WEBVTT - Crisis of Confidence, Regional Banks’ Future 0:00:12.119 --> 0:00:16.120 Hello, and welcome to the Votes and Verdicts podcast, hosted 0:00:16.160 --> 0:00:19.959 by the litigation and Policy team of Bloomberg Intelligence, the 0:00:20.000 --> 0:00:25.120 investment research platform of Bloomberg LP. This podcast series examines 0:00:25.160 --> 0:00:27.840 the intersection of business policy and law. 0:00:28.240 --> 0:00:29.240 I'm Elliott Stein. 0:00:29.280 --> 0:00:32.680 I'm an analyst with Bloomberg Intelligence covering financials litigation. 0:00:33.200 --> 0:00:35.159 And my name is Nathan Dean, and I'm an analyst 0:00:35.159 --> 0:00:36.879 with BI covering financials policy. 0:00:37.840 --> 0:00:41.040 We're delighted today to be joined by Herman Chan, who 0:00:41.120 --> 0:00:44.160 is not just one of the foremost experts on regional banks, 0:00:44.159 --> 0:00:48.680 but also our colleague and friend here at BI. Herman 0:00:48.720 --> 0:00:51.680 has been covering the banking sector, including the regionals, for 0:00:51.680 --> 0:00:54.560 more than fifteen years. He's been on the cell side 0:00:54.600 --> 0:00:57.880 as a research analyst. He's been in investor relations at 0:00:57.880 --> 0:01:00.760 a leading regional bank for the. 0:01:00.560 --> 0:01:01.440 Past four years. 0:01:01.480 --> 0:01:05.240 He's led bi's regional bank coverage as a senior analyst. 0:01:05.840 --> 0:01:08.200 We're really excited to have Herman here today since there 0:01:08.280 --> 0:01:10.480 is really no one better to explain what we've seen 0:01:11.000 --> 0:01:14.960 these last few weeks with Silicon Valley Bank, Signature Bank, 0:01:15.520 --> 0:01:20.200 and more broadly, the most recent banking crisis. So Herman, 0:01:20.360 --> 0:01:22.040 Welcome to Votes and verdicts. 0:01:22.200 --> 0:01:25.319 Great, Thanks Ellie, I really appreciate it and looking forward 0:01:25.360 --> 0:01:26.119 to the discussion. 0:01:26.720 --> 0:01:30.440 So, you know, we'll jump into some substantive conversation in 0:01:30.480 --> 0:01:35.200 a minute about the banking crisis, but what we like 0:01:35.240 --> 0:01:37.039 to do with guests usually is to get a little 0:01:37.080 --> 0:01:38.600 more background about them first. 0:01:39.959 --> 0:01:41.360 You know, you've been involved with. 0:01:41.360 --> 0:01:43.559 Regional banks for about a decade and a half now, 0:01:43.760 --> 0:01:47.320 both as an analyst and also in investor relations, so 0:01:47.680 --> 0:01:49.640 you know, I thought it'd be good to get your 0:01:50.560 --> 0:01:53.680 take on how you got into research generally, how you 0:01:53.680 --> 0:01:57.560 got into regional banks specifically, and maybe as part of that, 0:01:57.640 --> 0:01:59.880 tell us you know what you like about covering the center. 0:02:00.480 --> 0:02:03.400 Sure that'd be great, Elliott. Yeah, that's right. 0:02:03.480 --> 0:02:07.560 I've been doing banks and regil bank specifically for a 0:02:07.600 --> 0:02:12.280 while now. What really got me interested was I knew 0:02:12.320 --> 0:02:14.720 I wanted to be in equity research. It sort of 0:02:14.720 --> 0:02:19.520 fits my personality and I'm a numbers person by trade, 0:02:19.639 --> 0:02:24.720 so it researching gives an individual really the opportunity to 0:02:25.000 --> 0:02:28.800 better understand the company, become an expert in it, and 0:02:28.919 --> 0:02:35.160 really focus on the performance and the potential performance of 0:02:35.720 --> 0:02:38.360 the bank and the industry as a whole. I started 0:02:38.360 --> 0:02:42.320 out my career in equity research too many years ago 0:02:42.360 --> 0:02:44.800 to remember at this point, but it's been a great journey. 0:02:44.880 --> 0:02:49.799 Covered financial services my entire career, including life insurance, asset managers, 0:02:49.919 --> 0:02:54.320 large cat banks, small cat banks, and really cut my 0:02:54.360 --> 0:02:56.799 teeth during the Great Financial Crisis, which. 