WEBVTT - Credit Suisse Chaos Could Spread Risk 0:00:01.280 --> 0:00:05.640 This is Bloomberg Business Week Inside from the reporters and 0:00:05.840 --> 0:00:09.400 editors who bring you America's most trusted business magazine, plus 0:00:09.480 --> 0:00:13.640 global business, finance and tech news. The Bloomberg Business Week 0:00:13.680 --> 0:00:18.600 Podcast with Carol Messer and Tim Stenebec from Bloomberg Radio. 0:00:20.680 --> 0:00:23.079 All right, guys, you know you've been listening to Bloomberg, 0:00:23.079 --> 0:00:26.200 watching Bloomberg, checking us out online. You know what's going on. 0:00:26.280 --> 0:00:29.720 Credit suites reeling after that top shareholder ruled out uping 0:00:29.720 --> 0:00:32.680 at stake in the bank, so shares, the credit suees 0:00:32.680 --> 0:00:34.880 having their biggest ever one day sell off in Europe. 0:00:34.880 --> 0:00:37.440 We've seen ADRs down about twenty five percent here in 0:00:37.440 --> 0:00:41.080 the US, the whole banking sector under pressure. So Jess 0:00:41.080 --> 0:00:42.640 and I have been watching that. So let's get to 0:00:42.680 --> 0:00:45.120 our roundtable of what you need to know and kind 0:00:45.120 --> 0:00:47.639 of where we are. So with us is Bloomberg News 0:00:47.640 --> 0:00:50.199 Wall Street reporter Shinelli Basik on the phone in New 0:00:50.280 --> 0:00:54.240 York City. Also with us Bloomberg Intelligence senior Global banks analyst. 0:00:55.200 --> 0:00:57.520 We are talking about Alison Williams. She is on the 0:00:57.520 --> 0:01:00.400 phone from BI headquarters in Princeton, New Jersey. Should only 0:01:00.480 --> 0:01:02.120 want to kick it off with you. So Credit Swie. 0:01:02.120 --> 0:01:05.360 They've been in trouble for a while. How did they 0:01:05.440 --> 0:01:08.479 get here? What's the outlook? What's the most important thing 0:01:08.480 --> 0:01:10.600 that we have to understand about what's going on with 0:01:10.640 --> 0:01:14.080 Credit Suie and its strains right now? Well, the breaking 0:01:14.200 --> 0:01:15.800 things that we have to think about is a few 0:01:15.800 --> 0:01:18.520 things we've recently reported, or just about up an hour 0:01:18.640 --> 0:01:20.920 or so ago that BNP is the first thing we 0:01:21.040 --> 0:01:24.200 learned on of that is reducing counterparty risk in the 0:01:24.240 --> 0:01:28.280 swap market in a significant way. And so do others 0:01:28.440 --> 0:01:31.240 continue to follow up? What does that mean specifically when 0:01:31.240 --> 0:01:34.480 they do that? What does that mean? It means that 0:01:34.560 --> 0:01:38.560 you know, they have these bilateral agreements right swap In 0:01:38.560 --> 0:01:40.720 this case, it's the swap markets that we're talking about, 0:01:41.040 --> 0:01:45.320 and it sounds very esoteric, but it is just financial 0:01:45.360 --> 0:01:49.280 contracts in which credit sez counter party and now they're 0:01:49.320 --> 0:01:53.240 just reducing their exposure to Credit swe being that counterparty. 0:01:53.880 --> 0:01:57.639 Allison can stat me explaining this in a really horrible way, 0:01:57.880 --> 0:02:01.080 but that is what's happening. And the reason that's happening 0:02:01.160 --> 0:02:03.840 is because if something were to happen more drastic to credits, please, 0:02:04.080 --> 0:02:07.480 because remember, people were not necessarily worried about the banks liquidity. 0:02:07.560 --> 0:02:10.119 This is a matter of people worried about the psychology 0:02:10.120 --> 0:02:13.280 here to people pull deposits more. The stock is trading 0:02:13.320 --> 0:02:17.840 at scary lows. Cbs, which are basically insurance contracts that 0:02:18.040 --> 0:02:23.680 ensure against the potential for default, are at record wides here. 0:02:24.040 --> 0:02:26.320 So that's the fear that you're seeing in the market. 0:02:26.639 --> 0:02:29.520 And the news now also is that bank leaders and 0:02:29.600 --> 0:02:32.680 government officials have talked about options that include a public 0:02:32.720 --> 0:02:36.960 statement of support of potential liquidity backstop so people know 0:02:37.040 --> 0:02:39.680 that they're safe and they're supported by the government. And 0:02:39.919 --> 0:02:42.680 ideas that were floated include a separation of the banks 0:02:42.720 --> 0:02:45.840 slipt unit or a tie up that everybody has been 0:02:45.840 --> 0:02:47.840 thinking about a long time in watching for a long time, 0:02:48.160 --> 0:02:51.120 a tie up in some way with ubs, which is 0:02:51.120 --> 0:02:54.040 a long shot, but that's something that they would consider. 