Every quarter for the past several years, Ken Vecchione printed out a spreadsheet comparing the growth of the bank he runs, Western Alliance, with its three principal competitors: First Republic, Signature Bank and Silicon Valley Bank.
And each time, Mr. Vecchione was annoyed because the analysis would show that Western Alliance’s loans and deposits were growing similarly to the others — its total assets tripled in five years — but that its stock price wasn’t soaring as high.
“We were, I have to admit, a bit envious of them,” said Mr. Vecchione, who has been chief executive of the Phoenix bank since 2018.
Now all three of those competitors are kaput, felled by runs on deposits during the biggest banking crisis in a decade and a half. Western Alliance and other banks that just a few months ago were far from household names are fighting to prove they are unlike their collapsed rivals. “We certainly didn’t see this coming,” Mr. Vecchione admitted in an interview.
Three months after Silicon Valley Bank’s collapse, the banking industry is engaged in collective soul-searching. Though the industry turmoil hurt them all by shaking faith from borrowers and inviting new scrutiny, the panic spread manna among the largest lenders in the United States. JPMorgan Chase, the biggest bank in the nation, grew even larger after taking over fallen First Republic and scooping up tens of billions of dollars in deposits from nervous savers at smaller banks.
Left in the lurch are roughly 4,100 other banks, from big-city regional institutions like Western Alliance to tiny, rural community banks that operate out of a single branch. These lenders have long pitched themselves as the crux of the U.S. economy, doling out loans and financing to small businesses that would otherwise be ignored. They hold roughly two-thirds of all deposits in rural areas.
These banks receive relatively lax treatment from regulators, who require them to disclose less about their finances and set aside less money as a buffer against deposit runs than their larger counterparts.
This year’s tumult, however, has raised new questions about the wisdom of that approach. Though just three midsize banks failed, fear of financial contagion spread across the banking system. At the first signs of trouble, depositors pulled money from regional banks — and many haven’t come back.
Government officials can’t seem to decide what they want banks like Western Alliance to do. Since the 2008 financial crisis, policymakers have put the brakes on “too big to fail” institutions, saying they would prefer risk to be distributed more evenly across lenders. Now, though, there is skepticism about the grow-at-all-costs ambitions of smaller banks, and hints of an openness to mergers between lenders.
In a private meeting last month with bank chiefs, including Jamie Dimon of JPMorgan, Treasury Secretary Janet L. Yellen said she would welcome more mergers, according to a person who participated in the briefing, in part because it would make it easier for regulators to conduct oversight.
Mr. Vecchione said he had never spoken to Ms. Yellen or her staff before this year, and now he receives check-in calls from the deputy Treasury secretary, Wally Adeyemo. Mr. Vecchione said that he was not against more regulation, but that it would add to the bank’s costs and, ultimately, confer another advantage on larger competitors that could better withstand the expense.
He said he had been asking regulators lately, “Do you even want us to exist?”
There is a model for a more concentrated banking sector. In Canada, six banks dominate 90 percent of the market, versus about 50 percent for the six largest banks in the United States. Experts say there is little incentive for banks in Canada to take outsize risks, though there is also relatively little competition, which means borrowers may face higher interest rates.
“I don’t think we want to get to the point of six banks, because that would really stifle lending,” said Ben Gerlinger, a regional bank analyst at Hovde Group.
Bruce Van Saun, chief executive of Citizens Bank, said that for the first time in his career he was trying to make his lender smaller, in part by discouraging depositors who would be most likely to close their accounts in the first signs of a crisis. He hopes that will convince investors that the bank, the nation’s 14th largest, is stable. (One indicator that the United States is littered with banks: Citizens, which is based in Providence, R.I., is separate from First Citizens, the North Carolina lender that took over Silicon Valley Bank’s former branches, as well as hundreds of other lenders with “Citizens” in their name.)
“You have to show deposits shrinking, or else you go on the list of ‘problem banks,’” Mr. Van Saun said. “Is the cure going to be worse than the disease?”
Western Alliance has become accustomed to shrinking in a hurry. The bank’s stock is down about 50 percent from its high point in February. Other regional lenders, like PacWest, which has been shrinking aggressively by selling packages of loans, are down in that range or more.
“We hate to be put in the same sentence as PacWest,” Mr. Vecchione said.
Founded in 1994, Western Alliance was led for most of its history by the billionaire Robert Sarver, who was forced to sell the Phoenix Suns last year after the National Basketball Association found that he had used racial slurs and verbally abused employees, among other transgressions. Mr. Sarver stepped down as chairman of Western Alliance amid the league’s investigation.
Mr. Vecchione, a Queens native, looks as if he could play a banker in a movie. He sports Hermès ties and collects high-end watches (not including Rolexes, which he says are too common). His pay over the past three years was worth nearly $22 million, including stock.
Until recently, the bank was in a ravenous expansion mode. In 2015, Western Alliance acquired Bridge Bank, a San Francisco lender that competed with Silicon Valley Bank for business from venture capital firms. Like Silicon Valley Bank, Bridge Bank advertised its ability to finance start-ups and other businesses that typically hold more than $250,000 in their bank accounts — a risky proposition, given that the federal government insures deposits only up to that amount, making such accounts flighty.
A so-called commercial lender, Western Alliance mostly lends to businesses, like time-share companies, real estate developers and hoteliers. It has a collection of branches across the West under brands like Bank of Nevada, Torrey Pine Bank and Alliance Bank of Arizona.
As of year end, Western Alliance’s $68 billion in assets made it the 40th-largest lender in the country. The bank’s board of directors had approved a plan to grow as large as $100 billion by expanding outside the West, an initiative that included new Manhattan offices on Madison Avenue whose walls are lined with marble.
Silicon Valley Bank’s demise hit like an “explosion,” said Western Alliance’s chief financial officer, Dale Gibbons. In the hours after it was shuttered, Mr. Gibbons, Mr. Vecchione and their team watched gape-mouthed as their bank’s accounts dwindled. Longstanding clients put in withdrawal requests without so much as a check-in call.
Around the office, Mr. Vecchione saw his employees splitting their attention between dual monitor screens. On one was their ordinary work; on the other were charts showing the bank’s cratering stock price.
The bleeding stopped only after the bank offered some major depositors a look inside its operations in exchange for signing nondisclosure arrangements. Some took up on the offer.
“I feel for the depositors — they didn’t sign up to be bank equity analysts,” Mr. Gibbons said.
At the end of the first quarter, Western Alliance had lost roughly 12 percent, or $6 billion, of its deposits, but it was slowly seeing some money come back. Its business model, however, was now out of style. What the bank’s executives prided themselves on — getting to know customers and working with them individually on loans, a so-called high-touch approach — raised uncomfortable similarities to First Republic and Silicon Valley Bank, which maintained cozy relationships with their well-heeled clients.
Mr. Vecchione expressed a shade of frustration at all the attention his bank was receiving. At the height of the crisis, when news reports circulated that the bank was weighing a merger or sale, he reacted angrily, ordering his team to deny the reports (which he says were unfounded), lest the public think that the regional bank was weak.
And he doesn’t even accept the moniker of regional bank, preferring instead to describe Western Alliance as a “national bank with a regional footprint.”
Mr. Vecchione said he wouldn’t allow his bank to become a “victim.” He’s continuing to instruct underwriters to compete fiercely for lending business, and Western Alliance has boosted the amount it pays on savings accounts to just over 5 percent per year, among the highest in the nation.
“People like confidence — they are looking to see if you’re sheepish,” he said. “We matter. We aren’t going anywhere.”