0:02:56.639 --> 0:02:59.480 Was really a eye opening and learning. 0:02:59.160 --> 0:03:02.400 Experience and have really shaped the way I think about 0:03:02.440 --> 0:03:06.120 banks and policy in general. And so I've been with 0:03:06.280 --> 0:03:09.320 BI for about four years. As you mentioned before, covering regionals, 0:03:09.639 --> 0:03:12.079 it was really an opportunity because I was covering the 0:03:12.200 --> 0:03:15.600 large cat banks as an associate at a prior institution 0:03:15.800 --> 0:03:19.200 and got the opportunity to cover regionals as a senior 0:03:19.240 --> 0:03:22.680 analyst on the cell side, and my career has really 0:03:23.000 --> 0:03:24.440 taken off ever since then. 0:03:24.480 --> 0:03:25.240 So it's been great. 0:03:25.600 --> 0:03:28.280 I got to imagine these last two maybe three weeks 0:03:28.280 --> 0:03:31.640 have been probably the craziest since the Great Financial Crisis 0:03:31.639 --> 0:03:33.040 for you, yeah, maybe. 0:03:32.880 --> 0:03:38.960 COVID this many crisis of competence I would call it. 0:03:39.000 --> 0:03:39.680 Has been. 0:03:41.000 --> 0:03:46.080 Really interesting these last four years at BI and covering 0:03:47.560 --> 0:03:51.560 the current crisis at Bloomberg has really been interesting. 0:03:51.600 --> 0:03:53.440 Because of the platform. 0:03:53.000 --> 0:03:55.800 That we're on where we are able to connect with 0:03:56.320 --> 0:04:01.160 clients via research but also via media in radio and 0:04:01.200 --> 0:04:01.920 TV as well. 0:04:02.000 --> 0:04:03.600 So I've been really. 0:04:03.320 --> 0:04:06.400 Busy these last few weeks, but it's been really really 0:04:06.560 --> 0:04:07.360 been fun as well. 0:04:08.160 --> 0:04:11.280 So yeah, so let's let's talk about this this most 0:04:11.360 --> 0:04:13.720 recent crisis. You know, I think most people have a 0:04:13.800 --> 0:04:17.360 general understanding of what happened, you know, in terms of 0:04:18.320 --> 0:04:20.599 you know, Silicon Valley Bank in particularly having a very 0:04:20.680 --> 0:04:25.240 non diversified customer base, and then also you know what 0:04:25.320 --> 0:04:29.839 it appears to be mismanagement of their interest rate risks. 0:04:31.080 --> 0:04:33.080 But you know, I'd love to get your explanation and 0:04:33.120 --> 0:04:35.960 you know, like the simplest explanation for what happened, like 0:04:36.040 --> 0:04:37.000 talk to talk to us. 0:04:36.920 --> 0:04:37.880 Like we're five year olds. 0:04:38.080 --> 0:04:43.400 Yeah, there's a lot of different issues that that really 0:04:43.600 --> 0:04:45.559 contributed to the failure of the bank. 0:04:45.760 --> 0:04:47.720 I guess if you really break it down there. 0:04:47.800 --> 0:04:52.279 There's one issue on the on the bank's asset side 0:04:52.279 --> 0:04:54.680 of the balance sheet and one issue on the bank's 0:04:54.800 --> 0:04:56.560 liability side of the balance sheet. 0:04:56.640 --> 0:05:00.680 So on the asset side, uh SVB and said very. 0:05:00.560 --> 0:05:05.520 Heavily in to investment securities, specifically held to maturity securities 0:05:05.600 --> 0:05:08.480 when interest rates were zero, So they built up their 0:05:08.480 --> 0:05:12.400 investment securities portfolio at a very large clip. 0:05:13.839 --> 0:05:16.840 Subsequently, when interest rates rose. 0:05:16.720 --> 0:05:19.480 Those the value of the securities fell and they were 0:05:19.520 --> 0:05:23.280 sitting on a fifteen billion dollar paper loss position in 0:05:23.320 --> 0:05:29.760 their health to maturity portfolio. Secondarily on the deposit side 0:05:29.760 --> 0:05:36.360 the liability side, SBB really was the premier bank that 0:05:36.440 --> 0:05:40.240 catered to the venture capital and startup communities. 0:05:40.320 --> 0:05:42.359 So during the pandemic. 