0:02:54.120 --> 0:02:56.520 All right, great summary, Allison, come on in on this. 0:02:56.880 --> 0:03:00.400 Is this all about psychology or is this about potential 0:03:01.040 --> 0:03:04.240 you know, fundamental problems that are out there within global banking. 0:03:05.400 --> 0:03:10.280 So it's about the psychology. But the concern is that 0:03:10.560 --> 0:03:14.919 the markets can create a reality and that's I mean, 0:03:15.440 --> 0:03:19.840 that is the concern and I do think, um, you know, 0:03:19.840 --> 0:03:22.920 at Nale's point. You know what a lot of people 0:03:22.960 --> 0:03:26.120 are worried about now with the US banks, the bigger banks, 0:03:26.360 --> 0:03:29.840 is that is that counterparty risk. The one thing I 0:03:29.880 --> 0:03:34.360 would note is that you know, this is not an SVB, 0:03:34.600 --> 0:03:39.280 which happened almost overnight. It was stunning how quickly that happened. 0:03:40.400 --> 0:03:44.600 You know, Credit Suites has had some issues for a 0:03:44.640 --> 0:03:47.480 couple of years, and to be clear, they did raise 0:03:47.560 --> 0:03:50.080 capital in the fourth quarter. All they had, you know, 0:03:50.360 --> 0:03:53.600 very strong capital ratio exiting the air, they had very 0:03:53.600 --> 0:03:57.160 strong liquidity. Uh. You know that the last time that 0:03:57.200 --> 0:04:00.160 we saw a significant stress in the stock was back 0:04:00.160 --> 0:04:02.440 in October, and I think the concerns there were that 0:04:02.840 --> 0:04:05.320 people knew that they had to raise capital, and so 0:04:06.400 --> 0:04:10.000 that was when we saw these very dramatic outflows. There 0:04:10.040 --> 0:04:12.360 was a lot of media attention, There was a lot 0:04:12.360 --> 0:04:15.560 of talk about the health of the bank and that 0:04:15.720 --> 0:04:20.280 manifested in client outflows. They completed their capital raise, they 0:04:20.320 --> 0:04:24.239 got that behind them, they said that things started to study. 0:04:24.279 --> 0:04:31.599 There's some questions around those statements, but the CEO, I 0:04:31.640 --> 0:04:36.320 believe was told Francy Lacois, who's one of our European 0:04:36.360 --> 0:04:40.800 anchors on one of the programs. So I believe it 0:04:40.839 --> 0:04:43.000 was yesterday that they did see inflows on Monday, So 0:04:43.080 --> 0:04:45.960 that's one positive thing, but we really need more than that. 0:04:46.000 --> 0:04:50.440 We need something to boost confidence. The company coming out 0:04:50.440 --> 0:04:52.520 and saying they don't need capital that tends not to 0:04:52.600 --> 0:04:56.200 be supportive of banks chairs so I think that it 0:04:56.320 --> 0:04:59.159 really does. You know, the one biggest investors, so they're 0:04:59.160 --> 0:05:02.320 not stepping in. They had another investor, a longtime investor, 0:05:02.360 --> 0:05:05.240 which sold their stocks. So I think at this point 0:05:05.520 --> 0:05:07.960 it really is up to the regulators to come out 0:05:07.960 --> 0:05:11.400 and say something to calm the market. Sinally, I wanted 0:05:11.440 --> 0:05:14.720 to bring you back in where specifically are other cracks 0:05:14.839 --> 0:05:18.520 forming right now? You know, this is an interesting you're 0:05:18.560 --> 0:05:20.480 asking if there's a fundamental issue or if this is 0:05:20.480 --> 0:05:23.880 a confident issue. And of finance executive, who's the counterparty 0:05:23.880 --> 0:05:26.400 to criticise who I spoke to literally like minutes ago. 0:05:26.800 --> 0:05:29.040 What he was saying was what he's afraid of here 0:05:29.080 --> 0:05:32.800 as the whisper campaign. Remember Silicon Valley Bank, even when 0:05:32.800 --> 0:05:36.599 they lost deposit there was about more than forty billion dollars. Essentially, 0:05:36.600 --> 0:05:40.880 overnight fear can cause bank runs. That is the worry, 0:05:41.480 --> 0:05:44.320 and the worry here is that the market will look 0:05:44.320 --> 0:05:46.720 for cracks, and then they will take those cracks and 0:05:46.880 --> 0:05:50.880 they will break them wide open again. We can't say 0:05:50.920 --> 0:05:53.040 that's happening. You don't want to cause that to be happening. 