1 00:00:00,800 --> 00:00:04,360 Speaker 1: You're listening to the Bloomberg Sound On podcast. Catch us 2 00:00:04,360 --> 00:00:07,520 Speaker 1: live weekdays at one Eastern on Bloomberg dot com, the 3 00:00:07,600 --> 00:00:10,720 Speaker 1: iHeartRadio app, and the Bloomberg Business App. We're listening on 4 00:00:10,760 --> 00:00:14,880 Speaker 1: demand wherever you get your podcast. Thanks for being with 5 00:00:15,000 --> 00:00:17,960 Speaker 1: us on Bloomberg Sound On. Another Funday from Michael Barr, 6 00:00:18,000 --> 00:00:22,400 Speaker 1: the Fed's Vice Chair for Supervision, for another turn on 7 00:00:22,440 --> 00:00:25,800 Speaker 1: Capitol Hill today, this time before the House Financial Services Committee. 8 00:00:25,800 --> 00:00:29,319 Speaker 1: This after the hours long testimony he gave to the 9 00:00:29,400 --> 00:00:32,680 Speaker 1: Senate yesterday. Opening this morning with a simple message, banking 10 00:00:32,720 --> 00:00:36,800 Speaker 1: system is sound and resilient with strong capital and liquidity. 11 00:00:37,000 --> 00:00:39,159 Speaker 1: Okay that we've heard this a lot. We heard that, 12 00:00:40,040 --> 00:00:42,199 Speaker 1: in fact from the Treasury Secretary. We heard that from 13 00:00:42,200 --> 00:00:44,960 Speaker 1: the President of the United States and the chair of 14 00:00:45,000 --> 00:00:47,879 Speaker 1: the committee, Patrick McHenry, was with us just last week 15 00:00:47,920 --> 00:00:52,920 Speaker 1: here on Bloomberg Again. Republican House Financial Services wanted to 16 00:00:52,960 --> 00:00:56,560 Speaker 1: pick through the timeline. Now, remember this happened over the 17 00:00:56,560 --> 00:01:00,720 Speaker 1: weekend when SVB failed. We'll go back two weeks now, 18 00:01:00,760 --> 00:01:02,720 Speaker 1: and it was the days leading into that weekend that 19 00:01:02,760 --> 00:01:05,959 Speaker 1: we started to hear about problems. The FED was hearing 20 00:01:06,000 --> 00:01:09,319 Speaker 1: about it even earlier, going all the way back to February, 21 00:01:09,319 --> 00:01:11,800 Speaker 1: but those days before the weekend, Patrick mckenry wanted to 22 00:01:11,800 --> 00:01:14,160 Speaker 1: dig in here with all of them, including Michael Barry. 23 00:01:14,200 --> 00:01:17,720 Speaker 1: Yet a staff presentation in February then included Silicon Valley 24 00:01:17,720 --> 00:01:21,840 Speaker 1: Bank and the distress because of rising interest rates on 25 00:01:21,880 --> 00:01:25,559 Speaker 1: their portfolio. What did you do between that February staff 26 00:01:25,600 --> 00:01:29,119 Speaker 1: presentation to you and the week of March sixth about 27 00:01:29,120 --> 00:01:34,119 Speaker 1: Silicon Valley Bank staff presented on the interest rate risk. Yes, 28 00:01:34,200 --> 00:01:36,360 Speaker 1: that's what I said. That was a February presentation. What 29 00:01:36,400 --> 00:01:39,040 Speaker 1: did you do as vice chair of supervision between that 30 00:01:39,120 --> 00:01:41,919 Speaker 1: time and the bank the week of the bank failure? 31 00:01:42,240 --> 00:01:45,760 Speaker 1: Staff indicated that they were completing their review of the 32 00:01:45,760 --> 00:01:48,480 Speaker 1: bank and of this broader horizontal review at that time, 33 00:01:48,520 --> 00:01:50,480 Speaker 1: and I was waiting for the results of that review. 34 00:01:50,720 --> 00:01:53,440 Speaker 1: Were you aware of Silicon Valley Bank raising capital the 35 00:01:53,480 --> 00:01:57,480 Speaker 1: week of March sixth? I believe I became aware of 36 00:01:57,520 --> 00:02:00,280 Speaker 1: that in this email that I described to you Thursday 37 00:02:00,320 --> 00:02:03,280 Speaker 1: morning morning that they had successfully raised the capital, but 38 00:02:03,360 --> 00:02:07,360 Speaker 1: they had they're facing financial distress. I was not aware 39 00:02:08,320 --> 00:02:11,239 Speaker 1: Thursday morning that there were deposit outflows. I was trying 40 00:02:11,280 --> 00:02:13,080 Speaker 1: to finish the answer to that question. I was aware 41 00:02:13,080 --> 00:02:16,560 Speaker 1: of the difficulty Wednesday night in raising capital, but the 42 00:02:16,600 --> 00:02:20,600 Speaker 1: bank was reporting to supervisor's Thursday morning that deposits were stable. 43 00:02:20,800 --> 00:02:23,720 Speaker 1: When did you become aware of the deposit flows? And 44 00:02:23,960 --> 00:02:27,720 Speaker 1: Thursday Thursday afternoon, late afternoon I became aware of deposit 45 00:02:27,760 --> 00:02:30,799 Speaker 1: flows and Thursday evening that there was essentially a bank run, 46 00:02:31,040 --> 00:02:33,720 Speaker 1: like I said, another funday for Michael Barr talking about 47 00:02:33,720 --> 00:02:37,240 Speaker 1: the bank run with Patrick McHenry, Who knew what when? 48 00:02:37,880 --> 00:02:40,280 Speaker 1: And the line of questioning leads us to this idea 49 00:02:40,360 --> 00:02:42,640 Speaker 1: here that the Fed knew that we had a real 50 00:02:42,720 --> 00:02:46,520 Speaker 1: problem at SVB, and as John Tester said yesterday in 51 00:02:46,520 --> 00:02:49,560 Speaker 1: the Senate, you had the hammer, it just didn't drop it. 52 00:02:50,760 --> 00:02:52,720 Speaker 1: And that's where we start with John Rizzo, senior vice 53 00:02:52,760 --> 00:02:55,480 Speaker 1: president of public Affairs the Claude Group, spent time as 54 00:02:55,560 --> 00:02:58,239 Speaker 1: spokesperson for the US Treasury Department and joins us here 55 00:02:58,320 --> 00:03:01,480 Speaker 1: on Bloomberg's sound on John ippre your time. Here is 56 00:03:01,520 --> 00:03:05,680 Speaker 1: Patrick McHenry driving in the right direction on this. Well, 57 00:03:05,760 --> 00:03:08,600 Speaker 1: certainly there's got to be a part of this where 58 00:03:08,639 --> 00:03:12,799 Speaker 1: we figure out who knew what when and what actions 59 00:03:13,280 --> 00:03:18,079 Speaker 1: did federal officials take when they realize that SEB was 60 00:03:18,120 --> 00:03:21,240 Speaker 1: in trouble. As we get into this more, I think 61 00:03:21,280 --> 00:03:23,640 Speaker 1: we're going to find that there are probably multiple points 62 00:03:23,639 --> 00:03:26,840 Speaker 1: of failure here, both failure on the part of the 63 00:03:26,840 --> 00:03:31,839 Speaker 1: financial institution, but also more that regulators and overseers could 64 00:03:31,840 --> 00:03:38,480 Speaker 1: have done to intervene when signs of trouble emerged. What's 65 00:03:38,480 --> 00:03:40,520 Speaker 1: it going to lead to, John, Because there's not a 66 00:03:40,560 --> 00:03:43,120 Speaker 1: great expectation that Congress is going to do much here. 67 00:03:43,160 --> 00:03:45,400 Speaker 1: Maybe you disagree, or is this up to regulators to 68 00:03:45,480 --> 00:03:50,320 Speaker 1: fix if it does require tightening regulations, Yeah, I think 69 00:03:50,360 --> 00:03:53,760 Speaker 1: the most likely scenario is that regulators will have to 70 00:03:53,800 --> 00:04:01,000 Speaker 1: take action to increase oversight. We may have a congressional 71 00:04:01,000 --> 00:04:04,440 Speaker 1: bill that comes together, but as you indicated, that's going 72 00:04:04,480 --> 00:04:08,400 Speaker 1: to be very difficult to move through a divided Congress. 73 00:04:09,360 --> 00:04:13,440 Speaker 1: Congress should, though, endeavor to try, because ultimately, the most 74 00:04:13,560 --> 00:04:18,600 Speaker 1: durable solutions were ones that lead to long standing change 75 00:04:18,800 --> 00:04:22,240 Speaker 1: are ones that come through Congress, and so the economy 76 00:04:22,279 --> 00:04:25,480 Speaker 1: would be better off and more secure if Congress were 77 00:04:25,520 --> 00:04:29,440 Speaker 1: to come together on this. Michael Barr interesting in his 78 00:04:29,520 --> 00:04:32,920 Speaker 1: opening statement here during his testimony, after using the words 79 00:04:32,920 --> 00:04:34,840 Speaker 1: you have to say sound and resilient. Now that is 80 00:04:34,839 --> 00:04:39,160 Speaker 1: apparently the message from the administration and the fed the Treasury. 81 00:04:39,200 --> 00:04:40,880 Speaker 1: If you used to have that job, you know how 82 00:04:40,920 --> 00:04:43,760 Speaker 1: this works. Sound and resilient, But he went on to 83 00:04:43,839 --> 00:04:45,719 Speaker 1: say that more should have been done. Listen. At the 84 00:04:45,760 --> 00:04:48,800 Speaker 1: same time, the events of the last few weeks raised 85 00:04:48,839 --> 00:04:51,280 Speaker 1: questions about what more can be done and should be 86 00:04:51,320 --> 00:04:55,480 Speaker 1: done so that isolated banking problems do not undermine confidence 87 00:04:55,760 --> 00:04:58,880 Speaker 1: in healthy banks and threaten the stability of the banking 88 00:04:58,880 --> 00:05:01,240 Speaker 1: system as a whole. What's getting out there, John, What 89 00:05:01,320 --> 00:05:06,280 Speaker 1: more should have been done, if not just simply acting earlier? Yeah, So, 90 00:05:06,680 --> 00:05:10,080 Speaker 1: I think part of the communications challenge that federal officials 91 00:05:10,240 --> 00:05:13,520 Speaker 1: based in this scenario is that the words carry a 92 00:05:13,560 --> 00:05:18,520 Speaker 1: substantial weight, and the market is listening to every styllable 93 00:05:18,560 --> 00:05:23,440 Speaker 1: and so there's a need to project confidence and strength 94 00:05:23,480 --> 00:05:27,680 Speaker 1: in the banking system, which is rooted in fact. But 95 00:05:28,360 --> 00:05:31,279 Speaker 1: there's also a need to be clear at this point 96 00:05:31,320 --> 00:05:34,719 Speaker 1: that something went wrong and that we're going through a 97 00:05:34,839 --> 00:05:38,080 Speaker 1: process to try to figure out what that is and 98 00:05:38,160 --> 00:05:41,120 Speaker 1: what could be done to prevent it happening again. More 99 00:05:41,240 --> 00:05:45,919 Speaker 1: oversight is one option. There may be additional rules that 100 00:05:46,080 --> 00:05:50,160 Speaker 1: Congress needs to pass to increase oversights here