0:05:41.880 --> 0:05:45.719 When reads for zero, startups were raising money left and 0:05:45.800 --> 0:05:49.920 right from venture capital firms, they were doing IPOs and 0:05:49.960 --> 0:05:54.479 garnering really astronomical evaluations. So all that money flowed into 0:05:54.720 --> 0:05:58.480 spb's balance sheet in the form of deposits, and SBB 0:05:58.720 --> 0:06:02.520 wasn't really growing their portfolio as fast as they were 0:06:02.560 --> 0:06:06.600 on the deposit side, so in effect they needed to 0:06:06.640 --> 0:06:11.400 park those funds somewhere else, hence the growth in the 0:06:11.480 --> 0:06:19.800 securities portfolio. Now fast forward to early March, the bank 0:06:20.320 --> 0:06:27.240 was looking to raise capital and sell the AFS portfolio 0:06:27.839 --> 0:06:32.600 at a loss position because these were securities that they 0:06:32.600 --> 0:06:35.400 also bought during the height of the pandemic on rates 0:06:35.440 --> 0:06:41.240 for zero. That maneuvering from a capital standpoint really spooked 0:06:41.279 --> 0:06:46.240 the markets and contributed to the initial share price decline 0:06:46.320 --> 0:06:48.279 because management didn't. 0:06:47.960 --> 0:06:49.280 Do a good job of. 0:06:49.440 --> 0:06:54.840 Articulating to the street and investors their expectations for how 0:06:54.880 --> 0:06:59.560 to manage the securities portfolio, and it really caught investors 0:06:59.560 --> 0:07:04.160 by rise, contributing to the fact that the share price 0:07:04.240 --> 0:07:09.040 decline drove the spotlight to the AFS book with a 0:07:09.800 --> 0:07:13.000 fifteen billion dollar loss position, which in effect, if they 0:07:13.040 --> 0:07:15.800 would have had to realize that would have wiped out 0:07:15.840 --> 0:07:19.360 the book value. So the market was spooked. That in 0:07:19.400 --> 0:07:23.680 turn spooked the depositors. And given the fact that depositors 0:07:23.840 --> 0:07:28.840 now have a very free hand in terms of extricating 0:07:29.120 --> 0:07:34.960 their deposits from from a bank, their phones and other 0:07:35.360 --> 0:07:40.080 electronic avenues, and given the fact that social media is 0:07:40.120 --> 0:07:42.520 a big influence as well, there was a herd mentality 0:07:42.560 --> 0:07:46.240 from its startups and vcs and really contributed to the 0:07:46.440 --> 0:07:50.400 deposit flight. And eventually regulators need to step in and 0:07:50.520 --> 0:07:51.160 close the bank. 0:07:52.400 --> 0:07:54.560 So you know, Herman, I actually you bring up a 0:07:54.560 --> 0:07:55.320 great point here. 0:07:55.440 --> 0:07:58.200 You listen to all the the you know, the the 0:07:58.240 --> 0:08:01.200 reasons why SVB failed and forth like that. You know, 0:08:01.240 --> 0:08:04.080 you and I have had some conversations this week about 0:08:04.080 --> 0:08:06.680 the congressional hearings and one of the big questions we 0:08:06.800 --> 0:08:09.640 hear in Washington is is this a regulatory problem or 0:08:09.640 --> 0:08:10.960 a regulator. 0:08:10.360 --> 0:08:11.400 Problem, you know. 0:08:11.560 --> 0:08:13.840 And so the question I have for you is as 0:08:13.880 --> 0:08:18.120 you dive, as you delved into SVB and the situation 0:08:18.200 --> 0:08:21.360 and so forth like that, you know, are what's your 0:08:21.400 --> 0:08:25.600 initial thoughts on the regulatory response we're regulators able to 0:08:25.680 --> 0:08:29.600 identify these items or where they slow to the game. 0:08:29.920 --> 0:08:32.880 I mean, I just I'm really curious on where do 0:08:32.880 --> 0:08:35.160 you think the response of the FED, in the San 0:08:35.200 --> 0:08:37.200 Francisco FED and the FDIC fall into this. 0:08:37.840 --> 0:08:43.160 Yeah, I think it's a combination of management doing the 0:08:43.160 --> 0:08:45.840 wrong thing in terms of not managing the risk properly, 0:08:46.440 --> 0:08:50.760 especially interest rate risk, which is as as Michael Barr, 0:08:50.960 --> 0:08:55.120 the head of FED Supervision, has discussed earlier this week, 0:08:55.280 --> 