0:05:53.040 --> 0:05:55.760 But investors right now because of the by the way, 0:05:55.800 --> 0:05:58.800 I remember the markets have experienced an extraordinary amount of 0:05:58.800 --> 0:06:02.280 pain already. And remember their credit sleet as a globally 0:06:02.360 --> 0:06:06.400 systemic financial institution with tentacles across the entire globe, not 0:06:06.480 --> 0:06:09.760 only with wealth management. Clients have big institutions. They've been 0:06:09.760 --> 0:06:14.679 big lenders to corporations, and so you know, even if 0:06:15.920 --> 0:06:19.839 they're reduced presence here causes a strain in the market 0:06:20.000 --> 0:06:22.680 because they were such a big player. And even the 0:06:22.720 --> 0:06:25.840 counterparties who are reducing risk right now are saying, we 0:06:25.920 --> 0:06:30.160 hate this because it means we're concentrating our risk to 0:06:30.200 --> 0:06:33.280 a smaller number of banks, and that sucks. All right, 0:06:33.320 --> 0:06:35.920 So let's go to that, Allison. I'm looking at JP Morgan, 0:06:36.000 --> 0:06:38.520 down almost six percent as lows. It's still down about 0:06:38.520 --> 0:06:41.520 five percent in today's session. I guess my first question 0:06:41.640 --> 0:06:43.120 is do we have to be worried at all about 0:06:43.160 --> 0:06:46.160 JP Morgan or Bank of America or City or Goldman 0:06:46.279 --> 0:06:49.200 any of those big banks at this point, and as 0:06:49.240 --> 0:06:52.080 a result of what's going on, do they just get stronger, 0:06:52.200 --> 0:06:57.440 bigger and the like. So it does seem that the 0:06:57.560 --> 0:07:01.279 latter is the more likely case. Uh. And in fact, 0:07:01.400 --> 0:07:05.359 one thing that you know, one thing I think that 0:07:05.480 --> 0:07:08.400 needs to become more clear in the coming days or 0:07:08.440 --> 0:07:11.240 week is exactly what is going to be the policy 0:07:11.320 --> 0:07:14.640 on insurance deposits here in the US. So we have 0:07:14.720 --> 0:07:21.320 to failed banks where depositors are outrightly insured now, so 0:07:21.400 --> 0:07:23.400 there is a question in terms of is that the 0:07:23.440 --> 0:07:29.080 precedent that does that effectively mean all US deposits are insured? 0:07:29.720 --> 0:07:33.640 And um, you know, that sort of an interesting angle, 0:07:33.840 --> 0:07:37.040 you know, if you think about that versus some of 0:07:37.040 --> 0:07:40.120 the other countries. You know, does that make the US banks, 0:07:40.120 --> 0:07:43.240 which have been a safe haven have gained share in 0:07:43.280 --> 0:07:47.320 the training businesses because of their stronger balance sheets? You know, 0:07:47.400 --> 0:07:51.720 does that make them even stronger internationally? From a local perspective, 0:07:53.120 --> 0:07:57.280 you know, JP, Morgan Bank, America, Wells Fargo, these are 0:07:57.480 --> 0:08:00.840 banks that are in all the local markets. You know, 0:08:01.120 --> 0:08:03.440 wild Smarco does have the asset cap, They're not as 0:08:03.480 --> 0:08:06.520 well positioned. City Group is as much smaller in terms 0:08:06.520 --> 0:08:08.840 of the branch network. So it's really JP Morgan and 0:08:08.880 --> 0:08:10.920 Bank of America that are in a lot of these 0:08:10.960 --> 0:08:14.880 markets with these smaller regional banks, and as I said 0:08:14.880 --> 0:08:18.560 that they are insured or backstopped, but I think people 0:08:18.600 --> 0:08:22.120 will still look and think about putting their money in 0:08:22.160 --> 0:08:24.120 a stronger bank. Into the extent they're doing that in 0:08:24.120 --> 0:08:27.480 local markets, it's really JP Morgan and bancam America that 0:08:27.560 --> 0:08:31.840 look to be best positioned on that front. Sationally, we 0:08:32.000 --> 0:08:34.400 just with Alson talking about when you're looking at the 0:08:34.480 --> 0:08:36.960 bigger banks, which on ones could potentially hold up better. 