WEBVTT - Bank Bonds Tumble Into Distress 0:00:13.640 --> 0:00:16.680 Hello, and welcome to The Credit Edge, a weekly markets podcast. 0:00:17.040 --> 0:00:19.680 My name is James Crombie. I'm a senior editor at Bloomberg. 0:00:20.239 --> 0:00:24.280 Today's guests are Amelia Pollard, who covers distress stept markets 0:00:24.320 --> 0:00:27.280 for Bloomberg News in New York. She's oh all over 0:00:27.360 --> 0:00:29.400 the big credit stories at the moment and we're delighted 0:00:29.400 --> 0:00:31.920 to have her on the show. Thanks so much for 0:00:31.960 --> 0:00:36.280 having me. We're also very pleased to welcome Arnold Kakuda, 0:00:36.320 --> 0:00:39.360 who covers banks for Bloomberg Intelligence in New York, and 0:00:39.520 --> 0:00:42.360 Yuron Julius, who has the same responsibilities but it is 0:00:42.400 --> 0:00:46.440 based in London. Hi, James Loo, great to be here. 0:00:47.320 --> 0:00:49.120 Banking is the hot topic at the moment. We'll be 0:00:49.120 --> 0:00:51.880 getting to their insight in a little bit, but before 0:00:51.920 --> 0:00:55.480 we do, Amelia Pollard with Bloomberg News, it's been a 0:00:55.600 --> 0:00:58.360 roller coaster ride for banks. What's going on? We've had 0:00:58.400 --> 0:01:00.760 a bit of a regional banking crisis in the US. 0:01:00.800 --> 0:01:03.200 Can you walk us through what happened though? Yeah, it's 0:01:03.200 --> 0:01:06.960 been a crazy week. It started last week with silver 0:01:07.040 --> 0:01:09.400 Gate Capital, which is known as you know, the big 0:01:09.480 --> 0:01:13.840 bank to crypto. It counted FTX among its biggest clients. 0:01:14.280 --> 0:01:17.319 And so there were mounting concerns about silver Gate early 0:01:17.440 --> 0:01:19.920 last week, and then on the Wednesday announced that it 0:01:19.959 --> 0:01:22.880 was going to do a voluntary wind down. So it 0:01:22.920 --> 0:01:26.839 didn't technically count as a bank failure by the FDIC's 0:01:26.920 --> 0:01:29.480 definition of when a bank has to fall into FDIC 0:01:29.680 --> 0:01:33.440 receivership and the federal agency effectively takes over the bank, 0:01:34.240 --> 0:01:37.440 but by you know, it failed in the sense that 0:01:37.600 --> 0:01:42.160 it you know, ceasing operations. And then just the next day, 0:01:42.319 --> 0:01:47.040 on last Thursday, trouble started for a Silicon Valley bank, 0:01:47.080 --> 0:01:49.520 which was another of these banks that had become highly 0:01:49.560 --> 0:01:53.800 specialized in one sector. It started in nineteen eighty three 0:01:54.000 --> 0:01:56.880 and ever since then really has been the bank for 0:01:57.160 --> 0:02:02.040 venture capitalists and the tech sector specifically startups were their 0:02:02.080 --> 0:02:06.160 main clients, and rumors started to fly in the tech 0:02:06.240 --> 0:02:10.600 world that the bank wasn't as sound as it had 0:02:10.600 --> 0:02:13.680 previously indicated, and that was in part because it was 0:02:13.720 --> 0:02:16.560 stuck in these long dated treasury bonds and was trying 0:02:16.600 --> 0:02:19.840 to unwind from them and raising fresh capital as a result, 0:02:20.639 --> 0:02:24.239 and so a real true bank run ensued and all 0:02:24.280 --> 0:02:27.040 of these tech startups and venture capital funds started to 0:02:27.080 --> 0:02:29.720 pull their money. It was later reported that a total 0:02:29.720 --> 0:02:32.480 of forty two billion dollars was attempted to be pulled 0:02:32.480 --> 0:02:36.359 from the bank last Thursday, and the next day around 0:02:36.400 --> 0:02:38.720 you know, eleven thirty am New York time, it fell 0:02:38.760 --> 0:02:42.840 into FDIC receivership and was ultimately the second biggest bank 0:02:42.880 --> 0:02:46.120 failure ever and the biggest one since Washington Mutual in 0:02:46.120 --> 0:02:49.400 two thousand and eight. So that rocked markets. A bunch 0:02:49.440 --> 0:02:53.880 of other regional banks, including First Republic, then started their 0:02:53.960 --> 0:02:58.560 chairs plummeted, their trades were halted a few times last Friday, 0:02:59.080 --> 0:03:02.079 and then a few days later. The saga continued on 0:03:02.120 --> 0:03:07.399 Sunday when Signature Bank fell into FDIC receivership. Signature Bank 0:03:07.520 --> 0:03:10.080 is based in New York, so it was no longer 0:03:10.120 --> 0:03:13.679 a California story. Silver Gate Capital and Silicon Valley Bank 0:03:13.840 --> 0:03:17.360 were both based in California, and you know, it was 0:03:17.360 --> 0:03:20.119 the second bank to fall into failure within a week 0:03:20.240 --> 0:03:24.200 in FDIC receivership. So we've been all reeling from that 0:03:24.280 --> 0:03:27.600 here on the market team, and you know, the distress 0:03:27.639 --> 0:03:31.600 team has been trying to track how far the fallout 0:03:31.600 --> 0:03:35.120 will reach in terms of regional banks. But the federal 0:03:35.120 --> 0:03:38.560 government denounced they were going to backstop not only the 0:03:38.600 --> 0:03:41.320 insured limit of the two hundred three thousand dollars deposits, 0:03:41.320 --> 0:03:45.480 but you know, make all depositors whole. So nine over 0:03:45.600 --> 0:03:48.280 ninety percent of the Silicon Valley bank depositors were over 0:03:48.840 --> 0:03:51.600 that two hundred thousand dollars threshold. So that I think 0:03:51.680 --> 0:03:53.920 really kind of short up confidence for the time being 0:03:54.000 --> 0:03:56.240 in the banking sector. But there's been some volatility this 0:03:56.280 --> 0:03:59.920 week even still, we haven't seen banks like this failed 0:04:00.040 --> 0:04:02.240 since the financial crisis the two thousand and eight. Is 0:04:02.240 --> 0:04:07.000 this a Lehman moment? You know, earlier this week we 0:04:07.040 --> 0:04:08.960 said it wasn't the Lehman moment, but then you know, 0:04:09.040 --> 0:04:13.000 Credit Swiss stap and some you know, distress trading started 0:04:13.080 --> 0:04:16.279 yesterday for some other credit swee sponse. By all metrics, 0:04:16.279 --> 0:04:18.039 it doesn't seem to be a Lehman moment, you know. 0:04:18.279 --> 0:04:20.960 I think that the fact that the FED stepped in 0:04:21.120 --> 0:04:26.160 so quickly in backstopping those deposits has for now calmed out, 0:04:26.279 --> 0:04:29.960 calmed down investors and you know, just those with bank 0:04:29.960 --> 0:04:33.479 accounts everywhere and not pulling their funds. I think it 0:04:33.640 --> 0:04:37.080 is people are still bracing though, to see how this 0:04:37.120 --> 0:04:39.800 shakes out in the coming weeks. But it seems some 0:04:39.880 --> 0:04:43.400 there's been some comparison from a few investors to Bear 0:04:43.760 --> 0:04:45.360 you know, this might be a Bear Stearns moment, which 0:04:45.360 --> 0:04:49.640 actually failed exactly this week in two thousand and eight, 0:04:49.760 --> 0:04:54.719 So there's some odd parallels there with timing. So you 0:04:54.800 --> 0:04:57.240 mentioned Credit Swiss, that's a much bigger issue potentially a 0:04:57.320 --> 0:05:01.120 huge Swiss bank with sprawling global businesses that bonds fell 0:05:01.160 --> 0:05:05.120 into distress, they keep getting more distressed credit defaults. Who 0:05:05.120 --> 0:05:08.000 helps and play a high high chance of default even 0:05:08.040 --> 0:05:10.360 after the Swiss National Bank through them a lifeline. What's 0:05:10.360 --> 0:05:15.159 the story there? You