0:09:02.000 it's a bread and butter core risks that banks in 0:09:02.080 --> 0:09:07.120 general manage, and it's one of its It's the same 0:09:07.120 --> 0:09:11.040 thing as banks managing credit risk and making sure their 0:09:11.080 --> 0:09:12.520 borrowers pay them back. 0:09:12.640 --> 0:09:13.920 This is a. 0:09:13.840 --> 0:09:17.680 Fundamental way and a fundamental thing that all banks manage 0:09:17.720 --> 0:09:21.600 and look at. And the fact that they blew it 0:09:21.720 --> 0:09:24.480 really speaks to the fact that they were they these 0:09:24.559 --> 0:09:28.600 risks were unappreciated or underappreciated at the bank. I would 0:09:28.640 --> 0:09:31.240 also say that I think their regulators do need to 0:09:31.240 --> 0:09:34.920 take some blame because it's come out that the San 0:09:34.960 --> 0:09:38.400 Francisco FED did raise red flags on the bank as 0:09:38.520 --> 0:09:42.160 early as twenty twenty one, and if they were a 0:09:42.160 --> 0:09:46.319 bit more forceful with their enforcement and their duty as 0:09:46.480 --> 0:09:53.959 and role as regulators, maybe this whole situation wouldn't have unfolded. 0:09:53.480 --> 0:09:54.960 The way it has. 0:09:55.480 --> 0:09:57.560 And correct me if I'm wrong. But you know, SVB 0:09:57.679 --> 0:10:00.640 didn't have a chief risk officer for what nine months? 0:10:01.200 --> 0:10:01.440 Right? 0:10:02.120 --> 0:10:04.720 That's true that that's something that they probably should have 0:10:04.760 --> 0:10:08.520 done and filled that very important role a bit earlier. 0:10:08.600 --> 0:10:12.079 But you have a CFO that been in the business 0:10:12.080 --> 0:10:15.840 for a very long time, you have a treasury function 0:10:16.000 --> 0:10:18.960 that should be managing these risks on a day to 0:10:19.000 --> 0:10:22.560 day basis much more closely, and ultimately you have a 0:10:22.600 --> 0:10:27.760 CEO that should have taken more responsibility on looking into 0:10:27.800 --> 0:10:28.439 these matters. 0:10:28.480 --> 0:10:31.280 So I think there there's really a lot of blame 0:10:31.320 --> 0:10:32.360 to go around. Yeah. 0:10:32.520 --> 0:10:35.079 You know, when a FED Vice chair Bard testified earlier 0:10:35.120 --> 0:10:37.280 this week, he said, and I'm paraphrasing here, that the 0:10:37.320 --> 0:10:40.959 interest rate and risk models at SVB were not grounded 0:10:41.000 --> 0:10:43.719 in reality. You knew the regulators were going to have 0:10:43.760 --> 0:10:47.040 some issues with that, So just turning a little bit 0:10:47.080 --> 0:10:51.000 more towards, you know, the response of the regulators. You know, 0:10:51.120 --> 0:10:54.280 so you know, Silicon Valley Bank was a small bank 0:10:54.360 --> 0:10:57.200 what two years ago, and it's balloomed up, and before 0:10:57.280 --> 0:11:00.240 it's collapsed, it was around two hundred and eleven billion 0:11:00.320 --> 0:11:02.240 in assets, so that would have put it in a 0:11:02.320 --> 0:11:06.400 different category of regulations. But we've seen statements from Congress 0:11:06.440 --> 0:11:09.640 that they want to go back and revisit the CIFY threshold, 0:11:09.720 --> 0:11:12.800 whether it's fifty or two hundred fifty billion, And my 0:11:12.960 --> 0:11:15.480 analysis says that's not even gonna it's not even worth 0:11:15.559 --> 0:11:18.600 really talking about. But the FED and the FDIC in 0:11:18.640 --> 0:11:20.640 the Office of the Comptrore or the Currency have said 0:11:20.640 --> 0:11:23.480 that they have the ability to go back and reapply 0:11:23.960 --> 0:11:27.320 enhance crudential standards to banks above one hundred billion in assets, 0:11:27.360 --> 0:11:30.480 so things like higher capital requirements, tough for liquidity cover 0:11:30.720 --> 0:11:33.800 ratio stress tests. If the FED were to do this, 0:11:34.240 --> 0:11:36.800 what's your outlook on US regional banks. Is this a 0:11:36.960 --> 0:11:40.720 much more stringent environment for them or is this something 0:11:40.720 --> 0:11:42.600 that you think that they can manage in the long run. 0:11:43.760 --> 0:11:45.960 It is something that they will have to manage in 0:11:46.000 --> 0:11:50.199 the wrong run. I'm not sure it really changes the 0:11:50.240 --> 0:11:55.040 trajectory of the bank, and I think these banks probably 0:11:55.080 --> 0:12:00.920 would welcome some of these enhance their regulatory standards given 0:12:00.960 --> 0:12:02.920 the fact that everything that we've been through. 