0:08:37.000 --> 0:08:38.640 But I was curious as far as when you're looking 0:08:38.679 --> 0:08:41.640 at the banking industry in general, where are you seeing 0:08:41.720 --> 0:08:45.560 potential types of industries that might be less scathed more 0:08:45.640 --> 0:08:50.000 so than others. You know, It's the reason that's such 0:08:50.040 --> 0:08:53.400 an interesting question is because think about it this way. 0:08:53.480 --> 0:08:56.320 You have a market right now where investors are sorely burned, 0:08:56.559 --> 0:09:00.600 and investors in this market today are being earned that 0:09:00.760 --> 0:09:04.120 one out drastically last year. These are the quants. These 0:09:04.120 --> 0:09:06.200 are the hedge fund managers that were macro traders. These 0:09:06.200 --> 0:09:07.640 are the people that made a lot of money off 0:09:07.640 --> 0:09:10.000 a volatile market that are now feeling a lot of pain. 0:09:10.320 --> 0:09:13.959 Why does that matter? Because when the investors feel pain, 0:09:14.480 --> 0:09:18.000 it's very difficult for them to redeploy more money into 0:09:18.120 --> 0:09:21.240 different trades. And so there you start to have like 0:09:21.280 --> 0:09:23.719 a ripple effect here of the pressure on pricing when 0:09:23.760 --> 0:09:26.240 you look at the market, and so I think that, 0:09:26.640 --> 0:09:29.040 you know, I'm biased, right, a cover hedge funds, so right, 0:09:29.040 --> 0:09:32.760 I watched them really closely, and so I think about 0:09:32.800 --> 0:09:35.280 where the pain starts, and then we're an infult trades 0:09:35.640 --> 0:09:38.280 and so you have to here, here's what my sources 0:09:38.280 --> 0:09:42.679 are saying. What is safety? Is it gold? Right? Because 0:09:42.679 --> 0:09:46.080 even the treasury market is looking really scary out there. Yeah, 0:09:46.120 --> 0:09:48.920 I mean it's really kind of remarkable. Hey, Allison, thirty 0:09:48.920 --> 0:09:51.439 seconds left here. You talked earlier about like regulators having 0:09:51.440 --> 0:09:53.800 to come out. Do we need Jay Powell? We know 0:09:53.840 --> 0:09:55.360 there's a FED beeting next week to come out and 0:09:55.400 --> 0:10:00.160 say guys were on it more to come. Don't you 0:10:00.200 --> 0:10:03.280 worried or something? Just quickly? I mean I feel like 0:10:03.320 --> 0:10:05.439 the Fed did that right. They did that when they 0:10:05.480 --> 0:10:07.320 said we're going to week that we're going to protect 0:10:07.360 --> 0:10:09.719 the depositors and we're going to put this backstop in 0:10:09.800 --> 0:10:14.400 place for a year. They basically said look, we're you know, 0:10:14.440 --> 0:10:18.040 shutting down the immediate risks. Yeah, and we recognize that 0:10:18.120 --> 0:10:20.200 there is an issue, and so well we'll see what 0:10:20.240 --> 0:10:22.240 more they have to say. You guys, I know you've 0:10:22.280 --> 0:10:25.200 had busy days, busy weeks, and we so appreciate you 0:10:25.440 --> 0:10:27.160 just kind of setting the stage for us on this 0:10:27.200 --> 0:10:29.480 Wednesday of all that is going on and it's just 0:10:29.640 --> 0:10:32.480 you know, happening in real time. Alison Williams, Senior Global 0:10:32.520 --> 0:10:35.560 Banks Analyst at Bloomberg Intelligence from BI headquarters in Princeton, 0:10:35.559 --> 0:10:38.200 New Jersey, Shinoli Bossak while shoot your reporter at Bloomberg 0:10:38.240 --> 0:10:41.160 News on the phone in New York City. This is Bloomberg. 0:10:41.559 --> 0:10:45.080 You're listening to the Bloomberg Business Week Podcast. Catch us 0:10:45.160 --> 0:10:48.439 live weekday afternoons from three to six Eastern Listen on 0:10:48.600 --> 0:10:51.840 Bloomberg dot Com, the Ion Radio app, and the Bloomberg 0:10:51.920 --> 0:10:56.040 Business App, or watch us live on YouTube. I want 0:10:56.040 --> 0:10:57.920 to get right to our guests. Bill Isaac is a 0:10:58.000 --> 0:11:00.520 former chairman of the fdi C there during the eighties 0:11:00.679 --> 0:11:04.320 nineteen eighties when some three thousand banks and thrifts failed. 