as well. 101 00:05:50,560 --> 00:05:53,640 Speaker 1: So I think we're in a fact binding process and 102 00:05:53,680 --> 00:05:56,400 Speaker 1: that can be frustrating for the public because we all 103 00:05:56,440 --> 00:05:59,839 Speaker 1: want answers really quickly, but it is going to take time. 104 00:06:00,400 --> 00:06:03,120 Speaker 1: And it is true that the underlying strength of the 105 00:06:03,160 --> 00:06:06,400 Speaker 1: banking system remains in tast Well, if that's the case, 106 00:06:06,480 --> 00:06:09,960 Speaker 1: then you're not worried about contagion. It sounds like, John, 107 00:06:10,000 --> 00:06:14,760 Speaker 1: what needs to be done other than do your job better? Well, 108 00:06:14,880 --> 00:06:19,159 Speaker 1: certainly there's going to be a recommitment by regulators to 109 00:06:19,720 --> 00:06:26,400 Speaker 1: examining these institutions. But there's been have been debate about 110 00:06:26,560 --> 00:06:30,279 Speaker 1: reforms that were passed in twenty eighteen, whether those contributed 111 00:06:30,720 --> 00:06:36,839 Speaker 1: to the crisis, or whether actions by the individual bankers 112 00:06:36,880 --> 00:06:40,919 Speaker 1: at seb UH maybe showed a lack of care for 113 00:06:41,080 --> 00:06:44,320 Speaker 1: risk management. So all of those three things are going 114 00:06:44,360 --> 00:06:47,360 Speaker 1: to have to be examined. Now we know that in 115 00:06:48,160 --> 00:06:56,880 Speaker 1: financial system, a free market system, bank failures can't happen there. Yeah, no, 116 00:06:56,960 --> 00:06:59,360 Speaker 1: it's good. I'm not I'm not getting arrested if you 117 00:06:59,400 --> 00:07:01,240 Speaker 1: get on the air. I'm not. I'm not going to 118 00:07:01,320 --> 00:07:07,359 Speaker 1: hang up on all right. That sounds good. So the 119 00:07:07,520 --> 00:07:10,800 Speaker 1: go forward here, We're waiting for May first, that's when 120 00:07:10,840 --> 00:07:14,920 Speaker 1: the fed's internal review is released. Does anything happen between 121 00:07:14,920 --> 00:07:18,000 Speaker 1: now and then, well, I think there's gonna be a 122 00:07:18,000 --> 00:07:21,520 Speaker 1: lot of study, review and debate, and I think we're 123 00:07:21,520 --> 00:07:24,960 Speaker 1: going to have to wait until May first to get 124 00:07:25,000 --> 00:07:28,760 Speaker 1: more information. That'll be unsatisfying because there's a need in 125 00:07:28,880 --> 00:07:33,080 Speaker 1: urgent situations like this to get information right away. But 126 00:07:33,640 --> 00:07:35,840 Speaker 1: the review takes time for a reason. I think there'll 127 00:07:35,880 --> 00:07:38,720 Speaker 1: be a lot of internal debate within all parts of 128 00:07:38,840 --> 00:07:41,000 Speaker 1: government to try to figure out what is needed to 129 00:07:41,000 --> 00:07:46,120 Speaker 1: make sure this doesn't happen again. Yeah. Boy, it's hard 130 00:07:46,160 --> 00:07:48,080 Speaker 1: to tell where we're going on this. Because you wait 131 00:07:48,120 --> 00:07:50,280 Speaker 1: till May, a lot of things can happen. John, they're 132 00:07:50,280 --> 00:07:52,720 Speaker 1: talking about the first Twitter bank run in history. The 133 00:07:52,760 --> 00:07:55,280 Speaker 1: fact that this moves so quickly in Congress is yeah, 134 00:07:55,360 --> 00:07:57,080 Speaker 1: you know, I'll get back to you the second half 135 00:07:57,120 --> 00:08:00,560 Speaker 1: of the year. Yeah. No, it's it's out a sign 136 00:08:00,600 --> 00:08:02,920 Speaker 1: and there is, listen to be honest, an element of 137 00:08:03,000 --> 00:08:05,840 Speaker 1: danger to it because we saw it. Here was a 138 00:08:05,880 --> 00:08:10,960 Speaker 1: bank that had distressed, but that stress was exacerbated by 139 00:08:11,320 --> 00:08:16,080 Speaker 1: social media and rumors that circulated. And we're kind of 140 00:08:16,120 --> 00:08:19,520 Speaker 1: trying to figure out now in this current times, the 141 00:08:19,560 --> 00:08:22,760 Speaker 1: way that information moves so quickly and sometimes in an 142 00:08:23,160 --> 00:08:27,360 Speaker 1: unverified way, how is it that we can be sure 143 00:08:27,480 --> 00:08:33,320 Speaker 1: that institutions don't experience these runs, but we've seen over 144 00:08:33,360 --> 00:08:38,520 Speaker 1: the last few weeks. Yeah, it's a modern conundrum. And listen, 145 00:08:38,520 --> 00:08:40,760 Speaker 1: I don't think we have a good answer for it yet. 146 00:08:41,520 --> 00:08:43,680 Speaker 1: Part of it is, you know, people are on their 147 00:08:43,679 --> 00:08:46,720 Speaker 1: phones and they're looking at Twitter, TikTok, and they're hearing 148 00:08:46,760 --> 00:08:49,880 Speaker 1: information and they're reaction to it. So to some degree, 149 00:08:50,960 --> 00:08:53,360 Speaker 1: it's a it's kind of a societal problem that we 150 00:08:53,400 --> 00:08:57,160 Speaker 1: haven't gotten our arms around. Lastly, John, with what you 151 00:08:57,200 --> 00:09:00,400 Speaker 1: know here, do you believe that the officials running that bank, 152 00:09:00,440 --> 00:09:04,240 Speaker 1: specifically SVB, we'll just talk about that individual bank for now, 153 00:09:04,360 --> 00:09:09,480 Speaker 1: knew what trouble they were in before we all did. Well, 154 00:09:09,679 --> 00:09:11,440 Speaker 1: there's no question. I think if you look at the 155 00:09:11,480 --> 00:09:14,720 Speaker 1: fast pattern over the last well last week, it was 156 00:09:14,760 --> 00:09:18,079 Speaker 1: clear that they since they had some problem, and it's 157 00:09:18,120 --> 00:09:20,880 Speaker 1: clear that they didn't spend enough time investing in their 158 00:09:21,200 --> 00:09:26,080 Speaker 1: risk management infrastructure. But we also know that the kind 159 00:09:26,080 --> 00:09:30,080 Speaker 1: of social media element of this grove of them fasted 160 00:09:30,080 --> 00:09:34,240 Speaker 1: and anyone had anticipated. So I don't think we know 161 00:09:34,320 --> 00:09:37,680 Speaker 1: the ultimate answer right now of exactly what happened or 162 00:09:37,679 --> 00:09:40,600 Speaker 1: exactly who knew what where, But I do think Loubi 163 00:09:40,679 --> 00:09:42,959 Speaker 1: gets to the full answer. We're going to find multiple 164 00:09:43,000 --> 00:09:46,280 Speaker 1: points of failure and that's something Congress and regulators are 165 00:09:46,280 --> 00:09:49,880 Speaker 1: going to have an obligation to fix. I appreciate the time, 166 00:09:49,960 --> 00:09:52,959 Speaker 1: John Rizzo, thanks for the insights. John Senior, VP Public 167 00:09:53,000 --> 00:09:55,320 Speaker 1: Affairs the Clyde Group used to be spokesperson for the 168 00:09:55,440 --> 00:09:58,000 Speaker 1: US Treasury. Have to meet you at the lunch card 169 00:09:58,080 --> 00:10:01,120 Speaker 1: next time. I'm Joe Matthew would Washington. This is Bloomberg 170 00:10:01,160 --> 00:10:03,679 Speaker 1: sound on. Let's assemble the panel, and here from Rick 171 00:10:03,720 --> 00:10:07,160 Speaker 1: Davis and Jeanie Schanzano, Bloomberg Politics contributors on me two 172 00:10:07,640 --> 00:10:10,440 Speaker 1: of the hearings we're watching, so you don't have to, 173 00:10:10,559 --> 00:10:12,080 Speaker 1: as we like to say, and I just want to 174 00:10:12,080 --> 00:10:15,360 Speaker 1: start with both of you on the matter of regulation. 175 00:10:15,440 --> 00:10:18,440 Speaker 1: We talked to French Hill, the Congressman from Arkansas, fairly 176 00:10:18,480 --> 00:10:21,640 Speaker 1: off and here on Bloomberg. He's on that panel, he's 177 00:10:21,679 --> 00:10:25,320 Speaker 1: on that committee, and he was asking Michael Barr specifically 178 00:10:25,559 --> 00:10:28,920 Speaker 1: about the rollback of certain conditions in Dodd Frank that 179 00:10:28,960 --> 00:10:31,600 Speaker 1: we've talked about a lot in twenty eighteen, and whether 180 00:10:31,640 --> 00:10:33,280 Speaker 1: in fact that had something to do with this, because 181 00:10:33,320 --> 00:10:36,240 Speaker 1: you know, Democrats say rebuild Dodd Frank and this won't 182 00:10:36,240 --> 00:10:39,319 Speaker 1: happen again. Listen this issue of Dodd Frank versus S 183 00:10:39,400 --> 00:10:43,480 Speaker 1: twenty one fifty five. You know, my reading of bank law, 184 00:10:44,080 --> 00:10:46,840 Speaker 1: just those things are just almost not important compared to 185 00:10:46,880 --> 00:10:51,240 Speaker 1: twelve USC. Eighteen eighteen on Ceason's Assist, where the FDIC, 186 00:10:51,960 --> 00:10:54,160 Speaker 1: the primary bank regulator of the state, can do whatever 187 00:10:54,200 --> 00:10:56,240 Speaker 1: they want to a bank that's not operating in a 188 00:10:56,280 --> 00:11:00,320 Speaker 1: safe and sound manner. Isn't that right, mister Barr? The 189 00:11:00,320 --> 00:11:04,520 Speaker 1: the bank regulators have substantial discretion to use those authorities 190 00:11:04,640 --> 00:11:07,360 Speaker 1: when banks are operating and it's an unsafe and unstound manner. 