0:12:03.440 --> 0:12:05.720 One thing I would want to would want. 0:12:05.559 --> 0:12:11.720 To ask, is everybody is talking about higher debt increases 0:12:12.480 --> 0:12:17.960 in the capital structure for these banks or making the 0:12:18.080 --> 0:12:22.280 capital ratio is a bit more conservative by taking out 0:12:22.360 --> 0:12:27.320 the unrealized losses and the available for sales securities book. 0:12:27.360 --> 0:12:32.160 But really the issue with SBB was the liquidity and 0:12:32.200 --> 0:12:35.880 the liquidity of the balance sheet and the pace of 0:12:35.960 --> 0:12:40.480 deposits that really left the bank in such a ferocious 0:12:40.520 --> 0:12:44.240 fashion that I don't think anybody would have expected that, 0:12:44.480 --> 0:12:49.079 and I'm not sure if that scenario would have played 0:12:49.080 --> 0:12:53.920 out in any other regional or even larger bank that 0:12:53.920 --> 0:12:57.599 that bank would still survive to this day. So I 0:12:57.679 --> 0:13:01.120 think the crux of the issue is the regulators need 0:13:01.160 --> 0:13:04.280 to focus on the liquidity and maybe change the way 0:13:04.360 --> 0:13:09.239 they look at liquidity based on the amount of uninsured 0:13:09.280 --> 0:13:13.320 deposits meeting chunkier commercial deposits that sit on banks balance 0:13:13.360 --> 0:13:18.640 sheets and really better understand the behavior of those deposits 0:13:18.679 --> 0:13:22.520 when we get the positive flight scenario that felled SVB. 0:13:23.160 --> 0:13:24.920 So I'm going to put you on the spot a 0:13:24.920 --> 0:13:28.200 little bit. So again, we're recording this on March thirtieth, 0:13:28.240 --> 0:13:31.440 and anytime now in the next day or so, we're 0:13:31.480 --> 0:13:35.160 anticipating President Biden is going to put out a executive 0:13:35.240 --> 0:13:39.200 order directing regulators to do tougher regulations. Now, I'm going 0:13:39.240 --> 0:13:42.080 to make you president of the United States, and I'm 0:13:42.120 --> 0:13:46.120 going to limit that, right, Yeah, I'm going to you know, So, 0:13:46.200 --> 0:13:48.080 I'm going to say that you have the ability to 0:13:48.080 --> 0:13:50.800 write this executive order and tell the FED and the 0:13:50.840 --> 0:13:52.679 OCC and the FDIIC what to do. 0:13:53.320 --> 0:13:55.760 What would you want them to do? I would focus 0:13:55.880 --> 0:13:57.160 more on the liquidity side. 0:13:57.679 --> 0:14:01.320 We need to buff up the liquid coverage ratio, I think, 0:14:01.400 --> 0:14:05.520 and maybe have it in place for these banks that 0:14:05.600 --> 0:14:08.560 are fifty or one hundred billion dollars and above, and 0:14:08.640 --> 0:14:12.280 really tweak some of the assumptions within the LCR. 0:14:12.800 --> 0:14:14.880 Right now, one of the. 0:14:15.280 --> 0:14:18.959 Main components of the if we get on the beads weeds, 0:14:18.960 --> 0:14:21.760 one of the main components of the LCR is operational 0:14:21.840 --> 0:14:26.480 deposits versus non operational deposits. We probably need to factor 0:14:26.520 --> 0:14:31.800 in ensured deposits versus uninsured deposits as well, to really 0:14:31.880 --> 0:14:35.800 delineate the fact that these uninsured deposits cannot really be 0:14:35.920 --> 0:14:38.680 counted in times of stress and in times of need. 0:14:40.280 --> 0:14:42.840 So you bring up deposits, and that's a perfect segue 0:14:42.920 --> 0:14:45.880 for