0:11:04.360 --> 0:11:07.240 He's now chairman of the consulting firm Secura Isaac and 0:11:07.320 --> 0:11:09.760 a member of the boards of directors of Immigrant Bank 0:11:09.840 --> 0:11:12.160 and New York Private Bank and Trust who joins us 0:11:12.200 --> 0:11:15.559 via Zoom from Sarasota, Florida built So nice to have 0:11:15.720 --> 0:11:18.400 you here with us. How do you see what is 0:11:18.440 --> 0:11:21.079 going on? Silicon Valley Bank, three regional banks in the 0:11:21.120 --> 0:11:24.720 past week here in the US collapsing, You got credit suites. 0:11:24.960 --> 0:11:29.160 Is this great financial crisis banking breakdown two point zero 0:11:29.400 --> 0:11:33.280 or something different? We don't know what it is right now. 0:11:33.440 --> 0:11:37.760 And you know it's it's not a surprise that these 0:11:37.800 --> 0:11:42.520 things are happening. Why Why Well, because the federal government 0:11:42.600 --> 0:11:44.679 has been out of control for a long time. It 0:11:45.160 --> 0:11:48.920 just reminds me very much of the of the nineteen 0:11:49.440 --> 0:11:53.360 eighties when I was chairman of the sci C of 0:11:53.480 --> 0:11:58.439 late seventies and through the eighties. We had guns and 0:11:58.559 --> 0:12:02.559 butter approach in the nineteen sixties with the Vietnam War 0:12:02.720 --> 0:12:06.679 that was not paid for by taxes and big deficits, 0:12:07.480 --> 0:12:10.680 and we had the Great Society programs went in Johnson 0:12:11.559 --> 0:12:14.600 and note they were not paid for, So we had 0:12:14.800 --> 0:12:20.880 very very high budget deficits, and we had a very accommodating, 0:12:20.960 --> 0:12:28.000 will say, loose fed policies, monetary policies and that led 0:12:28.080 --> 0:12:32.240 to a decade or more of very high inflation, and 0:12:32.480 --> 0:12:36.160 finally Paul Boker was appointed chairman in nineteen seventy nine. 0:12:36.400 --> 0:12:39.560 I was appointed in the FDIC in nineteen seventy eight, 0:12:40.240 --> 0:12:44.719 and we worked together. But Paul Boker was determined in 0:12:44.800 --> 0:12:47.240 the FENDER was determined to bring down inflation, and they did. 0:12:47.679 --> 0:12:49.719 They raised ridge very high, and that led to all 0:12:49.800 --> 0:12:53.720 sorts of problems. And we're repeating that period right now. 0:12:53.760 --> 0:12:55.480 I don't I don't know how long it's going to last. 0:12:55.559 --> 0:12:58.160 I don't know how many firms it's going to happen, 0:12:58.160 --> 0:12:59.719 but I do think we're trying to chanke your bill. 0:12:59.760 --> 0:13:03.760 If things are different us right, what specifically is different 0:13:03.840 --> 0:13:07.160 this time around is the issue because of specifically depositors. 0:13:09.080 --> 0:13:14.680 What's different about about the depositors? In your mind, well, 0:13:14.800 --> 0:13:18.839 the issue surrounding depositors with those FDIC limits. Also usually 0:13:18.920 --> 0:13:21.080 when you'd think back, that was more geared toward individuals, 0:13:21.120 --> 0:13:23.840 but now you're dealing with companies. Is that the hurdle 0:13:23.960 --> 0:13:26.640 this time around versus in past crises that you've seen. 0:13:27.640 --> 0:13:30.679 I don't. I don't think that's materially different. Uh, we 0:13:30.800 --> 0:13:33.520 had a lot more depositors back then, in terms of 0:13:33.679 --> 0:13:37.200 numbers and numbers of banks, we had thirteen thousand banks 0:13:37.240 --> 0:13:39.480 when I was Cairman of the FDIC, and now we 0:13:39.559 --> 0:13:43.760 have about forty five hundred banks. And but we I mean, 0:13:43.920 --> 0:13:45.760 I'm not saying that things aren't different there. It's a 0:13:45.800 --> 0:13:48.760 lot of different things today, but some of the things 0:13:48.800 --> 0:13:52.319 are not different. Let's take let's sake s B, the 0:13:52.679 --> 0:13:57.319 Silicone Valley Bank, that's not new at all. That's that 0:13:57.559 --> 0:13:59.800 I mean, they were doing new types of financing, but 0:14:00.280 --> 0:14:04.520 it was the same problem. We had a crisis we 0:14:04.600 --> 0:14:08.319 had in nineteen seventy nine with First Pennsylvania Bank, the 0:14:08.440 --> 0:14:12.839 largest bank in Pennsylvania, the oldest national chartered bank in 0:14:13.200 --> 0:14:16.920 