191 00:11:07,400 --> 00:11:09,520 Speaker 1: I agree with that. Okay, a little bit of jargon there, 192 00:11:09,559 --> 00:11:12,720 Speaker 1: remembering swenty one fifty five was the Senate bill that 193 00:11:12,840 --> 00:11:15,560 Speaker 1: undid some of those parts, rolled back some of those 194 00:11:15,600 --> 00:11:19,960 Speaker 1: parts of Dodd Frank. Genie, did Michael Barr just agree 195 00:11:20,559 --> 00:11:23,920 Speaker 1: that this had nothing to do with the SVB bank failure? Well, 196 00:11:24,040 --> 00:11:26,240 Speaker 1: you know, I thought it was fascinating that all three 197 00:11:26,320 --> 00:11:29,280 Speaker 1: of the regulators seem to agree to a certain extent 198 00:11:29,360 --> 00:11:32,320 Speaker 1: with Elizabeth Warren when she talks about the need for 199 00:11:32,440 --> 00:11:35,319 Speaker 1: strengthening regulations. But I think what this is going to 200 00:11:35,400 --> 00:11:39,080 Speaker 1: come down to and where we find Democrats, because there 201 00:11:39,240 --> 00:11:42,480 Speaker 1: is a good variety up there. If you look at 202 00:11:42,480 --> 00:11:44,840 Speaker 1: the Senate between somebody like John Tester and somebody like 203 00:11:44,880 --> 00:11:48,480 Speaker 1: Elizabeth Warren on this, not to mention the Republicans is 204 00:11:48,520 --> 00:11:51,440 Speaker 1: gonna be When did the Fed know what was going 205 00:11:51,480 --> 00:11:54,640 Speaker 1: on at SVB and did they fall short on the job? 206 00:11:55,080 --> 00:11:57,400 Speaker 1: In other words, was this a failure of regulation in 207 00:11:57,440 --> 00:12:00,560 Speaker 1: addition to management or do they really need to strengthen 208 00:12:00,600 --> 00:12:03,520 Speaker 1: these regulations, because I think Warren may find more friends 209 00:12:03,880 --> 00:12:07,400 Speaker 1: if they do confirm that it was not enough regulation 210 00:12:07,480 --> 00:12:10,720 Speaker 1: in place versus a failure of these regulators to act 211 00:12:10,760 --> 00:12:13,040 Speaker 1: when they knew what was going wrong. It's pretty hard 212 00:12:13,040 --> 00:12:15,079 Speaker 1: to get consensus on this, of course, Rick, We've talked 213 00:12:15,120 --> 00:12:16,880 Speaker 1: to a lot of lawmakers about it. How do you 214 00:12:16,920 --> 00:12:19,199 Speaker 1: read Michael Barr's answer on that, because he seemed pretty 215 00:12:19,200 --> 00:12:21,199 Speaker 1: clear about it. Yeah, I thought he was too. And 216 00:12:22,000 --> 00:12:24,360 Speaker 1: the whole hearing kind of bore that out. When you 217 00:12:24,440 --> 00:12:26,920 Speaker 1: look at the timeline that they had out there. You 218 00:12:26,960 --> 00:12:30,280 Speaker 1: know where the supervisors were finding deficiencies back in the 219 00:12:30,360 --> 00:12:33,320 Speaker 1: end of twenty twenty one. It wasn't for lack of 220 00:12:34,000 --> 00:12:39,800 Speaker 1: legal statutory power to do that. They did it, and 221 00:12:39,840 --> 00:12:41,680 Speaker 1: they were doing it in a normal course of business. 222 00:12:41,679 --> 00:12:45,960 Speaker 1: They after the twenty one fifty five had passed, and 223 00:12:46,000 --> 00:12:51,760 Speaker 1: so one fifty five clearly didn't prohibit the regulators from 224 00:12:51,800 --> 00:12:55,439 Speaker 1: identifying weakness at this bank. Then you can start blaming 225 00:12:55,520 --> 00:12:59,600 Speaker 1: regulators and blaming bank management for kicking the can to 226 00:12:59,679 --> 00:13:04,200 Speaker 1: the point where the bank came down. But I'm really 227 00:13:04,240 --> 00:13:07,559 Speaker 1: not sure it's really directly related to the legislation, and 228 00:13:08,120 --> 00:13:12,720 Speaker 1: I do think there is a bipartisan nature to future legislation. 229 00:13:12,760 --> 00:13:15,040 Speaker 1: I think, you know, Elizabeth Warren's working with Rick Scott. 230 00:13:15,120 --> 00:13:18,600 Speaker 1: That doesn't happen every day for an ig within the FED, 231 00:13:19,320 --> 00:13:21,240 Speaker 1: which makes some sense based on the fact that the 232 00:13:21,240 --> 00:13:24,120 Speaker 1: FED did not seem to be taking the appropriate action 233 00:13:24,160 --> 00:13:26,760 Speaker 1: at the right time. You know, there they identified the problem, 234 00:13:26,800 --> 00:13:30,080 Speaker 1: but they didn't do anything about it. So what's going 235 00:13:30,120 --> 00:13:32,480 Speaker 1: to be the takeaway in this may first report here? 236 00:13:32,520 --> 00:13:34,040 Speaker 1: Is it going to be more of that genie? Is 237 00:13:34,080 --> 00:13:35,520 Speaker 1: the FED going to say, boy, you know what, we 238 00:13:36,120 --> 00:13:38,480 Speaker 1: really should have acted sooner we knew what was going on. 239 00:13:39,040 --> 00:13:41,960 Speaker 1: Obviously the executives at SVB were in the wrong. We 240 00:13:42,040 --> 00:13:44,200 Speaker 1: know that that's not in dispute now, but the FED 241 00:13:44,240 --> 00:13:47,080 Speaker 1: should have acted with the authority that it was granted earlier. 242 00:13:47,200 --> 00:13:49,880 Speaker 1: Maybe that rollback took their eye off the ball, but 243 00:13:49,960 --> 00:13:53,600 Speaker 1: they had the clear authority to do something, so maybe 244 00:13:53,640 --> 00:13:56,439 Speaker 1: there should be an independent review. The question is, well, 245 00:13:56,480 --> 00:13:59,360 Speaker 1: who would do it? I'm Joe Matthew and Washington on 246 00:13:59,400 --> 00:14:03,160 Speaker 1: this second day of bank failure hearings in Washington. The 247 00:14:03,280 --> 00:14:06,200 Speaker 1: US House gets its turn, and we've got the best 248 00:14:06,200 --> 00:14:08,280 Speaker 1: panel in the business to help us understand what we 249 00:14:08,400 --> 00:14:11,800 Speaker 1: just heard. Rick Davis and Gen Chanzano, Bloomberg Politics contributors, 250 00:14:12,520 --> 00:14:16,480 Speaker 1: following another interesting exercise on Capitol Hill, Rick, what's your 251 00:14:16,520 --> 00:14:19,560 Speaker 1: thought on this? You know, the FED is well investigating 252 00:14:19,600 --> 00:14:21,680 Speaker 1: itself basically in this case. You know that there will 253 00:14:21,720 --> 00:14:24,960 Speaker 1: be investigations coming out of the committees, which actually could 254 00:14:25,000 --> 00:14:28,240 Speaker 1: be fruitful. But what about an outside investigation? How does 255 00:14:28,280 --> 00:14:31,680 Speaker 1: that happen? Does the President appoint someone or where will 256 00:14:31,720 --> 00:14:34,160 Speaker 1: we go? Yeah? I think it's worth noting that the 257 00:14:34,200 --> 00:14:37,400 Speaker 1: FED is launching its own investigation, but the ig at 258 00:14:37,400 --> 00:14:40,160 Speaker 1: the FED is actually launching his own investigation of the FED. 259 00:14:40,280 --> 00:14:44,200 Speaker 1: So there are two FedEx investigations going on about each other. 260 00:14:44,280 --> 00:14:46,680 Speaker 1: So it'll be interesting to see how consistent the two 261 00:14:46,720 --> 00:14:50,800 Speaker 1: of those are. I believe the first report will get 262 00:14:50,840 --> 00:14:55,160 Speaker 1: in May first from the FED itself, and it'll take 263 00:14:55,200 --> 00:14:57,920 Speaker 1: another few months after that for the IG to report. 264 00:14:58,000 --> 00:15:01,400 Speaker 1: So we're gonna we're gonna get a stream of information 265 00:15:01,480 --> 00:15:04,400 Speaker 1: from them. And I think that the proper role of 266 00:15:04,440 --> 00:15:09,400 Speaker 1: Congress is to do their own investigation, especially right now, 267 00:15:09,440 --> 00:15:13,440 Speaker 1: because as we discussed in the last segment, we really 268 00:15:13,440 --> 00:15:17,880 Speaker 1: don't know how many underlying banks might be like SVB 269 00:15:18,200 --> 00:15:20,480 Speaker 1: and have these kinds of situations where they might be 270 00:15:20,520 --> 00:15:23,040 Speaker 1: undercapitalized or they might have a lot of interest rate risk. 271 00:15:23,440 --> 00:15:26,680 Speaker 1: I'm sure that the regulators are scrambling to survey banks, 272 00:15:26,720 --> 00:15:29,600 Speaker 1: but they weren't prepared today when Brad Sherman asked them 273 00:15:29,600 --> 00:15:31,840 Speaker 1: the straight up question, have you surveyed the banks and 274 00:15:31,880 --> 00:15:34,160 Speaker 1: are there others in trouble? And they said, well, we'll 275 00:15:34,160 --> 00:15:37,840 Speaker 1: get back to you. That's not a good answer two 276 00:15:37,840 --> 00:15:40,840 Speaker 1: weeks after one of the biggest banks in America got 277 00:15:41,000 --> 00:15:44,560 Speaker 1: taken down. So I think Congress should do their thing. 278 00:15:44,600 --> 00:15:46,840 Speaker 1: I'm not sure you need some kind of an independence 279 00:15:46,840 --> 00:15:51,960 Speaker 1: you don't necessarily outside just in concepts. Yeah how about Yeah, 280 00:15:52,000 --> 00:15:54,160 Speaker 1: you know. I wasn't open to it at the beginning, 281 00:15:54,160 --> 00:15:56,720 Speaker 1: but I think what we're looking at here is two things. 282 00:15:56,800 --> 00:15:59,960 Speaker 1: Number One, we do need the information on exactly what happened, 283 00:16:00,120 --> 00:16:02,680 Speaker 1: so we do need to know. But the other part 284 00:16:02,680 --> 00:16:06,160 Speaker 1: of this is confidence, the confidence of the American public 285 00:16:06,560 --> 00:16:09,880 Speaker 1: in terms of what is found, and that is where 286 00:16:09,920 --> 00:16:14,400 Speaker 1: I think an independent investigation and independent spotlight on this 287 00:16:14,840 --> 00:16:18,960 Speaker 1: might be potentially helpful. I do think that Congress is 288 00:16:19,040 --> 00:16:22,240 Speaker 1: the primary charge here in terms of exercising its oversight 289 00:16:22,280 --> 00:16:25,840 Speaker 1: authority to look, but I do worry about the confidence aspect. 290 00:16:25,920 --> 00:16:28,360 Speaker 1: So I would not be opposed and again I was 291 00:16:28,400 --> 00:16:30,320 Speaker 1: a couple of weeks ago, but I would not be 292 00:16:30,360 --> 00:16:33,800 Speaker 1: opposed to an independent investigation for those reasons, because I 293 00:16:33,840 --> 00:16:37,000 Speaker 1: do think the confidence in the system is critical at 294 00:16:37,040 --> 00:16:40,640 Speaker 1: this point, as critical as finding out exactly what happened 295 00:16:40,680 --> 00:16:42,920 Speaker 1: and ensuring that it doesn't happen again. How do you 296 00:16:42,960 --> 00:16:45,840 Speaker 1: actually make it independent? Does Joe Biden appoint some sort 297 00:16:45,840 --> 00:16:49,760 Speaker 1: of outside investigator? Is there a special counsel? What do 298 00:16:49,800 --> 00:16:52,200 Speaker 1: we call it? Yeah, you'd need to go to recruit 299 00:16:52,240 --> 00:16:55,400 Speaker 1: Ben Bernanke to come back and get a bunch of 300 00:16:55,440 --> 00:16:58,840 Speaker 1: gray beards to sit around, and and and you're going 301 00:16:58,880 --> 00:17:01,280 Speaker 1: to spend a lot of times staffing that up and 302 00:17:01,280 --> 00:17:03,960 Speaker 1: and and and again this is a time sensitive issue. 