my next question. You know, there's currently the cap 0:14:45.920 --> 0:14:49.280 in especially if we have any non US listeners listening 0:14:49.320 --> 0:14:51.760 at the moment, you know, the cap for deposit insurance 0:14:51.840 --> 0:14:54.680 is two hundred and fifty thousand dollars per individual, and 0:14:54.720 --> 0:14:56.960 there's been a lot of talk about floating that up 0:14:57.000 --> 0:15:00.240 to one million or five million, but you know, just 0:15:00.760 --> 0:15:04.520 again in looking at SVB, it wasn't really the I mean, 0:15:04.560 --> 0:15:07.400 there were several firms there that had I think the 0:15:07.440 --> 0:15:10.080 FDIC chairman at one point even said that like something 0:15:10.120 --> 0:15:12.680 like nineteen billion dollars worth of deposits were in the 0:15:12.680 --> 0:15:13.720 top ten accounts. 0:15:14.240 --> 0:15:15.440 You know, is there a. 0:15:17.200 --> 0:15:20.560 Is there a solution that Congress can do, because you know, 0:15:20.640 --> 0:15:24.440 changing FDIC insurance is a is a congressional matter, changing 0:15:24.480 --> 0:15:28.080 the assessment is an FDIC matter, But the actual is 0:15:28.080 --> 0:15:30.320 there a solution that Congress can come up with that 0:15:30.360 --> 0:15:34.920 would actually help a situation like SVB that doesn't just 0:15:35.040 --> 0:15:40.200 also inherently cover all the unsecured deposits across the across 0:15:40.200 --> 0:15:40.680 the country. 0:15:41.480 --> 0:15:43.400 Yeah, that's really a good question. 0:15:43.840 --> 0:15:50.760 I think that increasing the insurance limit the threshold maybe 0:15:51.320 --> 0:15:54.359 a way to calm fears. 0:15:54.400 --> 0:15:57.480 But as you mentioned before, these are. 0:15:57.560 --> 0:16:02.200 Very large deposits of multi million dollars deposits in certain accounts, 0:16:02.240 --> 0:16:06.800 and I don't think that increasing it to a million 0:16:06.840 --> 0:16:11.160 dollars really makes a big difference. I think the upshot 0:16:11.200 --> 0:16:14.400 is that banks really need to be more conservative with 0:16:14.480 --> 0:16:19.000 the way they manage the balance sheet, way they manage 0:16:19.080 --> 0:16:22.960 interest rate risks, everything. You don't want to give the 0:16:23.080 --> 0:16:27.600 positors a reason to leave the bank. So all of 0:16:27.640 --> 0:16:30.120 this suggests to us that banks will be much more 0:16:30.120 --> 0:16:35.359 conservative with the way they manage their investment securities portfolio. 0:16:35.880 --> 0:16:40.200 They'll probably hedge their assets both on the loans and 0:16:40.280 --> 0:16:46.440 security sides a bit more to really protect themselves against 0:16:46.440 --> 0:16:51.920 interest rate movements, and increase capital, increase liquidity standards. All 0:16:51.960 --> 0:16:56.600 of those things should create a more conservative bank and 0:16:56.640 --> 0:17:00.280 a more conservative banking system, so the powers would have 0:17:00.400 --> 0:17:04.000 less reason to leave to join a competitor. 0:17:04.600 --> 0:17:07.080 And my last question before I turn it back to Elliott, 0:17:07.600 --> 0:17:11.359 you know the failure of Silicon Valley Bank is going 0:17:11.400 --> 0:17:15.160 to cost the FDIC insurance fund the diff if you will, 0:17:15.240 --> 0:17:18.120 twenty billion, and I saw that signature was around two 0:17:18.119 --> 0:17:20.199 point five billion, and that's got to be made up 0:17:20.200 --> 0:17:22.720 by the banks. So obviously the FDIC said that they're 0:17:22.720 --> 0:17:25.600 going to put out a new assessment for this. You know, 0:17:25.760 --> 0:17:28.560 if the United States were to move forward and change 0:17:28.560 --> 0:17:31.879 deposit insurance, is it the big banks that are going 0:17:31.920 --> 0:17:33.560 to be paying the most for this just because they 0:17:33.600 --> 0:17:36.320 have the higher deposits or can we see this in 0:17:36.359 --> 0:17:37.639 your view across the bloard. 