know, it's a tenuous connection between 0:05:15.200 --> 0:05:17.679 what's happening in the US regional banks and what's happening 0:05:17.720 --> 0:05:20.840 with Credit Sweets. But I think it's a sentiment of 0:05:20.880 --> 0:05:25.360 their being kind of concern globally among investors and especially 0:05:25.480 --> 0:05:29.200 you know, after the regional banks started to tumble last 0:05:29.240 --> 0:05:32.400 week in the US, we were starting to see, you know, 0:05:32.480 --> 0:05:36.520 shares among European banks even we're starting to fall, and 0:05:36.560 --> 0:05:39.480 I think that was a kind of a harbinger for 0:05:39.640 --> 0:05:41.720 what was to come this week with Credit Sweets. I 0:05:41.720 --> 0:05:43.880 think the fact that bonds are still trading in the 0:05:43.880 --> 0:05:46.520 distress level today and are falling again even after the 0:05:46.520 --> 0:05:49.719 Swiss National Bank backstopped the bank and said that they 0:05:49.760 --> 0:05:52.800 would provide fresh liquidity. Is a sign that the story 0:05:52.880 --> 0:05:54.960 is not over here, but it is too soon to 0:05:55.000 --> 0:05:57.640 tell exactly how Credit sweece will play out on coming days. 0:05:58.800 --> 0:06:01.520 Very interesting, Ameliapole of Bloomberg News, thanks so much for 0:06:01.600 --> 0:06:05.159 joining us. This is a fascinating story with broad implications, 0:06:05.200 --> 0:06:07.080 and we look forward to reading all of your scoops 0:06:07.080 --> 0:06:09.960 on the Bloomberg terminal and of course at Bloomberg dot com. 0:06:10.880 --> 0:06:14.000 Thanks so much, James. Switching gears here a bit. As 0:06:14.000 --> 0:06:16.799 I mentioned earlier, we're very fortunate to have Arnold Kakuda 0:06:17.080 --> 0:06:21.279 and Uron Julius from Bloomberg Intelligence who really know this sector. Well. 0:06:21.760 --> 0:06:25.120 We're looking forward to hearing your take. I'll start with Yuron, 0:06:25.360 --> 0:06:28.960 since Europe is really the kind of epicenter here, that's 0:06:28.960 --> 0:06:32.080 where Credit Swiss is based. What's the situation right now? 0:06:32.279 --> 0:06:34.960 How is the crisis playing out? Well? Thank you, James. 0:06:35.440 --> 0:06:38.000 That is that is a big question that we're all 0:06:38.279 --> 0:06:43.840 trying to get to get an answer to. It is 0:06:44.160 --> 0:06:48.080 still it is too soon, i think too to be 0:06:48.240 --> 0:06:51.960 definitive about how is this going to play out? The 0:06:52.000 --> 0:06:58.880 Swiss Central Bank has come in and provided Credit Swiss 0:06:58.960 --> 0:07:03.480 with access to a liquidity facility, to two liquidity facilities 0:07:03.480 --> 0:07:08.479 in fact, will buy credit Suite some time. Will it 0:07:08.520 --> 0:07:14.520 be enough? We don't know. The amount mentioned is fifty 0:07:15.040 --> 0:07:18.360 billion in total. You know, the look that number may 0:07:18.400 --> 0:07:22.840 have been plucked out of thin air. It looks you know, 0:07:22.840 --> 0:07:27.200 it's a serious enough number. Is it large enough? Had 0:07:27.560 --> 0:07:30.960 they decided on a few hundred billion, uh, you know, 0:07:31.320 --> 0:07:34.680 that would have been perhaps too large. And also you 0:07:34.760 --> 0:07:39.240 know this is a collateralized facility, so credit suites that 0:07:39.680 --> 0:07:42.880 needs to have the the the assets to pledge against 0:07:42.960 --> 0:07:45.960 this this liquidity that it will take from the Swiss 0:07:46.080 --> 0:07:51.000 National Bank. But but look, you know, the early response 0:07:51.080 --> 0:07:54.800 to this, to this provision of emergen liquidity has been positive. 