts Biomedical Initiatives incubator system was in that boat, said Weaver, who called the federal government’s decision to step in and protect depositors a “huge uplift” for start-ups.

“It eased the nerves, even those not banked by Silicon Valley Bank. We didn’t have the ripple effects in the tech industry that we could have feared,” he said.

Affordable Housing at risk?

The affordable-housing sector is reportedly at risk of getting hit hard with financial shrapnel from the banking collapses.

Some developers reportedly secured loans from Boston Private Bank and Trust, owned by Silicon Valley Bank.

Main South Community Development Corporation, which recently celebrated the official opening of an affordable housing development in Worcester called Grand Street Commons, had zero business on the books with Silicon Valley Bank.

“I haven’t seen Boston Private Bank and Trust or Silicon Valley Bank in any deals we are involved in,” said Steve Teasdale, executive director at Main South Community Development Corporation.

Fundamental approach

Polar Beverages, with 600 employees in Worcester, takes a fundamental approach when it comes to depositing corporate funds, said Chris Crowley, executive vice president at Polar.

That means a traditional path to deposits, not speculative.

Crowley explained that Silicon Valley Bank had plenty of cash, made investments that went south and when the value of those investments dropped, depositors rushed in to get their money.

“(Silicon Valley Bank) didn’t do the basics,” Crowley said.

When asked what sectors in Worcester could suffer damage from the bank collapses, Crowley said some start-up technology companies that “burn through cash” could be affected.

“(Polar Beverages) has been around since 1882, so we’re lucky we don’t have to take private equity or expensive debt. The fancy products are what get you,” said Crowley.

Optimism

It’s a word that Baumann mentioned as the country, Worcester and financial markets face the fallout from the bank collapses.

"I am optimistic we are coming out of this. In a week or two, depending on what the Biden administration does to make depositors whole, this is not going to be a story,” he said.

One reason for the optimism is the FDIC, created in the 1930s during the Great Depression to restore the public's faith in the banking system. It’s worked, Baumann noted, because it largely kept America from bank runs.

Another reason is the average Worcester residents won’t lose money because their deposits fall below the FDIC’s $250,000 insurance threshold.

However, Baumann has a warning for large business owners - watch where you deposit money and keep a close eye on how it's managed.

“For the large business owner, (the bank collapses) is a real threat if they have a lot of money in the bank. They need to think about how to manage risk down the road and who is managing the bank,” he said.

Contact Henry Schwan at henry.schwan@telegram.com. Follow him on Twitter @henrytelegram

This article originally appeared on Telegram & Gazette: Bank collapses in California and New York. Will there be fallout?