0:17:38.680 --> 0:17:41.920 Yeah, it seems to me based on the commentary from 0:17:42.000 --> 0:17:42.879 the hearings that were in. 0:17:42.880 --> 0:17:47.399 The past a couple of days, is that the. 0:17:48.880 --> 0:17:51.600 Head of the fd I see seemed to suggest that 0:17:51.800 --> 0:17:55.240 that would be a bit more nuanced in terms of 0:17:55.280 --> 0:18:00.520 how they pushed the assessment to the industry. The fact 0:18:00.560 --> 0:18:05.120 that some of these community banks that have no connection 0:18:05.280 --> 0:18:08.840 to SBB or signature and don't operate in the same 0:18:08.840 --> 0:18:11.960 geography as don't operate in the same customer set, could 0:18:12.040 --> 0:18:19.400 be relieved of a higher assessments. So the typical community 0:18:19.440 --> 0:18:25.919 bank is below ten billion in assets, so anything above that, 0:18:26.000 --> 0:18:30.240 probably the rest of the industry collectively would need to 0:18:30.400 --> 0:18:36.240 pay into recall that the diff is already below what 0:18:36.280 --> 0:18:39.960 they want in terms of the coverage. So there was 0:18:40.040 --> 0:18:43.040 already a two basis points increase in the assessment for 0:18:43.119 --> 0:18:46.280 twenty twenty three, and that's only going to go higher 0:18:46.560 --> 0:18:51.960 with a special assessment to really replenish the insurance fund. 0:18:52.960 --> 0:18:55.000 So I have a question maybe for the two of 0:18:55.000 --> 0:18:56.800 you and Hermon, maybe you go first and and you 0:18:56.880 --> 0:18:58.920 chime in, but you know, you were just talking about 0:18:58.920 --> 0:19:01.359 the congressional hearings. I just wanted to get both your 0:19:01.440 --> 0:19:03.880 views on, you know, what you thought of them? Was it? 0:19:04.080 --> 0:19:06.520 You know, it felt like it was more policy actually 0:19:06.600 --> 0:19:09.399 than politics, although there was some politics, as they always is. 0:19:10.359 --> 0:19:12.000 Yeah, a little bit of both. 0:19:12.720 --> 0:19:16.800 We did see some humility from the regulators, specifically a 0:19:16.840 --> 0:19:23.200 Michael Barr, the head of the the FED in terms 0:19:23.240 --> 0:19:27.320 of regulating the banks. He says they're having. 0:19:27.119 --> 0:19:29.439 An assessment in terms of what went wrong, and. 0:19:29.440 --> 0:19:32.960 It seems like there is some blame to the regulators 0:19:32.960 --> 0:19:35.600 and the FED regulators themselves. 0:19:36.760 --> 0:19:39.600 And then policy wise, there was talk about what. 0:19:40.040 --> 0:19:43.560 Comes next in next steps, and the regulators had talked 0:19:43.600 --> 0:19:47.280 about May first with a report that will lay out 0:19:47.359 --> 0:19:52.000 their findings and recommendations. So things seem to be moving 0:19:52.040 --> 0:19:55.439 fairly quickly on that front. So we're really looking forward 0:19:55.440 --> 0:19:58.879 to what the policy makers think about what needs to 0:19:58.920 --> 0:20:01.720 happen next. And maybe Nathan, you can chime in in 0:20:01.800 --> 0:20:02.840 terms of what you expect. 0:20:03.240 --> 0:20:05.439 Yeah, you know, you've seen a million of these, so 0:20:05.680 --> 0:20:07.199 they're very curious to hear your thoughts. 0:20:07.320 --> 0:20:09.440 Yeah, and I watched all five hour or five hours 0:20:09.480 --> 0:20:11.760 and three minutes of the House Financial Services Committee. I 0:20:11.800 --> 0:20:15.720 mean these were working hearings. These were not political hearings. 0:20:15.760 --> 0:20:18.119 I mean, obviously there were you know, like Herman mentioned 0:20:18.160 --> 0:20:20.320 parts of political theater in there, but I think this 0:20:20.440 --> 0:20:23.199 also talks about the strength of the relationship between the 0:20:23.240 --> 0:20:25.480 chairman and ranking member of both the Senate Banking and 0:20:25.520 --> 0:20:29.760 the House Financial Services Committee, because this is a situation 0:20:29.920 --> 0:20:31.560 where it's easy. 0:20:31.240 --> 0:20:35.960 To blame things and there is no one thing. 