0:07:54.840 --> 0:07:57.040 But it does seem to be fizzling out a little bit. 0:07:57.200 --> 0:08:00.320 And if we take a step back, you know, what 0:08:00.480 --> 0:08:04.680 is that issue here? The immediate crisis It was triggered, 0:08:04.680 --> 0:08:08.760 triggered by Silicon Valley Bank, the reader cross. I totally 0:08:09.000 --> 0:08:12.840 agree with Amelia. It's the the read across asilit Valley 0:08:12.840 --> 0:08:15.400 Bank for a credit suis isn't all that immediate because 0:08:15.400 --> 0:08:20.840 if you look at the unsecured lasses, sorry, unrealized lasses 0:08:22.480 --> 0:08:26.840 or bond portfolios. That wasn't really the issue for cred Swiss. 0:08:27.600 --> 0:08:30.920 The large majority of its securities are in its trading book. 0:08:31.600 --> 0:08:34.120 You know, these are marked to market, so that's not 0:08:34.160 --> 0:08:38.320 really the issue. I think what happened is that you know, 0:08:38.440 --> 0:08:43.120 Silicon Valley Bank, you know, unfolded and people started to 0:08:43.160 --> 0:08:47.240 worry about liquidity issues elsewhere. Forget about nuance. It was 0:08:47.360 --> 0:08:50.560 just you know where which banks have liquidity issues. And 0:08:50.559 --> 0:08:52.920 if you look at Credit Suis in the fourth quarter, 0:08:52.960 --> 0:08:55.960 it did see a massive outflow of client assets, you know, 0:08:56.000 --> 0:08:59.559 reflecting concern over its over its earnings, over its franchise. 0:08:59.600 --> 0:09:04.319 And at the same time the bank has announced this 0:09:04.559 --> 0:09:09.960 huge restructuring, So you know, I think it's important to 0:09:10.160 --> 0:09:13.360 realize that that there are some parallels, but it isn't. 0:09:13.360 --> 0:09:15.400 It isn't the same story as what played out in 0:09:15.679 --> 0:09:19.600 for Silicon Valley Bank. But look to hard to be 0:09:19.640 --> 0:09:21.480 as I mentioned, how to be definitive, how this is 0:09:21.520 --> 0:09:23.880 going to this is going to play out. Ultimately, what 0:09:23.920 --> 0:09:27.840 you need to see is sentiments starting to stabilize, spreads 0:09:27.840 --> 0:09:31.280 starting to stabilize um and we're not seeing that yet. 0:09:31.520 --> 0:09:35.199 It's a huge institution, has counterparties across the board in 0:09:35.240 --> 0:09:38.600 all sorts of markets, and you know structured finance and 0:09:38.920 --> 0:09:42.319 investment banking and just about you know, every asset class 0:09:42.360 --> 0:09:45.080 you can think of. What impact is it having across 0:09:45.160 --> 0:09:49.840 Europe at this point, Well, all European banks are done 0:09:50.080 --> 0:09:54.520 clear clearly, everyone's very jittery and wondering, you know what 0:09:54.520 --> 0:09:56.640 what's going on? What is the read across for for 0:09:56.640 --> 0:10:02.800 for the entire sector. But U I think sentiments should 0:10:03.080 --> 0:10:08.480 sort of stabilize. If you look at the risk to 0:10:08.640 --> 0:10:13.560 liquidity and then specifically the risk of deposited outflowers. The 0:10:13.640 --> 0:10:17.600 vast majority of European bank deposits they are in shirt, right, 0:10:17.600 --> 0:10:21.160 so sixty three of deposits are in short according to 0:10:21.400 --> 0:10:25.080 EBA data. If you look at the deposit mix, the 0:10:25.160 --> 0:10:29.960 last majority of European banks deposits are retail, so stickier arguably, 0:10:30.200 --> 0:10:35.000 and those two metrics they contrast with what you saw 0:10:35.000 --> 0:10:38.080 that Silicon Valley bank. So I think that's that's important. 