the country, and they've decided they had a great idea, 0:14:17.200 --> 0:14:21.560 let's invest in government bombs, which they did. They loaded 0:14:21.680 --> 0:14:25.280 up on government bombs at fixed rates. And then Paul 0:14:25.320 --> 0:14:27.600 Boker became Chairman of the FED and decided he was 0:14:27.640 --> 0:14:31.840 going to raise rates very high and kill inflation. So 0:14:32.480 --> 0:14:34.920 history has shown us that we've been here before, is 0:14:34.960 --> 0:14:37.200 basically what you're saying. We've been here before. And why 0:14:37.280 --> 0:14:39.680 these guys did this again, I don't know. It was 0:14:39.760 --> 0:14:43.320 not very smart. Well, so then do you fault regulators here? 0:14:43.480 --> 0:14:46.080 You were a former regulator? I mean, is it regulators 0:14:46.120 --> 0:14:49.760 in the United States elsewhere, FED, FDIC, Treasury and Moore 0:14:49.840 --> 0:14:53.320 that have to some extent once again failed us. Yeah, 0:14:53.400 --> 0:14:57.360 I'm not trying to pick on anybody, but this is 0:14:57.440 --> 0:15:01.000 primarily the problem of a bank banks that had a 0:15:01.160 --> 0:15:03.720 board of directors that was not doing its job properly, 0:15:04.240 --> 0:15:06.480 and a bank that had managements that was not doing 0:15:06.560 --> 0:15:10.200 its job properly. And they and they did a bunch 0:15:10.240 --> 0:15:12.640 of things that they should not have done, and they 0:15:12.680 --> 0:15:16.720 weren't they and it failed. And now we're trying to 0:15:16.800 --> 0:15:20.080 clean it up, and and the FDIC and the FED 0:15:20.120 --> 0:15:22.880 and so horror will clean it up. This is not 0:15:23.040 --> 0:15:26.240 something we haven't done before, even in bigger ways than this. 0:15:26.800 --> 0:15:30.600 So we will clean it up. And should we faulter regulators, 0:15:30.680 --> 0:15:34.040 of course we should. The regulators did not do their job. 0:15:34.080 --> 0:15:38.720 As this bank grew in two years from sixty billion 0:15:38.800 --> 0:15:41.520 in size to over two hundred billion dollars in size. 0:15:41.840 --> 0:15:44.480 That's insane. So it is that a red fleix. So 0:15:44.600 --> 0:15:48.240 help help us out here because oversight obviously lacking. So 0:15:48.440 --> 0:15:53.800 what stones should we as analysts, as investors, as regulators 0:15:53.880 --> 0:15:57.040 be overturning what balance sheets? What sectors are the financial system? 0:15:57.080 --> 0:15:59.080 Would you be focusing right now and asking lots of 0:15:59.160 --> 0:16:03.440 questions about since we've already missed some big things. The 0:16:04.040 --> 0:16:07.240 red flags were out here. You tripled the size of 0:16:07.320 --> 0:16:09.080 the more than tripled the size of the bank in 0:16:09.160 --> 0:16:13.480 two years. That is a huge red flag that every regulator, 0:16:13.600 --> 0:16:16.640 every analyst, every board member, everybody ought to be on 0:16:16.760 --> 0:16:20.680 top of. Why is this thing growing tripling in two years? 0:16:21.200 --> 0:16:24.800 That's that's that's a huge red flag. And and I 0:16:24.920 --> 0:16:26.840 don't know how. I don't know how they got away 0:16:26.880 --> 0:16:30.800 with it, frankly, without being without being brought down faster 0:16:30.960 --> 0:16:34.040 and sooner. I mean, I really don't understand. Yeah, how 0:16:34.160 --> 0:16:36.960 this took so long to find? Bill, we only have 0:16:37.200 --> 0:16:39.400 about twenty seconds left. Could you tell us should the 0:16:39.480 --> 0:16:41.760 FDIC limit of two hundred and fifty thousand dollars? Should 0:16:41.760 --> 0:16:45.120 that be changed? I'm sorry to do. What should the 0:16:45.200 --> 0:16:47.880 FDIC limit be changed of two hundred and fifty thousand dollars? 