303 00:17:04,000 --> 00:17:07,160 Speaker 1: I mean, we have people in place today, trade investigators 304 00:17:07,160 --> 00:17:11,199 Speaker 1: and all these regulatory committees of Congress who could go 305 00:17:11,400 --> 00:17:13,920 Speaker 1: and are already doing it for the last two weeks. 306 00:17:13,920 --> 00:17:17,840 Speaker 1: So I think speed is utmost important. If someone then 307 00:17:17,880 --> 00:17:21,679 Speaker 1: wants to say, outside of the current crisis, um, you know, 308 00:17:21,720 --> 00:17:24,479 Speaker 1: what do we need to be doing for reform? I 309 00:17:24,520 --> 00:17:27,680 Speaker 1: think a not an investigation, but a committee put together 310 00:17:27,720 --> 00:17:30,919 Speaker 1: to analyze that in a nonpartisan way is probably not 311 00:17:30,960 --> 00:17:33,240 Speaker 1: a bad idea. But this has not become too much 312 00:17:33,280 --> 00:17:36,879 Speaker 1: of a partisan football yet. There's still cooperation between parties, 313 00:17:36,880 --> 00:17:38,719 Speaker 1: and I think that's the best way to get legislation, 314 00:17:39,200 --> 00:17:42,359 Speaker 1: which is John Rizzo earlier in the program said, you know, 315 00:17:42,440 --> 00:17:47,639 Speaker 1: Congress can create more permanent change. That is what you 316 00:17:47,800 --> 00:17:51,480 Speaker 1: need for stability within the regulations in a banking community. 317 00:17:51,640 --> 00:17:54,400 Speaker 1: Thomas and Stephen Lynch got to the matter of speed here, Genie, 318 00:17:54,720 --> 00:17:56,720 Speaker 1: you know the first so called Twitter bank run as 319 00:17:56,760 --> 00:17:58,920 Speaker 1: the chairman of qut at Patrick McHenry, and he was 320 00:17:58,960 --> 00:18:01,840 Speaker 1: talking to Martin Ruenberg from the FDIC list. Is there 321 00:18:01,960 --> 00:18:04,919 Speaker 1: something more that we need to be doing now? Because 322 00:18:04,960 --> 00:18:08,920 Speaker 1: of the velocity of money, people can move their money 323 00:18:08,920 --> 00:18:13,000 Speaker 1: out like that, and we equipped the FDIC has a 324 00:18:13,000 --> 00:18:17,000 Speaker 1: long and strong history, but is something new and different 325 00:18:17,080 --> 00:18:21,199 Speaker 1: needed to protect us from that phenomenon? In Congressman, I 326 00:18:21,200 --> 00:18:23,640 Speaker 1: think that's an important question to ask. I think we 327 00:18:23,680 --> 00:18:28,440 Speaker 1: are dealing with with a different environment. And the point 328 00:18:28,520 --> 00:18:31,760 Speaker 1: you raise, in terms of how quickly money can move 329 00:18:32,160 --> 00:18:35,840 Speaker 1: with the technology enables now that exceeds what's occurred in 330 00:18:35,880 --> 00:18:38,520 Speaker 1: the past, is a new risk factor that we have 331 00:18:38,600 --> 00:18:41,160 Speaker 1: to think about. Okay, So there you have the question 332 00:18:41,359 --> 00:18:44,399 Speaker 1: and the answer. That's the regulator who could potentially handle 333 00:18:44,400 --> 00:18:47,600 Speaker 1: this the outside of legislation at least when I hear 334 00:18:47,640 --> 00:18:51,400 Speaker 1: that the genie, it sounds to me like we have 335 00:18:51,560 --> 00:18:55,320 Speaker 1: no idea. How in the world are you going to 336 00:18:55,400 --> 00:18:58,719 Speaker 1: slow down the velocity is Stephen Lynch put it on Twitter, 337 00:18:59,600 --> 00:19:02,160 Speaker 1: that's right, And that was I think a stunning part 338 00:19:02,280 --> 00:19:04,800 Speaker 1: for me and I think for many people listening. When 339 00:19:04,960 --> 00:19:08,200 Speaker 1: a bar revealed that when we had previously been told 340 00:19:08,240 --> 00:19:12,159 Speaker 1: it was forty two billion withdrawn in that limited period, 341 00:19:12,200 --> 00:19:16,200 Speaker 1: it was a staggering one hundred billion. It is a 342 00:19:16,280 --> 00:19:20,719 Speaker 1: stunning number. And the enormity of that, coupled with the 343 00:19:20,760 --> 00:19:24,000 Speaker 1: fact that you then have the regulators themselves saying boy, 344 00:19:24,080 --> 00:19:26,520 Speaker 1: this is a new risk. That is right. We've never 345 00:19:26,560 --> 00:19:29,439 Speaker 1: seen this that is right, and yet very little they 346 00:19:29,480 --> 00:19:32,760 Speaker 1: could offer in terms of how to ensure today, tomorrow, 347 00:19:32,880 --> 00:19:35,719 Speaker 1: next week, it doesn't happen again. And I think, you know, 348 00:19:35,760 --> 00:19:38,120 Speaker 1: this gets back to something you were talking about earlier. 349 00:19:38,400 --> 00:19:41,480 Speaker 1: It's really challenging for these regulators. They have to at 350 00:19:41,520 --> 00:19:44,199 Speaker 1: the one hand try to assure the market and the 351 00:19:44,240 --> 00:19:47,720 Speaker 1: American public that everything is safe and express confidence, and 352 00:19:47,760 --> 00:19:50,359 Speaker 1: at the same hand, at the same time rather delve 353 00:19:50,359 --> 00:19:53,679 Speaker 1: into the problems that occurred. And walking that line is 354 00:19:53,680 --> 00:19:57,200 Speaker 1: a tough communication challenge, and at some points I felt 355 00:19:57,200 --> 00:19:59,280 Speaker 1: in the last couple of days at least they sort 356 00:19:59,320 --> 00:20:02,680 Speaker 1: of missed the mark. And that was one example of that. Rick. 357 00:20:02,920 --> 00:20:06,639 Speaker 1: We can hardly get a TikTok bill, Well, it's hardly. 358 00:20:06,800 --> 00:20:11,560 Speaker 1: It hasn't passed Mark Warner's searching for supporters. It may 359 00:20:11,600 --> 00:20:15,080 Speaker 1: not become law. How how could you possibly write legislation 360 00:20:15,119 --> 00:20:18,320 Speaker 1: that would slow down the relationship between social media and banking. 361 00:20:18,800 --> 00:20:21,800 Speaker 1: The banks themselves are advertising this right, get the app 362 00:20:21,840 --> 00:20:24,280 Speaker 1: on your phone, you can move money in a heartbeat. 363 00:20:24,280 --> 00:20:26,639 Speaker 1: They're not going to move back from that. Yeah, I agree. 364 00:20:26,720 --> 00:20:29,360 Speaker 1: I think we're looking at this totally differently. I think 365 00:20:29,359 --> 00:20:30,680 Speaker 1: the thing you got to figure out is how do 366 00:20:30,720 --> 00:20:34,680 Speaker 1: you speed up federal regulation and these these these these 367 00:20:34,720 --> 00:20:39,399 Speaker 1: guys who are supposedly keeping the American trust in the 368 00:20:39,480 --> 00:20:43,280 Speaker 1: system to a scenario that is not new today, the 369 00:20:43,320 --> 00:20:45,439 Speaker 1: idea that you have a regulator tasting Yeah, we're just 370 00:20:45,440 --> 00:20:48,359 Speaker 1: trying to play catch up. This been going on for 371 00:20:48,560 --> 00:20:52,720 Speaker 1: two decades. What are they going to catch up? We've 372 00:20:52,720 --> 00:20:55,760 Speaker 1: seen this in crypto, We've seen this in other derivatives. 373 00:20:56,000 --> 00:20:58,880 Speaker 1: We've seen this now in the banking system. We have 374 00:20:59,000 --> 00:21:01,800 Speaker 1: a federal government that is still in the twentieth century 375 00:21:02,119 --> 00:21:05,119 Speaker 1: while they're regulating businesses that are pushing the envelope in 376 00:21:05,119 --> 00:21:07,200 Speaker 1: the twenty first century. That's not going to change before 377 00:21:07,200 --> 00:21:10,800 Speaker 1: this banking crisis ends. Genius. No, that's not going to change. 378 00:21:10,880 --> 00:21:14,000 Speaker 1: And that's the reality of American government. And this is 379 00:21:14,000 --> 00:21:16,760 Speaker 1: the problem that we have is that, you know, you 380 00:21:16,840 --> 00:21:19,800 Speaker 1: not only have people that are not you did not 381 00:21:19,920 --> 00:21:22,640 Speaker 1: grow up in this system necessarily in charge and don't 382 00:21:22,720 --> 00:21:25,160 Speaker 1: understand it as we hear and a lot of these 383 00:21:25,200 --> 00:21:27,639 Speaker 1: back and forth in these hearings that we cover, but 384 00:21:27,760 --> 00:21:31,040 Speaker 1: also you have a government designed to work very slowly, 385 00:21:31,359 --> 00:21:33,720 Speaker 1: so you know, I think Rick is right when he says, 386 00:21:33,760 --> 00:21:36,000 Speaker 1: you know, we should have the regulators catch up to this. 387 00:21:36,080 --> 00:21:39,600 Speaker 1: But the reality is the government never catches up on this. 388 00:21:39,720 --> 00:21:42,400 Speaker 1: It is the private sector that does this, and then 389 00:21:42,480 --> 00:21:45,200 Speaker 1: the government is, you know, playing catch up, and it's 390 00:21:45,240 --> 00:21:47,680 Speaker 1: a dangerous game to play. And you know, I think 391 00:21:47,680 --> 00:21:49,399 Speaker 1: if there's one thing out of these hearings that we 392 00:21:49,480 --> 00:21:52,040 Speaker 1: hear over and over again, it's them scratching their heads 393 00:21:52,080 --> 00:21:54,119 Speaker 1: that well, you know, this is a problem, we're not 394 00:21:54,200 --> 00:21:57,120 Speaker 1: quite sure what to do about it. That doesn't instill confidence. 395 00:21:57,400 --> 00:21:59,440 Speaker 1: Stephen Lynch also got to something I wanted to ask 396 00:21:59,480 --> 00:22:01,480 Speaker 1: you both about our last couple of minutes here on 397 00:22:01,520 --> 00:22:05,360 Speaker 1: this topic. And you know, we talk about the companies 398 00:22:05,359 --> 00:22:07,680 Speaker 1: that had to make payroll, you know, the multi billion 399 00:22:07,720 --> 00:22:12,440 Speaker 1: dollar deposits that were being held by entrepreneurs in Silicon 400 00:22:12,520 --> 00:22:16,840 Speaker 1: Valley bank. Stephen Lynch is talking about the impact on 401 00:22:17,040 --> 00:22:19,960 Speaker 1: low income voters and he's got a lot of them 402 00:22:19,960 --> 00:22:22,160 Speaker 1: in his district. This is Massachusetts, and it goes south 403 00:22:22,200 --> 00:22:25,720 Speaker 1: of Boston into areas like Brockton, where you know, low 404 00:22:25,720 --> 00:22:29,359 Speaker 1: income housing is a is a major story. Listen to 405 00:22:30,119 --> 00:22:33,040 Speaker 1: Stephen Lynch talking to the regulators the bank crisis might 406 00:22:33,119 --> 00:22:38,200 Speaker 1: be over, It's not over in my district with all 407 00:22:38,240 --> 00:22:40,679 Speaker 1: these families, all these low income families that are that 408 00:22:40,720 --> 00:22:44,480 Speaker 1: are struggling. You know, I got cities like Brockton, Massachusetts. 