0:10:38.240 --> 0:10:41.000 I think overall it's also important to realize that European 0:10:41.000 --> 0:10:45.600 banks are very much regulated, very very tightly, at least 0:10:45.640 --> 0:10:48.959 the large ones, particularly a bank like credit suites believe 0:10:49.000 --> 0:10:52.160 it or not. As a global stemically important bank, it 0:10:52.480 --> 0:10:58.280 has had much more regulatory oversight and intrusion than perhaps 0:10:58.320 --> 0:11:00.760 some of the small to medium sized banks in the 0:11:01.760 --> 0:11:04.280 over in the US. But that's you know, that's not 0:11:04.400 --> 0:11:09.800 to to to play to be diminished the challenge because 0:11:09.800 --> 0:11:12.400 if you look at what happened to the deposit base 0:11:12.440 --> 0:11:14.760 in the fourth quarter, it did actually drop, It did 0:11:14.800 --> 0:11:18.360 actually come down by four percent, and more may follow. 0:11:18.440 --> 0:11:21.280 And that reflects two things. It reflects the cost of 0:11:21.280 --> 0:11:24.760 living crisis. Some depositors, you know a lot of clients 0:11:24.800 --> 0:11:27.880 they are using their savings to to help them through 0:11:27.880 --> 0:11:31.600 this difficult period. It also reflects depositors taking their money 0:11:31.640 --> 0:11:34.440 out of their savings accounts and taking them into money 0:11:34.440 --> 0:11:38.200 market funds, so higher yielding alternatives and those two drives 0:11:38.200 --> 0:11:40.000 they remain in players. And I do think that you 0:11:40.080 --> 0:11:43.439 may see some further deposit outflows in the coming in 0:11:43.480 --> 0:11:46.120 the coming months and quarters. But it's all it's all 0:11:46.160 --> 0:11:48.840 coming from from a healthy base. Don't remember, they don't 0:11:48.840 --> 0:11:52.640 forget that. You know, banks deposit they shot through the 0:11:52.720 --> 0:11:57.400 roof during the pandemic and that's coming off now. So yeah, 0:11:57.440 --> 0:12:00.440 the high rates hadn't been good for banks. Um, well, 0:12:00.480 --> 0:12:03.160 the concerns of you was that that higher rates were 0:12:03.160 --> 0:12:06.080 supposed to be good for banks, and in some ways 0:12:06.080 --> 0:12:09.360 they are. You know, they do allow banks to earn 0:12:09.400 --> 0:12:15.160 a greater higher marginal their lending. And you know, that 0:12:15.280 --> 0:12:17.960 was the thinking that interesting incomes should should benefit and 0:12:17.960 --> 0:12:20.840 if you look at the recent results, that's exactly what happened. 0:12:21.320 --> 0:12:24.559 That interesting most European banks has gone up, in some 0:12:24.600 --> 0:12:29.160 cases massively. But there's also realization that higher rates come 0:12:29.200 --> 0:12:34.520 with lower marks on your on your boob porfilio and 0:12:34.800 --> 0:12:37.240 you know that, you know that there's one aspect. And 0:12:38.679 --> 0:12:42.280 now with those deposit outflows, the realization has now hits 0:12:42.400 --> 0:12:44.360 that banks will have to pay up for those deposits 0:12:44.400 --> 0:12:47.080 to hang onto those deposits, so that will eat into 0:12:47.200 --> 0:12:49.319 margins and that will sort of be a bit of 0:12:49.320 --> 0:12:52.240 an offset. But overall, net net, I still think that 0:12:52.440 --> 0:12:57.600 higher rates are positive for European banks banks in general. Okay, great, 0:12:57.679 --> 0:12:59.680 you're in, Thank you so much. And Arnold from your 0:13:00.040 --> 0:13:04.000 that's Devnaldcuda bug Intelligence in New York. What's the moods 0:13:04.080 --> 0:13:06.920 over in the US right now? How scared should we 0:13:06.960 --> 0:13:09.960 be about the bank? So will others fail? Yeah? I 0:13:09.960 --> 0:13:14.120 mean the mood is very yeah, like uncertain and scary. 