0:16:47.880 --> 0:16:49.440 So as they kind of look forward and think about 0:16:49.440 --> 0:16:51.320 maybe what we should be doing differently. I think there's 0:16:51.320 --> 0:16:53.720 been a lot of conversation about that two hundred and 0:16:53.720 --> 0:16:57.480 fifty thousand deposit levels. Should that be changed in your view? Well, 0:16:57.520 --> 0:17:00.200 I shouldn't. I don't believe it should be increased. It was, 0:17:01.000 --> 0:17:03.240 it was I think it was forty when I arrived 0:17:03.280 --> 0:17:05.200 at the FDIC, and then it went to one hundred, 0:17:05.200 --> 0:17:08.080 and that went to two fifty. And I don't see 0:17:08.119 --> 0:17:10.680 why it keeps on growing. But there's one thing that 0:17:10.800 --> 0:17:13.440 we really could do, and that is we need to 0:17:13.520 --> 0:17:19.359 pay attention to non interest bearing business accounts. Those those, 0:17:19.440 --> 0:17:22.840 in my opinion, should have much more coverage, much more protection. 0:17:23.760 --> 0:17:25.840 We need to do that because that money is not 0:17:25.960 --> 0:17:29.879 hot money. It's it's money that's been supporting payrolls and 0:17:30.000 --> 0:17:33.320 business and you know, and we really should not have 0:17:33.480 --> 0:17:36.360 that money running and so I believe that we really 0:17:36.440 --> 0:17:39.080 need to pay attention to that. I recommended that when 0:17:39.119 --> 0:17:41.480 I was at the FDIC before I left, that we 0:17:41.600 --> 0:17:46.040 needed to increase coverage on nine interest bearing business accounts. 0:17:46.080 --> 0:17:49.000 That would be very, very helpful to the economy when 0:17:49.080 --> 0:17:51.840 times gets tough. Well, so appreciate your perspective. I know 0:17:51.880 --> 0:17:54.320 it's a busy day for everybody, including yourself. So Bill, 0:17:54.359 --> 0:17:56.960 thank you so much. Be While Bill Isaac, He's former 0:17:57.040 --> 0:17:59.800 chairman of the FDI, see chairman of Secure at ISAAC. 0:18:00.600 --> 0:18:03.440 It is a consulting firm and, as we mentioned, on 0:18:03.520 --> 0:18:07.000 the board of directors of a few banks. You're listening 0:18:07.119 --> 0:18:10.760 to the Bloomberg Business Week podcast. Catch us live weekday 0:18:10.760 --> 0:18:14.240 afternoons from three to six Eastern on Bloomberg Radio, the 0:18:14.359 --> 0:18:17.880 Bloomberg Business app, and YouTube. You can also listen live 0:18:18.000 --> 0:18:21.159 on Amazon Alexa from our flagship New York station, Jo 0:18:21.320 --> 0:18:26.560 Say Alexa play Bloomberg eleven thirty. All right, everybody, we 0:18:26.640 --> 0:18:28.840 are going to talk about budgets. It's certainly it's on 0:18:28.920 --> 0:18:31.000 the minds of many consumers. We saw that play out 0:18:31.040 --> 0:18:33.240 a little bit in the retail sales numbers today. It's 0:18:33.280 --> 0:18:36.000 not just about global banks, although that is obviously very 0:18:36.119 --> 0:18:39.440 important US retail sales. We got a data point this morning. 0:18:39.520 --> 0:18:41.320 Jess has been talking about it. We all have been 0:18:41.960 --> 0:18:45.120 US retail sales falling in February after surgeon the prior months, 0:18:45.160 --> 0:18:48.679 suggesting consumers spending while holding up is getting challenged by 0:18:48.760 --> 0:18:52.480 high inflation. The value of overall retail purchases decreased four 0:18:52.520 --> 0:18:55.080 tens of a percent after revised three point two percent 0:18:55.160 --> 0:18:58.840 advance in January. Back out gasoline and autos retail sales 0:18:58.840 --> 0:19:01.800 were flat. So let's get into what's going on with 0:19:01.880 --> 0:19:04.520 retail and the health of the consumer with us Katie Thomas. 0:19:04.640 --> 0:19:07.760 She's lead at Carney Consumer Institute, their consulting firms. She 0:19:07.920 --> 0:19:11.879 joins us via zoom from Pittsburgh, Pennsylvania. Katie, nice to 0:19:11.960 --> 0:19:15.080 have you here with Jess and myself. So retailers and 0:19:15.240 --> 0:19:19.040 retail getting tired, getting nervous? Are consumers running out of 0:19:19.160 --> 0:19:22.520 money to spend? How are you seeing it? You know 0:19:22.840 --> 0:19:25.200 right now, I'm still not that nervous. I've been pretty 0:19:25.240 --> 0:19:27.560 bullish on the consumer, and I say that way. You know, 0:19:27.640 --> 0:19:30.320 we talked to consumers about their spend over the last 0:19:30.359 --> 0:19:32.440 six months. Two out of three said they were still 0:19:32.520 --> 0:19:35.000 spending the same or they were still buying the same 0:19:35.040 --> 0:19:38.440 products and services despite the price increases. They're saying that 