409 00:22:45,320 --> 00:22:47,480 Speaker 1: We got a great mayor. They're doing a wonderful job 410 00:22:47,480 --> 00:22:50,440 Speaker 1: and they're really they're all going in the right direction 411 00:22:50,600 --> 00:22:53,280 Speaker 1: and as well as Boston and Quinsy and others. But 412 00:22:54,000 --> 00:22:56,800 Speaker 1: we need help. We need to resolve this. So, mister Groenberg, 413 00:22:57,040 --> 00:23:01,800 Speaker 1: I need a commitment from you, sir, that you need 414 00:23:01,840 --> 00:23:04,240 Speaker 1: to come to Brockton. You need to come to Brockton 415 00:23:04,280 --> 00:23:06,320 Speaker 1: in my district. Yeah, and we need to work this 416 00:23:06,480 --> 00:23:10,560 Speaker 1: through so that we provide the kind of protection for 417 00:23:10,920 --> 00:23:13,760 Speaker 1: low income families. He did agree, by the way, to 418 00:23:13,800 --> 00:23:18,159 Speaker 1: make the trip Brockton. Baby, Maybe Quinzy Genie, is this 419 00:23:18,240 --> 00:23:21,960 Speaker 1: even part of the conversation in Washington right now? It 420 00:23:22,080 --> 00:23:25,560 Speaker 1: absolutely should be. I missed that Boston accent, and I 421 00:23:25,600 --> 00:23:28,199 Speaker 1: hope they do go. And you couple that with the 422 00:23:28,280 --> 00:23:31,719 Speaker 1: amount of money that the management at SVB and at 423 00:23:31,760 --> 00:23:33,840 Speaker 1: Signature we're taking home, and we know that they're going 424 00:23:33,880 --> 00:23:36,400 Speaker 1: to probably land in trouble for that. There'll be some CLAUBATX. 425 00:23:36,720 --> 00:23:38,880 Speaker 1: But you couple those two things. This should be a 426 00:23:39,000 --> 00:23:42,680 Speaker 1: major part of this discussion, and I'm glad he raised 427 00:23:42,680 --> 00:23:45,760 Speaker 1: this issue. Rick Davis and Gene Schanzano with us here 428 00:23:45,800 --> 00:23:50,080 Speaker 1: on Bloomberg sound On. You're listening to the Bloomberg sound 429 00:23:50,160 --> 00:23:54,119 Speaker 1: On podcast. Catch the program live weekdays at one Eastern 430 00:23:54,280 --> 00:23:57,479 Speaker 1: on Bloomberg Radio, the tune in app, Bloomberg dot Com, 431 00:23:57,520 --> 00:24:00,040 Speaker 1: and the Bloomberg Business App. You can also listen and 432 00:24:00,200 --> 00:24:03,359 Speaker 1: live on Amazon Alexa from our flagship New York station, 433 00:24:03,640 --> 00:24:08,880 Speaker 1: Just Say Alexa playing Bloomberg eleven thirty. And a reminder, 434 00:24:08,920 --> 00:24:10,760 Speaker 1: it was this day. Did you see this while you 435 00:24:10,800 --> 00:24:13,359 Speaker 1: were getting yourself together? This morning? Was on this day, 436 00:24:13,880 --> 00:24:17,280 Speaker 1: March twenty nine, in nineteen ninety nine. For a little perspective, 437 00:24:18,040 --> 00:24:21,320 Speaker 1: first day the Dow Industrial Average crossed the ten thousand mark. 438 00:24:21,880 --> 00:24:24,359 Speaker 1: Remember everyone had the ten thousand hats on ten k 439 00:24:25,280 --> 00:24:27,800 Speaker 1: on the trading floor. I'll never forget that day. The 440 00:24:27,960 --> 00:24:31,399 Speaker 1: editor at another financial network where I was working at 441 00:24:31,440 --> 00:24:34,600 Speaker 1: a big poster on the wall and it said next 442 00:24:34,680 --> 00:24:39,280 Speaker 1: stop DAL thirty thousand, and we laughed. But of course 443 00:24:39,640 --> 00:24:42,760 Speaker 1: we have seen it all happen, which brings us to 444 00:24:42,800 --> 00:24:44,720 Speaker 1: the matter at hand today. Not the markets, although they 445 00:24:44,760 --> 00:24:46,919 Speaker 1: seem to be getting along all right with his second 446 00:24:47,000 --> 00:24:49,160 Speaker 1: day of banking hearing is not exactly a market mover, 447 00:24:49,359 --> 00:24:52,240 Speaker 1: just a lot of questions about what happened and where 448 00:24:52,240 --> 00:24:54,400 Speaker 1: we're going here. The headline on the terminal FEDS bar 449 00:24:54,520 --> 00:24:58,840 Speaker 1: that's Michael Barr, the Vice Chair for Supervision, acknowledges oversight 450 00:24:58,960 --> 00:25:03,760 Speaker 1: lapses before the failure of SVB, and he sure did. 451 00:25:03,960 --> 00:25:06,200 Speaker 1: At the same time, the events of the last few 452 00:25:06,200 --> 00:25:09,320 Speaker 1: weeks raised questions about what more can be done and 453 00:25:09,359 --> 00:25:12,720 Speaker 1: should be done, so that isolated banking problems do not 454 00:25:12,840 --> 00:25:16,920 Speaker 1: undermine confidence in healthy banks and threaten the stability of 455 00:25:16,920 --> 00:25:19,119 Speaker 1: the banking system as a whole. If you read the 456 00:25:19,200 --> 00:25:23,080 Speaker 1: note from Libby Cantrill on Monday morning from PIMCO, you 457 00:25:23,119 --> 00:25:25,760 Speaker 1: were prepared for all of this in the room where 458 00:25:25,760 --> 00:25:29,440 Speaker 1: it happens. As she writes, I love Libby's notes, talk talk, talk, 459 00:25:29,520 --> 00:25:32,920 Speaker 1: but but while there will be a lot of talking, 460 00:25:33,000 --> 00:25:37,919 Speaker 1: God knows our ears are sweating. We still do not 461 00:25:38,000 --> 00:25:40,840 Speaker 1: believe Congress will act anytime soon on the banking failures, 462 00:25:40,840 --> 00:25:44,119 Speaker 1: assuming there's not a broader contagion. And although there's been 463 00:25:44,160 --> 00:25:46,240 Speaker 1: a lot of confusion in the market, she writes, especially 464 00:25:46,240 --> 00:25:49,280 Speaker 1: on the heels of Jenny Ellen's testimony last week. Our 465 00:25:49,359 --> 00:25:52,520 Speaker 1: view is that it is only Congress with the ability 466 00:25:52,520 --> 00:25:57,840 Speaker 1: to increase FDIC insurance or provide a blanketed guarantee. Libby, 467 00:25:57,920 --> 00:25:59,520 Speaker 1: it's great to have you. I have to admit I 468 00:25:59,600 --> 00:26:01,840 Speaker 1: was I was hoping maybe we would not agree on this, 469 00:26:01,920 --> 00:26:04,600 Speaker 1: that maybe something might get done here. But if another 470 00:26:04,880 --> 00:26:08,400 Speaker 1: bank does not collapse, and god knows anything could happen, 471 00:26:09,680 --> 00:26:11,320 Speaker 1: is Congress just going to pack up its toys and 472 00:26:11,359 --> 00:26:14,879 Speaker 1: go home. Yeah, Well, good afternoon, Joe. It's nice. It's 473 00:26:14,960 --> 00:26:17,359 Speaker 1: nice to be with you, and thanks for thanks for 474 00:26:17,400 --> 00:26:21,440 Speaker 1: those quotes from from my Monday client note. Yeah, so yeah, 475 00:26:21,440 --> 00:26:23,960 Speaker 1: I mean, look, I think that we sort of expected 476 00:26:24,000 --> 00:26:27,200 Speaker 1: what we've heard over the last two days, which which 477 00:26:27,240 --> 00:26:29,520 Speaker 1: is sort of to be expected from Congress these days. 478 00:26:29,720 --> 00:26:31,840 Speaker 1: You know, a lot of talk, a lot of heated rhetoric, 479 00:26:32,240 --> 00:26:37,480 Speaker 1: some demagoguery of this issue, as some calls for more oversight, 480 00:26:37,560 --> 00:26:41,280 Speaker 1: particularly as it relates to the FED supervision. But in 481 00:26:41,359 --> 00:26:44,520 Speaker 1: terms of actually the threshold for Congress to act here, 482 00:26:44,520 --> 00:26:49,000 Speaker 1: both in terms of increasing more regulation on these banks 483 00:26:49,920 --> 00:26:55,200 Speaker 1: or and or increasing the statutory deposit insurance level of 484 00:26:55,240 --> 00:26:57,879 Speaker 1: two hundred and fifty thousand, we think that that threshold 485 00:26:58,000 --> 00:27:02,120 Speaker 1: is incredibly high and would likely require not only one 486 00:27:02,200 --> 00:27:05,520 Speaker 1: or two more banks to fail, but you know, a 487 00:27:05,720 --> 00:27:08,600 Speaker 1: much broader kind of systemic run on the banking system, 488 00:27:08,640 --> 00:27:10,440 Speaker 1: which of course we hope we don't we don't have 489 00:27:11,119 --> 00:27:13,480 Speaker 1: on our hands. So again, I think it's just in 490 00:27:13,520 --> 00:27:17,880 Speaker 1: this split Congress, in this political environment, the threshold would 491 00:27:17,880 --> 00:27:19,520 Speaker 1: be it's going to be hired. I think that the 492 00:27:19,600 --> 00:27:22,560 Speaker 1: last two days of hearings and members from both sides 493 00:27:22,600 --> 00:27:25,240 Speaker 1: of the aisle have just reinforced the fact that any 494 00:27:25,320 --> 00:27:29,359 Speaker 1: kind of Congressional action is unlikely, at least in this 495 00:27:29,440 --> 00:27:33,119 Speaker 1: sort of steady state environment. Really important moment here that 496 00:27:33,160 --> 00:27:36,199 Speaker 1: I'm going to go back to with French Hill, the 497 00:27:36,240 --> 00:27:39,359 Speaker 1: congressman from Arkansa On a former banker in fact, and 498 00:27:39,800 --> 00:27:42,560 Speaker 1: Michael Barr here when it comes to the passage of 499 00:27:42,560 --> 00:27:45,800 Speaker 1: the law in twenty eighteen as two one five five 500 00:27:46,720 --> 00:27:49,200 Speaker 1: that we've all become familiar with, which lowered the threshold, 501 00:27:49,320 --> 00:27:53,919 Speaker 1: I guess raised the threshold actually for banks undergoing stress tests. 