0:13:14.360 --> 0:13:18.320 Um you know, Silicon Valley bank signature, these are both 0:13:18.520 --> 0:13:21.080 IG names and then um, you know, in hispan of 0:13:21.160 --> 0:13:24.079 one to two days, they went from IG to um 0:13:24.600 --> 0:13:28.760 bus right, so uh, definitely concerns. And then um, you 0:13:28.760 --> 0:13:30.520 know it was seen as kind of the bigger banks, 0:13:30.559 --> 0:13:32.959 like the JP Morgan's via bas kind of they could 0:13:32.960 --> 0:13:36.680 benefit more from potential deposit outfloor or inflow from some 0:13:36.720 --> 0:13:38.880 of these regionals. But then we get like a credit 0:13:38.920 --> 0:13:42.320 swist where okay, you know, something were to happen there 0:13:42.360 --> 0:13:45.439 you know, definitely a lot of counterparty risks. So definitely 0:13:45.679 --> 0:13:48.960 a lot of concern in the bank financial space given 0:13:49.200 --> 0:13:52.360 you know, contagion or you know, who's next kind of thing. 0:13:52.800 --> 0:13:56.280 So um physicum metrics that we look at, at least 0:13:56.280 --> 0:14:01.360 on the spread side are financials versus the overall bond index, 0:14:01.559 --> 0:14:05.120 and um, you know kind of before this uh turmoil, 0:14:05.559 --> 0:14:09.800 um banks, Uh, financials, let's let let's use the financial 0:14:09.800 --> 0:14:12.400 sector as a proxy, had almost traded flat to the 0:14:12.480 --> 0:14:15.600 corporate bond index. But then given how you know, the 0:14:15.600 --> 0:14:18.079 Silicon Valley bank failure as well as you know, credit 0:14:18.120 --> 0:14:21.240 Swiss volatility, has happened, you know, just within a span 0:14:21.440 --> 0:14:24.200 of a week. You know, now now the financial sector 0:14:24.320 --> 0:14:28.000 is about twenty five wider than the overall UH corporate 0:14:28.040 --> 0:14:30.800 bond sector. So definitely a lot of jitters going on 0:14:30.880 --> 0:14:34.280 right now. Just um you mentioned earlier IG just for 0:14:34.480 --> 0:14:36.760 listeners who may not be where that means investment grade, 0:14:36.960 --> 0:14:39.520 which um, the bonds of credit Swiss still actually are, 0:14:39.640 --> 0:14:44.520 even though the trading like distressed junk today. UM. So 0:14:44.720 --> 0:14:47.880 that's that's an interesting feature of the market. But but 0:14:48.000 --> 0:14:51.320 you mentioned, you know that maybe others in trouble. I mean, 0:14:51.440 --> 0:14:53.520 is there going to be widespread contagion? What are the 0:14:53.560 --> 0:14:56.720 weakest links here? I mean, you know, even now there's 0:14:56.760 --> 0:15:00.520 concerns with a First Republic h bank, which is uh 0:15:00.520 --> 0:15:02.640 they only have about eight hundred million of of of 0:15:02.880 --> 0:15:06.160 UM subordinated debt, which are which are well they were 0:15:06.200 --> 0:15:10.640 IG until two days ago UH and there togo UM 0:15:10.840 --> 0:15:14.880 before the rating agencies pick it down to UM high 0:15:14.960 --> 0:15:19.240 yield UM. But yeah, it's these models where they're you know, 0:15:19.240 --> 0:15:23.400 as eurone had talked about a lot of uninsured deposits 0:15:23.840 --> 0:15:27.120 right a high high level of balances, so um, it 0:15:27.120 --> 0:15:29.160 could be that you know, when there's a lot of 0:15:29.200 --> 0:15:34.040 uncertainty with Silicon Valley Bank unless say the Friday and 0:15:34.200 --> 0:15:37.320 there was a concern where uninsured depositors would not be 0:15:37.440 --> 0:15:41.200 made whole. That's when you know people got concerned and 0:15:41.200 --> 0:15:44.000 they might have already moved their money. And so you 0:15:44.040 --> 0:15:46.760 know what what the FED and the FDAC the regulators 0:15:46.760 --> 0:15:50.560 have done is to implement some measures to kind of help. 0:15:51.120 --> 0:15:54.240 But you know, if if the bank run, if deposits 0:15:54.320 --> 