0:20:36.160 --> 0:20:39.400 You know, you can either blame regulations, you can blame regulators, 0:20:39.400 --> 0:20:42.960 you can BLAMESVB. And with that touch of humility that 0:20:43.080 --> 0:20:45.919 came from the FED and the fdi C and so 0:20:45.960 --> 0:20:48.399 forth like that, there was more of a seriousness to 0:20:48.480 --> 0:20:51.600 this issue. So, you know, I still don't think there's 0:20:51.600 --> 0:20:54.040 going to be a congressional solution to this, because I 0:20:54.040 --> 0:20:56.600 think the FED is going to use its own authority 0:20:56.640 --> 0:20:58.560 to move forward, and I think that may first report 0:20:58.680 --> 0:21:00.399 is going to just show about how the FED is 0:21:00.400 --> 0:21:04.760 going to do it, but certainly a lot less controversy 0:21:05.520 --> 0:21:07.639 in these hearings that I had originally thought there would be. 0:21:07.960 --> 0:21:09.680 What do you think we're going to call this crisis 0:21:09.720 --> 0:21:12.639 like in five years right? I mean the AWAIT crisis 0:21:12.640 --> 0:21:15.280 with all the GFC now the Great Financial Crisis or 0:21:15.359 --> 0:21:19.399 global financial crisis. We had the SNL crisis in the 0:21:19.480 --> 0:21:24.080 early nineties. I guess, what is this the regional bank crisis? 0:21:25.040 --> 0:21:26.200 Herman? Any thoughts? 0:21:26.480 --> 0:21:30.040 Yeah, I think I think regional bank crisis. It's not 0:21:30.440 --> 0:21:32.840 super catchy, but it really gets to the crux of 0:21:32.880 --> 0:21:34.640 the matter than any thoughts. 0:21:34.880 --> 0:21:36.720 You know. I was just thinking, I was trying to 0:21:36.720 --> 0:21:38.720 think of something fun. I saw somebody on Twitter say, 0:21:38.760 --> 0:21:41.520 you know, this was going to be the big hangover weekend, 0:21:41.760 --> 0:21:44.600 you know, just just because it all took place over 0:21:45.119 --> 0:21:47.480 over one weekend. But you know, I think the regional 0:21:47.480 --> 0:21:51.600 bank or you know, maybe the cify something, but it's 0:21:51.640 --> 0:21:53.920 going to be a blurb, you know, I think, is you. 0:21:53.840 --> 0:21:55.320 Know in Herman correct me if you're wrong. 0:21:55.320 --> 0:21:58.760 But it does feel like from the investor community that 0:21:58.880 --> 0:22:01.719 the contagion has been stopped for now, and I certainly 0:22:01.720 --> 0:22:04.760 have seen the White House starting to make statements about 0:22:04.760 --> 0:22:08.399 how they feel like contagent is stopped. So maybe this 0:22:08.640 --> 0:22:10.600 was just a blurb and not something much bigger. I mean, 0:22:10.680 --> 0:22:12.720 especially when it comes to like First Republic. 0:22:13.560 --> 0:22:15.600 I was just gonna ask, you know, you're saying the 0:22:15.600 --> 0:22:18.480 contagion has stopped, but there's new there. You know, there 0:22:18.560 --> 0:22:21.160 have been concerns that there may be like a sort 0:22:21.160 --> 0:22:23.159 of a second wave of bank where I'm sort of 0:22:23.160 --> 0:22:27.000 more slow moving as people moved their money out of 0:22:27.240 --> 0:22:30.000 you know, the Positi accounts that are earning like nothing 0:22:30.480 --> 0:22:32.600 into money market funds or something else. 0:22:32.760 --> 0:22:34.520 Does that wear you at all? 0:22:34.720 --> 0:22:37.679 It worries me more as an earnings issue than a 0:22:37.720 --> 0:22:41.199 solvency issue or an ex extension issue. Banks will manage 0:22:41.240 --> 0:22:44.840 through it. With deposits continuing to decline. We've already seen 0:22:44.880 --> 0:22:47.800 deposits sort of drop last year in twenty twenty two, 0:22:48.440 --> 0:22:51.440 and this is a. 0:22:50.280 --> 0:22:51.199 Continuation of that. 0:22:51.880 --> 0:22:55.359 Given the fact that rates are much higher than they were, 0:22:55.880 --> 0:22:59.640