0:19:38.600 --> 0:19:41.080 continue to be pinched. But today's number is given that 0:19:41.160 --> 0:19:44.359 they were flat X gas and auto, it's actually pretty 0:19:44.400 --> 0:19:47.080 reasonable for February, you know, when you take into account 0:19:47.160 --> 0:19:50.760 weather sort of removing the hangover of January numbers, New 0:19:50.840 --> 0:19:53.560 Year's resolutions and all of that. So I think, you know, 0:19:53.680 --> 0:19:56.800 you're seeing consumers are making trade offs. So are they 0:19:56.880 --> 0:20:00.720 evaluating some degree of pullback perhaps, but what they're really 0:20:00.800 --> 0:20:04.480 doing is making trade offs across their wallet and across sectors, 0:20:04.960 --> 0:20:07.280 rather than feeling like they have to have some massive 0:20:07.440 --> 0:20:10.920 pullback and spend overall. Something I was curious about is 0:20:11.200 --> 0:20:14.240 the goods versus services equation. Are you've seeing any changes 0:20:14.440 --> 0:20:18.200 continuing on that front a little bit? I mean, that's 0:20:18.320 --> 0:20:20.920 a great example is looking at the restaurant number there, 0:20:21.000 --> 0:20:23.600 so you're seeing consumers. You know, there was a little 0:20:23.600 --> 0:20:26.560 bit of softness there, down two point two percent versus 0:20:26.680 --> 0:20:29.040 last month. And when we talk to consumers, they said, 0:20:29.080 --> 0:20:31.320 that's actually an area where they like to cook at 0:20:31.359 --> 0:20:34.560 home now, so they can splurge on a nice cut 0:20:34.600 --> 0:20:37.160 of meat, a nice bottle of wine, and they're willing 0:20:37.240 --> 0:20:40.640 to spend on those goods rather than the services. More 0:20:40.760 --> 0:20:44.120 broadly speaking, there's still a little bit of the pandemic 0:20:44.200 --> 0:20:46.399 where we're still happy to be back out and about, 0:20:46.840 --> 0:20:49.080 and really you're seeing a bit more of an investment 0:20:49.119 --> 0:20:53.200 in services from hospitality to concerts and events, and you know, 0:20:53.440 --> 0:20:57.560 kind of supplanting some of the material goods. But you know, 0:20:57.680 --> 0:21:00.040 it's really a mixed bag depending on the consumers in 0:21:00.119 --> 0:21:03.520 their financial situation. So when you talk about the consumer 0:21:03.560 --> 0:21:06.520 and retail though you can't talk about it in a vacuum. 0:21:06.760 --> 0:21:09.000 And so I'm thinking about the newsflow of the past 0:21:09.080 --> 0:21:11.320 week and I haven't heard you mention it. So how 0:21:11.400 --> 0:21:13.960 do you factor that in? Because I feel like we 0:21:14.080 --> 0:21:18.560 were just talking about psychology versus fundamentals. Psychology can affect fundamentals. 0:21:18.680 --> 0:21:22.280 It does impact fundamentals. There's got to be folks out there, 0:21:22.640 --> 0:21:26.080 consumers are saying, I'm getting a little nervous bank runs. Yeah, 0:21:26.080 --> 0:21:28.080 I would have thought I lived through a pandemic and 0:21:28.160 --> 0:21:30.159 now I'm talking about bank runs. This is things that 0:21:30.240 --> 0:21:34.360 people dealt with, you know, a hundred years ago. Yeah, 0:21:34.400 --> 0:21:37.200 I love that psychology fundamentals. I heard you say that 0:21:37.359 --> 0:21:39.720 I may have to steal that. Well. The interesting part 0:21:39.800 --> 0:21:42.800 there is, you know, consumer sentiment has been pretty meek, 0:21:42.960 --> 0:21:45.879 medio good for a while now, but worse than actual 0:21:45.960 --> 0:21:49.320 consumer spend. So I think that's what you're continuing to 0:21:49.400 --> 0:21:51.520 see with the issues with the banks, is you're seeing 0:21:51.560 --> 0:21:55.159 that uncertainty, that frustration. To your point, consumers are like, 0:21:55.280 --> 0:21:58.840 when is all this going to end? So sentiment is mediocre, 0:21:59.200 --> 0:22:03.480 but it's not necessarily driving a huge pullback and spend 0:22:03.720 --> 0:22:06.680 because people like the wage market is still strong, the 0:22:06.800 --> 0:22:09.440 labor market is still strong, so they're still feeling like 0:22:09.520 --> 0:22:11.720 they have money to spend. So some ways, it's sort 0:22:11.720 --> 0:22:14.680