502 00:27:53,960 --> 00:27:57,080 Speaker 1: Some Democrats like Brad Sherman, who we've spoken with Elizabeth Warren, 503 00:27:57,119 --> 00:28:00,159 Speaker 1: think that was to blame the more lax regulation, to 504 00:28:00,200 --> 00:28:02,719 Speaker 1: blame for the bank failures. Here's French Field, this issue 505 00:28:02,760 --> 00:28:06,800 Speaker 1: of Dodd Frank versus S. Twenty one fifty five. You know, 506 00:28:06,920 --> 00:28:10,199 Speaker 1: my reading of bank law, just those things are just 507 00:28:10,280 --> 00:28:13,720 Speaker 1: almost not important compared to twelve USC. Eighteen eighteen on 508 00:28:13,800 --> 00:28:18,359 Speaker 1: Season's assist, where the FDIC, the primary bank regulator of 509 00:28:18,400 --> 00:28:20,080 Speaker 1: the state, can do whatever they want to a bank 510 00:28:20,119 --> 00:28:22,560 Speaker 1: that's not operating in a safe and sound manner. Isn't 511 00:28:22,560 --> 00:28:27,600 Speaker 1: that right, mister Barr? The bank regulators have substantial discretion 512 00:28:27,760 --> 00:28:31,159 Speaker 1: to use those authorities when banks are operating in an 513 00:28:31,240 --> 00:28:34,120 Speaker 1: unsafe and unsound That all right, so Olivy he kind 514 00:28:34,119 --> 00:28:37,520 Speaker 1: of agreed, right. I mean to suggest that twenty eighteen 515 00:28:37,640 --> 00:28:41,040 Speaker 1: was to blame is not the view of the Fed. Yeah, 516 00:28:41,080 --> 00:28:43,400 Speaker 1: And I think that that's just an important for folks 517 00:28:43,440 --> 00:28:46,520 Speaker 1: to remember. So this S. Twenty one fifty five, which 518 00:28:46,520 --> 00:28:49,480 Speaker 1: of course has become much more in our vernacular of 519 00:28:49,560 --> 00:28:52,280 Speaker 1: the last few weeks, you know, it was it was 520 00:28:52,280 --> 00:28:56,400 Speaker 1: a bill that did increase the level of assets for 521 00:28:56,440 --> 00:29:01,200 Speaker 1: some more punitive scrutiny from the Federal Reserve. However, it 522 00:29:01,320 --> 00:29:05,720 Speaker 1: did allow and actually at the Federal Reserves insistence that 523 00:29:05,840 --> 00:29:10,200 Speaker 1: the said had continued to have discretion if they wanted 524 00:29:10,200 --> 00:29:15,320 Speaker 1: it to apply these these various liquidity and capital ratios 525 00:29:15,360 --> 00:29:19,440 Speaker 1: to these banks with assets of above one hundred billion. 526 00:29:19,560 --> 00:29:23,160 Speaker 1: So the legislation again provided some relief for these kind 527 00:29:23,200 --> 00:29:25,160 Speaker 1: of mid sized banks between one hundred billion and two 528 00:29:25,200 --> 00:29:28,760 Speaker 1: hundred and fifty billion dollars, but the said did continue 529 00:29:28,800 --> 00:29:32,160 Speaker 1: to have the discretion should they should they want it 530 00:29:32,880 --> 00:29:35,640 Speaker 1: to apply those more rigorous standards, and of course they 531 00:29:35,680 --> 00:29:38,760 Speaker 1: did not in this case. Uh, Now we will see. 532 00:29:38,800 --> 00:29:40,840 Speaker 1: I mean, there's going to obviously be a ton more 533 00:29:40,960 --> 00:29:44,320 Speaker 1: postmortems here, Joe Um, both by the FED and the 534 00:29:44,400 --> 00:29:48,320 Speaker 1: FDIC about exactly what happened and what could have we'd 535 00:29:48,360 --> 00:29:51,080 Speaker 1: have been done to prevent this, and so we'll see whether, 536 00:29:51,400 --> 00:29:55,000 Speaker 1: you know, if if those more stringent capital liquidity requirements 537 00:29:55,280 --> 00:29:58,640 Speaker 1: had been applied, would this have prevented a failure? I 538 00:29:58,640 --> 00:30:01,080 Speaker 1: think it's just too it's two earl to say, honestly, 539 00:30:01,880 --> 00:30:03,760 Speaker 1: I think it's something that's important though in a lot 540 00:30:03,800 --> 00:30:09,320 Speaker 1: of these liquidity ratios, in particular, these banks are actually incentivized, 541 00:30:09,360 --> 00:30:13,360 Speaker 1: if not mandated, to hold some of these longer dated treasuries. 542 00:30:13,720 --> 00:30:16,920 Speaker 1: So you know, I think they'll likely be a sort 543 00:30:16,960 --> 00:30:22,200 Speaker 1: of reevaluation of what those liquidity standards and liquidity ratios 544 00:30:22,240 --> 00:30:25,960 Speaker 1: will entail as well, just given given this big interest 545 00:30:26,080 --> 00:30:30,040 Speaker 1: rate mismatch. Well, so you're not expecting any major piece 546 00:30:30,080 --> 00:30:32,360 Speaker 1: of legislation to come out of this unless we get 547 00:30:32,400 --> 00:30:35,000 Speaker 1: you know, this further contagients or something big happens, and 548 00:30:35,080 --> 00:30:39,040 Speaker 1: anything could happen. That was your butt butt. But and 549 00:30:39,200 --> 00:30:42,760 Speaker 1: you have a butt butt part two here, And this 550 00:30:42,840 --> 00:30:46,080 Speaker 1: is important because we've been talking about the possibility reporting 551 00:30:46,080 --> 00:30:48,840 Speaker 1: on this quite a bit of the FED using its 552 00:30:48,840 --> 00:30:52,200 Speaker 1: own authority to provide a broader backstop, as you call it, 553 00:30:52,200 --> 00:30:56,720 Speaker 1: of uninsured deposits. But you see that as not necessarily 554 00:30:57,200 --> 00:30:59,440 Speaker 1: in the purview of the FED, in fact, stretching the 555 00:30:59,480 --> 00:31:02,680 Speaker 1: authority that Congress envisions. Does that mean the FED can't 556 00:31:02,680 --> 00:31:05,760 Speaker 1: do it? You're not to get kind of too wheaty here, 557 00:31:05,800 --> 00:31:08,800 Speaker 1: But and the said, and the Treasury has some unilateral 558 00:31:08,800 --> 00:31:14,080 Speaker 1: authorities to provide a backstep to UM to provide some 559 00:31:14,160 --> 00:31:17,480 Speaker 1: sort of you know, to address estemic risk. You know. However, 560 00:31:17,960 --> 00:31:23,720 Speaker 1: UM to provide a blanketed guarantee on all uninsured deposits 561 00:31:24,200 --> 00:31:27,880 Speaker 1: seems like a big stretch. If you well know, Joe, 562 00:31:28,480 --> 00:31:32,440 Speaker 1: the power of the purse arrest with Congress, and so 563 00:31:32,600 --> 00:31:36,040 Speaker 1: any action where the administration is going to be viewed 564 00:31:36,160 --> 00:31:41,440 Speaker 1: as advancing what's what's effectively fiscal policy UM, I think, 565 00:31:41,560 --> 00:31:44,920 Speaker 1: is going to have a lot of you know, legal, 566 00:31:45,000 --> 00:31:48,880 Speaker 1: if not political obstacles. So while there are some folks 567 00:31:48,880 --> 00:31:51,440 Speaker 1: in you know, the government and the political analysts who 568 00:31:51,480 --> 00:31:54,920 Speaker 1: think that the Treasury, in particular, through this exchange Stabilization 569 00:31:55,040 --> 00:31:57,440 Speaker 1: Fund to get not to get too wheaty um has 570 00:31:57,480 --> 00:32:01,120 Speaker 1: some authorities here and they arguably met, I just think 571 00:32:01,160 --> 00:32:04,120 Speaker 1: politically it is a kind of a bridge too far 572 00:32:04,360 --> 00:32:07,040 Speaker 1: for both the Treasury and the Fed to use this, 573 00:32:07,160 --> 00:32:09,240 Speaker 1: and I don't think it's something that the market should 574 00:32:09,360 --> 00:32:12,960 Speaker 1: necessarily rely on. As I mentioned in that note, this 575 00:32:13,080 --> 00:32:16,840 Speaker 1: really is a statutory limitation, this two hundred and fifty 576 00:32:16,880 --> 00:32:21,080 Speaker 1: thousand dollars guarantee of insured deposits. That that two fifty 577 00:32:21,280 --> 00:32:24,000 Speaker 1: k level is really statutory, it's legal, it is bound 578 00:32:24,000 --> 00:32:26,600 Speaker 1: by Congress, and you know, our view is that it's 579 00:32:26,600 --> 00:32:30,400 Speaker 1: really Congress has the authority to increase it. And I 580 00:32:30,400 --> 00:32:32,480 Speaker 1: think at the Treasury and the feder honestly want to 581 00:32:32,480 --> 00:32:36,000 Speaker 1: be respectful and honor that, especially given this sort of 582 00:32:36,040 --> 00:32:38,560 Speaker 1: blowback that they've received over the last two days. You know, 583 00:32:38,600 --> 00:32:40,880 Speaker 1: we love weeds. We go deep in the weeds. That's 584 00:32:40,880 --> 00:32:43,640 Speaker 1: why you're here right now. Now. We love boober guess. 585 00:32:43,840 --> 00:32:46,400 Speaker 1: But you know, at the same time, Libby, we sort 586 00:32:46,400 --> 00:32:49,080 Speaker 1: of have that arrangement already, tacitly, right, isn't the government 587 00:32:49,120 --> 00:32:53,280 Speaker 1: standing by to backstop any deposit anywhere if another bank 588 00:32:53,320 --> 00:32:56,720 Speaker 1: should fail? Yeah, and this is again going even deeper 589 00:32:56,760 --> 00:32:59,800 Speaker 1: into the weeds. This is really what ros produced by 590 00:32:59,840 --> 00:33:03,080 Speaker 1: the systemic risk exception, which is you know, this, you know, 591 00:33:03,280 --> 00:33:05,959 Speaker 1: kind of very unusual, honestly, has only been used a 592 00:33:06,000 --> 00:33:09,600 Speaker 1: handful of times in history. Um, this exception that the 593 00:33:09,760 --> 00:33:13,920 Speaker 1: FDIC and the said deemed regarding m Silicon Valley Bank 594 00:33:14,000 --> 00:33:17,240 Speaker 1: and Signature Bank. And I think it's really important to 595 00:33:17,280 --> 00:33:20,400 Speaker 1: remember though, that exception can only be used when the 596 00:33:20,440 --> 00:33:23,200 Speaker 1: banks are in receivership, ie they've been taken over by 597 00:33:23,200 --> 00:33:27,160 Speaker 1: the government. They are no longer able to operate independently. 598 00:33:27,560 --> 00:33:30,200 Speaker 1: And in that case, if an SRI is deemed a 599 00:33:30,240 --> 00:33:35,160 Speaker 1: systemic risk exception, then uninsured depositors can be made whole. 600 00:33:35,640 --> 00:33:39,320 Speaker 1: But it's a sort of very specific nuance in the law. Interestingly, 601 00:33:39,440 --> 00:33:44,760 Speaker 1: before Dodd Frank, the SDIC had much broader ability to 602 00:33:45,000 --> 00:33:50,280 Speaker 1: provide a backstop to uninsured depositors, but that was changed 603 00:33:50,320 --> 00:33:53,040 Speaker 1: and more limited in you know, through the Dodd Frank 604 00:33:53,240 --> 00:33:56,600 Speaker 1: Um you know law, legal process, so um. Sort of 605 00:33:56,640 --> 00:33:59,120 Speaker 1: interesting kind of history there. But so they do have 606 00:33:59,200 --> 00:34:00,960 Speaker 1: I think the bottom line here is they do have 607 00:34:01,080 --> 00:34:04,120 Speaker 1: the tools, but the tools are very specific and can 608 00:34:04,160 --> 00:34:06,200 Speaker 1: really only be used at least in the case of 609 00:34:06,200 --> 00:34:09,239 Speaker 1: the systemic risk of exception for those banks that are 610 00:34:09,640 --> 00:34:12,640 Speaker 1: in receivership. Luby, I've got the view from Washington, bring 611 00:34:12,719 --> 00:34:15,480 Speaker 1: us to New York for a moment where you are 612 00:34:14,880 --> 00:34:18,480 Speaker 1: what our investors saying, is Wall Street worried or executives 613 00:34:18,480 --> 00:34:22,560 Speaker 1: worried right now? Is their fear about tightening regulations or 614 00:34:22,600 --> 00:34:27,120 Speaker 1: are they basically having the same conversation you are. Yeah, 615 00:34:27,120 --> 00:34:28,920 Speaker 1: So I think that is actually what the kind of 616 00:34:28,920 --> 00:34:32,680 Speaker 1: the punchline here is that we should not again, assuming 617 00:34:32,719 --> 00:34:35,160 Speaker 1: there's not a broader run on the banks here, which 618 00:34:35,160 --> 00:34:39,160 Speaker 1: we all hope there's not, that Congress will not very 619 00:34:39,239 --> 00:34:42,640 Speaker 1: unlikely to act at least in a meaningful way. But 620 00:34:42,760 --> 00:34:45,200 Speaker 1: where the real action is going to be is going 621 00:34:45,200 --> 00:34:47,279 Speaker 1: to be at the federal reserve. And again, they do 622 00:34:47,400 --> 00:34:51,439 Speaker 1: have discretion to sort of re establish and reimpose these 623 00:34:51,480 --> 00:34:55,600 Speaker 1: more punitive liquidity and capital standards on these midsize banks. 624 00:34:55,880 --> 00:34:58,640 Speaker 1: And I think from what Vice chair bar said, what 625 00:34:58,840 --> 00:35:02,560 Speaker 1: FDIC Chair Groom said both yesterday and today, that is 626 00:35:02,600 --> 00:35:05,520 Speaker 1: the intention. They already have this discretion, and I think 627 00:35:05,560 --> 00:35:08,600 Speaker 1: we should expect for them to move forward with it now, Joe. 628 00:35:08,640 --> 00:35:11,160 Speaker 1: As you know, this is not going to be tomorrow. 629 00:35:11,320 --> 00:35:14,400 Speaker 1: They have to go through a rulemaking process, most likely 630 00:35:14,800 --> 00:35:17,839 Speaker 1: get input from the public, so this will take some time. 631 00:35:17,920 --> 00:35:20,120 Speaker 1: But I think from an economic perspective, and this is 632 00:35:20,160 --> 00:35:22,640 Speaker 1: I will kind of read through here if the economy 633 00:35:22,880 --> 00:35:25,399 Speaker 1: that a lot of these midsized banks are likely going 634 00:35:25,440 --> 00:35:27,200 Speaker 1: to be in the position where they're just going to 635 00:35:27,280 --> 00:35:30,879 Speaker 1: not be able to extend as much credit as they've 636 00:35:30,920 --> 00:35:32,719 Speaker 1: been able to, they are not going to be able 637 00:35:32,760 --> 00:35:34,960 Speaker 1: to originate as many loans as they've been able to, 638 00:35:35,080 --> 00:35:38,920 Speaker 1: and that could have a meaningly a meaningful knock on 639 00:35:38,960 --> 00:35:41,680 Speaker 1: effect from an economic perspective, especially as we're going into 640 00:35:41,719 --> 00:35:44,680 Speaker 1: a sort of slower growth environment. So that said, there's 641 00:35:44,680 --> 00:35:47,120 Speaker 1: been an exercise lately to try to figure out, in 642 00:35:47,200 --> 00:35:51,560 Speaker 1: terms of basis points, what the impacts of the bank 643 00:35:51,600 --> 00:35:54,520 Speaker 1: failures mean. Bloomberg at one point I think it was 644 00:35:54,520 --> 00:35:57,480 Speaker 1: Bloomberg Intelligence crushed it down to fifty basis with the 645 00:35:57,520 --> 00:36:00,520 Speaker 1: equivalent of another fifty basis point hike. I've seen some 646 00:36:01,000 --> 00:36:04,279 Speaker 1: suggest it's even larger. I wonder how you view that 647 00:36:04,520 --> 00:36:07,920 Speaker 1: the sort of lagging impact here in the work that 648 00:36:07,960 --> 00:36:11,120 Speaker 1: it basically did for the FED. Yeah, I think, well, 649 00:36:11,160 --> 00:36:13,560 Speaker 1: I mean terman power, I think it's indicated that as well. Right, 650 00:36:13,600 --> 00:36:15,680 Speaker 1: I think he has said that this is in some 651 00:36:15,760 --> 00:36:19,680 Speaker 1: ways done some of the tightening for the FED, and 652 00:36:19,719 --> 00:36:24,319 Speaker 1: of course, uh, you know, financial condition tightening does do that. Um, 653 00:36:24,480 --> 00:36:27,960 Speaker 1: it does sort of translate into you know, kind of 654 00:36:28,000 --> 00:36:30,520 Speaker 1: tighter monetary policy or at least to the impact that 655 00:36:30,520 --> 00:36:32,920 Speaker 1: the SET is trying to make on the economy from 656 00:36:32,960 --> 00:36:35,799 Speaker 1: a from a from a flowing perspective. You know, I 657 00:36:35,800 --> 00:36:37,600 Speaker 1: think the Set has been very clear here, and they 658 00:36:37,600 --> 00:36:40,480 Speaker 1: were clear last week that, you know, while they very 659 00:36:40,560 --> 00:36:43,879 Speaker 1: much have an eye on the banking system, which they 660 00:36:44,320 --> 00:36:46,800 Speaker 1: of course have every incentive to say is very sound 661 00:36:46,880 --> 00:36:49,479 Speaker 1: and that no one should panic and what have you, um, 662 00:36:49,760 --> 00:36:52,759 Speaker 1: that they are still you know, very much focused on inflation, 663 00:36:52,800 --> 00:36:55,040 Speaker 1: and so we take them at their words there that 664 00:36:55,120 --> 00:36:57,759 Speaker 1: even though this has certainly done a little bit of 665 00:36:57,800 --> 00:37:00,520 Speaker 1: the heavy lifting for them, that a lot of this 666 00:37:00,640 --> 00:37:04,000 Speaker 1: data still is continuing to come in pretty hot, um, 667 00:37:04,040 --> 00:37:05,560 Speaker 1: and that they're going to just have to weigh that 668 00:37:05,680 --> 00:37:09,160 Speaker 1: against sort of financial stability concerns. But what we understood 669 00:37:09,160 --> 00:37:12,279 Speaker 1: from Chair Powell is that, um, you know, again, while 670 00:37:12,320 --> 00:37:14,239 Speaker 1: some of the heavy lifting has been done, there could 671 00:37:14,280 --> 00:37:17,319 Speaker 1: be more still more to go should this inflation data 672 00:37:17,360 --> 00:37:19,759 Speaker 1: continue to come in hot. So is the market off 673 00:37:19,760 --> 00:37:26,759 Speaker 1: base already pricing in cuts never mind? Yes, yeah, yeah, 674 00:37:26,800 --> 00:37:29,520 Speaker 1: I mean, m you know, look again, I think we're we're, we're, 675 00:37:29,760 --> 00:37:31,480 Speaker 1: I think we're The fight is sort of now pivoted 676 00:37:31,480 --> 00:37:35,560 Speaker 1: to a more data dependent UM orientation. Um. I think 677 00:37:35,600 --> 00:37:38,640 Speaker 1: the fact that they still increased rates by twenty five 678 00:37:38,680 --> 00:37:41,319 Speaker 1: hips last week was was you know, telling that there 679 00:37:41,360 --> 00:37:44,560 Speaker 1: again they're still concerned about inflation, but that they but 680 00:37:44,680 --> 00:37:46,600 Speaker 1: that they are pivoting. We do, I would say, we 681 00:37:46,640 --> 00:37:49,120 Speaker 1: do think that the threshold for cuts is going to 682 00:37:49,200 --> 00:37:52,120 Speaker 1: be high though, um, And you know, for for a 683 00:37:52,160 --> 00:37:54,880 Speaker 1: whole whole host of reasons. So in terms of market 684 00:37:54,920 --> 00:37:58,160 Speaker 1: pricing around that that maybe where we diverge a bit 685 00:37:58,400 --> 00:38:02,680 Speaker 1: in this see actual inflation before that happens exactly, it 686 00:38:02,719 --> 00:38:04,360 Speaker 1: would be what a pleasure, thank you so much for 687 00:38:04,400 --> 00:38:08,040 Speaker 1: coming to see me here today. Let's do it. Oh absolutely, cantrill. 688 00:38:08,800 --> 00:38:11,240 Speaker 1: What a great piece of work here. If you're receiving 689 00:38:11,239 --> 00:38:14,759 Speaker 1: those notes, you're smarter for it. Managing director in pimco's 690 00:38:14,800 --> 00:38:17,879 Speaker 1: Portfolio Management Group, in a frequent voice of credibility. Here 691 00:38:18,000 --> 00:38:22,520 Speaker 1: on Bloomberg Radio, you're listening to the Bloomberg Sound on podcast. 692 00:38:22,920 --> 00:38:26,480 Speaker 1: Catch us live weekdays at one Eastern on Bloomberg dot com, 693 00:38:26,520 --> 00:38:29,319 Speaker 1: the iHeart Radio app, and the Bloomberg Business app. We're 694 00:38:29,360 --> 00:38:33,000 Speaker 1: listening on demand wherever you get your podcast. First, he 695 00:38:33,080 --> 00:38:36,480 Speaker 1: boasted about the radioactive title wave. Remember that. Now. Kim 696 00:38:36,560 --> 00:38:38,960 Speaker 1: Jong un is sending a loud message to the US 697 00:38:40,360 --> 00:38:43,560 Speaker 1: with the regime's biggest display of warheads, a series of 698 00:38:43,680 --> 00:38:46,759 Speaker 1: new photos from North Korea's government showing Kim in a 699 00:38:46,880 --> 00:38:51,399 Speaker 1: pinstripe suit inspecting. They say, and by that, I mean 700 00:38:52,000 --> 00:38:55,360 Speaker 1: standing there and looking at a bunch of nuclear warheads 701 00:38:55,360 --> 00:38:57,480 Speaker 1: and designed to strike American allies in Asia. They say, 702 00:38:57,600 --> 00:39:01,319 Speaker 1: maybe a potential attack on the US mainland. The US 703 00:39:01,400 --> 00:39:04,600 Speaker 1: Ambassador to the UN, Linda Thomas Greenfield, accusing North Korea 704 00:39:04,600 --> 00:39:09,080 Speaker 1: of funding its weapons program at the expense of people's welfare. 705 00:39:09,239 --> 00:39:12,960 Speaker 1: We urge all Security Council members to support an open 706 00:39:13,280 --> 00:39:16,000 Speaker 1: briefing in the coming months where we can discuss the 707 00:39:16,080 --> 00:39:20,920 Speaker 1: DPR case, human rights violations and abuses, and their implications 708 00:39:21,239 --> 00:39:24,240 Speaker 1: for peace and security. We'll see if the Security Council 709 00:39:24,280 --> 00:39:26,840 Speaker 1: does that. The ambassador says, Kim Jong UN's government uses 710 00:39:26,880 --> 00:39:32,239 Speaker 1: forced and exploited labor domestically and overseas to support its 711 00:39:32,239 --> 00:39:36,600 Speaker 1: weapons program. So much for US demands. North Korea abandoned 712 00:39:36,600 --> 00:39:39,560 Speaker 1: its nuclear your weapons program. They are obviously advertising it 713 00:39:39,640 --> 00:39:42,160 Speaker 1: now at this point, and it's something that we wanted 714 00:39:42,200 --> 00:39:47,319 Speaker 1: to talk about with our next guest, Makioko Aoki, Rand 715 00:39:47,360 --> 00:39:51,279 Speaker 1: Associate Political Scientists, is with us now here on Bloomberg 716 00:39:51,360 --> 00:39:54,680 Speaker 1: sound on now ok, thanks for being with us. What 717 00:39:54,840 --> 00:39:58,960 Speaker 1: is Kim Jong un up to here? If it's anything 718 00:39:59,040 --> 00:40:04,040 Speaker 1: more than bluster? Yeah, So, while this is impossible to verify, 719 00:40:04,880 --> 00:40:07,239 Speaker 1: you know which part is real and which part is not. 720 00:40:07,680 --> 00:40:10,320 Speaker 1: The message I think is pretty clear, and that's about 721 00:40:10,360 --> 00:40:13,600 Speaker 1: the seriousness and what it wants to North Korea wants 722 00:40:13,600 --> 00:40:18,920 Speaker 1: to conveys the efficacy of North Korea's nuclear program. Do 723 00:40:18,960 --> 00:40:20,880 Speaker 1: you believe the pictures are real or is that what 724 00:40:20,960 --> 00:40:24,560 Speaker 1: you're saying? There's no way to verify. Well, it's just 725 00:40:24,880 --> 00:40:27,080 Speaker 1: there's no way to verify. On the one hand, but 726 00:40:27,200 --> 00:40:30,399 Speaker 1: North Korea has been talking about and this looks like 727 00:40:31,160 --> 00:40:34,080 Speaker 1: tactical nuclear weapons. They are smaller in scale, and they've 728 00:40:34,080 --> 00:40:37,319 Speaker 1: been talking about that for a while, and so their 729 00:40:37,600 --> 00:40:41,600 Speaker 1: their intentions is to build it, and I wouldn't be 730 00:40:41,600 --> 00:40:45,960 Speaker 1: surprised if they were real That said, it does appear 731 00:40:46,040 --> 00:40:48,759 Speaker 1: to be kind of a different strategy, at least from 732 00:40:48,840 --> 00:40:51,120 Speaker 1: Kim jong Oon. Instead of the nuclear test unit, they 733 00:40:51,160 --> 00:40:54,200 Speaker 1: pop a missile off, it goes into the ocean. We 734 00:40:54,320 --> 00:40:58,319 Speaker 1: condemn that. Now it's more about showing the ability to 735 00:40:58,360 --> 00:41:00,920 Speaker 1: make a coordinated attack. Is it too late for the 736 00:41:01,000 --> 00:41:04,960 Speaker 1: US to do anything? Yeah, So, UM, as you mentioned, 737 00:41:05,239 --> 00:41:09,440 Speaker 1: the message has been about not just about the number 738 00:41:09,560 --> 00:41:13,200 Speaker 1: of UM weapons that North Korea has about, but about 739 00:41:13,200 --> 00:41:18,080 Speaker 1: how diversified their weapons are. And so they showed how 740 00:41:18,120 --> 00:41:22,520 Speaker 1: they can fire a cruise missile from submarines. They showed 741 00:41:22,680 --> 00:41:26,200 Speaker 1: missiles from being fired from underground. Of course, that means 742 00:41:26,239 --> 00:41:29,280 Speaker 1: that it's difficult for the United States and the ALLA 743 00:41:29,360 --> 00:41:33,200 Speaker 1: and its allies to um it's ballistic missile systems. The 744 00:41:33,360 --> 00:41:37,200 Speaker 1: US and allies ballistic missile systems to detect and destroy 745 00:41:37,280 --> 00:41:42,920 Speaker 1: them the incoming missile. So that's part of North Korea's 746 00:41:43,000 --> 00:41:45,480 Speaker 1: message when it comes to our ability to band this though, 747 00:41:45,520 --> 00:41:47,920 Speaker 1: is the US out of carrots and sticks when it 748 00:41:47,960 --> 00:41:52,600 Speaker 1: comes to North Korea? Yeah? So, UM, the best way 749 00:41:52,680 --> 00:41:55,120 Speaker 1: I think to deal with this UM is for the 750 00:41:55,200 --> 00:41:58,680 Speaker 1: United States and its allies are okay, South Korean particular, 751 00:41:58,760 --> 00:42:04,880 Speaker 1: but Japan as well, to show a united front and 752 00:42:03,239 --> 00:42:07,040 Speaker 1: UM and show the North Koreans that they will work 753 00:42:07,040 --> 00:42:13,760 Speaker 1: together if should North Korea UM take steps attack. Sure. 754 00:42:14,600 --> 00:42:19,400 Speaker 1: What's Kim John UN's relationship with President She at this point? Well, 755 00:42:19,480 --> 00:42:23,439 Speaker 1: the two countries have become closer, particularly after the war 756 00:42:23,480 --> 00:42:26,719 Speaker 1: in Ukraine, and did you politics is such at the 757 00:42:27,920 --> 00:42:31,640 Speaker 1: Russia and China are not going to punish North Korea, 758 00:42:32,360 --> 00:42:35,520 Speaker 1: which means that you and Security Council, as you mentioned earlier, 759 00:42:35,880 --> 00:42:39,319 Speaker 1: UM is not functional at the moment in terms of 760 00:42:39,800 --> 00:42:43,960 Speaker 1: dealing with North Korea. UM, so SHE or rather China 761 00:42:44,000 --> 00:42:47,840 Speaker 1: and UM. China and North Korea have certainly become closer 762 00:42:48,440 --> 00:42:50,759 Speaker 1: over the last couple of years, So this is a 763 00:42:50,840 --> 00:42:52,919 Speaker 1: growing risk for the US. This is not the same 764 00:42:52,960 --> 00:42:56,080 Speaker 1: old North Korea that we used to deal with, and 765 00:42:56,760 --> 00:43:01,600 Speaker 1: in many cases it will laugh off here in Washington. Yeah, 766 00:43:01,719 --> 00:43:04,160 Speaker 1: this is there is a problem I think UM in 767 00:43:04,200 --> 00:43:07,879 Speaker 1: the sense that since since North Korea nothing is being 768 00:43:07,920 --> 00:43:12,919 Speaker 1: done to UM prevent North Korea from UM improving it's 769 00:43:13,080 --> 00:43:18,680 Speaker 1: missile in nuclear arsenals UM quantitatively and qualitatively, UM, it's 770 00:43:18,719 --> 00:43:22,080 Speaker 1: going to continue doing this and so the problem is 771 00:43:22,120 --> 00:43:25,319 Speaker 1: going to get bigger. Yeah. What does that look like 772 00:43:25,360 --> 00:43:28,399 Speaker 1: in your mind? A bigger problem in North Korea? Yeah, 773 00:43:28,440 --> 00:43:31,880 Speaker 1: so the problems there has to be a deterrence component. 774 00:43:31,960 --> 00:43:34,439 Speaker 1: We have to show North Korea that you know, it's 775 00:43:34,560 --> 00:43:40,839 Speaker 1: it's UM provocative provocation will UM after a certain you know, 776 00:43:41,120 --> 00:43:45,359 Speaker 1: a degree of provocation provocation excuse me, well, will not 777 00:43:45,440 --> 00:43:50,400 Speaker 1: go unpunished. And also UM but also UM at some 778 00:43:50,520 --> 00:43:54,040 Speaker 1: point there has to be diplomacy because UM that is 779 00:43:54,200 --> 00:43:57,239 Speaker 1: probably the only way we can try to manage North 780 00:43:57,320 --> 00:44:02,320 Speaker 1: Korea's growing UM to cap first caps North Korea's nuclear 781 00:44:02,360 --> 00:44:05,279 Speaker 1: program and then try to roll it back. We held 782 00:44:05,280 --> 00:44:10,040 Speaker 1: military drills not far off the peninsula. It was something 783 00:44:10,080 --> 00:44:14,239 Speaker 1: that was condemned obviously, as you would expect by North Korea. 784 00:44:14,440 --> 00:44:17,520 Speaker 1: Drills with the South Korean military. How much of that 785 00:44:17,640 --> 00:44:19,960 Speaker 1: prompted this recent series of photos and some of the 786 00:44:20,000 --> 00:44:24,359 Speaker 1: more erratic behavior we've seen. Yeah. North Korea though, has 787 00:44:24,400 --> 00:44:29,400 Speaker 1: been continuing with its modernization military modernization program, and this 788 00:44:29,480 --> 00:44:32,279 Speaker 1: has been in place in twenty twenty one, so it's 789 00:44:32,280 --> 00:44:36,920 Speaker 1: steadily moving toward new weapons and tactical nuclear weapons was 790 00:44:37,320 --> 00:44:41,400 Speaker 1: one of them. Were one of the weapons that types 791 00:44:41,440 --> 00:44:46,320 Speaker 1: of weapons that North Korea has said that it will build. 792 00:44:46,560 --> 00:44:50,319 Speaker 1: So it's not particularly new in that sense, but it 793 00:44:50,440 --> 00:44:55,440 Speaker 1: is certainly North Korea certainly trying to show that, trying 794 00:44:55,440 --> 00:44:59,719 Speaker 1: to tell the United States and South Korea that don't 795 00:44:59,719 --> 00:45:02,920 Speaker 1: think attacking us, you know, there's little hope of disarming 796 00:45:02,960 --> 00:45:05,239 Speaker 1: North Korea. So that's kind of that's the message at 797 00:45:05,280 --> 00:45:07,840 Speaker 1: North Korea's trying to send. I wonder what the conversation 798 00:45:07,960 --> 00:45:09,480 Speaker 1: is in our last moment here, just to get back 799 00:45:09,520 --> 00:45:12,279 Speaker 1: to the issue of North Korea and China. What she 800 00:45:13,360 --> 00:45:16,680 Speaker 1: tells Kim Jong un or kind of proves through his 801 00:45:16,760 --> 00:45:20,160 Speaker 1: own actions about taking the US seriously, because it's pretty 802 00:45:20,160 --> 00:45:24,920 Speaker 1: clear that he does not. UM well, Kimping of course 803 00:45:24,960 --> 00:45:30,400 Speaker 1: has his own you know, China um own mind, but 804 00:45:35,160 --> 00:45:44,440 Speaker 1: it's not necessarily clear up. But um it's benefits in 805 00:45:44,520 --> 00:45:48,719 Speaker 1: the largest now, So thank you for the insights. Now, 806 00:45:48,800 --> 00:45:51,759 Speaker 1: go Aoki from the Rand corporations. From political scientists with 807 00:45:51,880 --> 00:45:54,960 Speaker 1: us here on Bloomberg Sound On. I'm Joe Matthew Life 808 00:45:54,960 --> 00:45:55,719 Speaker 1: from Washington,