0:15:57.480 run out so fast that they overwhelm kind of the 0:15:57.480 --> 0:16:00.760 the liquid security PO portfolios at these banks do you 0:16:00.840 --> 0:16:04.280 have and which have gained a lot of unrealized losses, right, 0:16:04.840 --> 0:16:07.160 it might overwhelm that. So you know, it might be 0:16:07.200 --> 0:16:10.400 too late. And that's I think that situation happened at SBB. 0:16:10.600 --> 0:16:14.160 So um yeah, and it's ironic that all this stuff 0:16:14.800 --> 0:16:17.920 is ahead of a potential recession. And you know that's 0:16:17.920 --> 0:16:21.280 where we kind of delve into, um, you know what's 0:16:21.320 --> 0:16:23.960 gonna happen to the loan portfolios as the economy gets hours, 0:16:24.360 --> 0:16:27.120 Consumers are impacted, business are impacted, and then that's when 0:16:27.120 --> 0:16:30.040 you start seeing loan losses. But you know where the model, 0:16:30.080 --> 0:16:34.120 you know, the market is currently concerned with, um, these 0:16:34.160 --> 0:16:37.640 models where they have a lot of unsecured deposits, and 0:16:37.680 --> 0:16:41.360 then they invested in bond a big bond portfolio, sovereign 0:16:41.360 --> 0:16:45.600 bond portfolio or agency mbs triple A rated securities that 0:16:45.640 --> 0:16:49.680 have accumulated losses and um and and the accounting for 0:16:49.800 --> 0:16:53.160 these regional banks is, you know, those unrealized losses, they 0:16:53.160 --> 0:16:56.200 didn't hit capital levels. So it's a confluence of you know, 0:16:56.360 --> 0:16:59.720 deposits not being sticky where they thought they were liquid 0:16:59.720 --> 0:17:02.640 acid it's not really being liquid because you know, banks 0:17:02.640 --> 0:17:05.639 didn't want to sell it for losses. And then lacks 0:17:05.640 --> 0:17:08.760 accounting rules for these kind of mids of small sized 0:17:08.880 --> 0:17:11.640 regional banks where they didn't have to account for those 0:17:11.680 --> 0:17:15.480 unrelifed losses in their capital levels. I think we should 0:17:15.600 --> 0:17:18.480 really time stamp this conversation because things are moving so quickly. 0:17:18.520 --> 0:17:21.639 This is much sixteen eleven fifty in the morning in 0:17:22.000 --> 0:17:24.280 New York. Anything could happen. But I would like to 0:17:24.320 --> 0:17:26.959 ask both of you, your Ron first, and then Arnold, 0:17:27.200 --> 0:17:30.960 same question I asked Amelia earlier. Is this a Lehman 0:17:31.080 --> 0:17:33.880 moment for for banks and for the economy. Let's start 0:17:33.880 --> 0:17:36.240 with your un what's your view? No, I don't think so. 0:17:36.400 --> 0:17:42.520 I think you know banks globally and European banks you know, 0:17:42.840 --> 0:17:44.480 of course, those are the ones that I that I 0:17:44.480 --> 0:17:48.400 look at the daily basis. The overside, the regulation, regulatory 0:17:48.400 --> 0:17:54.080 framework has been tightened so much since then, um, since 0:17:54.119 --> 0:17:58.080 since the two thousand and eight and before, so it's 0:17:58.119 --> 0:18:03.920 it's you are looking at a completely different UH sector. UM. Now, 0:18:04.000 --> 0:18:08.680 undoubtedly there are many challenges ahead of us, but UM, 0:18:09.440 --> 0:18:13.800 I'm confident that ultimately, you know, the strength the resilience 0:18:14.000 --> 0:18:19.640 of the of the regulatory framework should prevent a Leman 0:18:19.720 --> 0:18:25.119 type scenario playing out. I mean, I agree, it's a 0:18:25.400 --> 0:18:28.400 it's a no for me on Leman, but I would 0:18:28.440 --> 0:18:30.960 have you at that with I think we need uh 0:18:31.080 --> 0:18:35.240 more regulation coming into play. But also I think, UM, 0:18:35.480 --> 0:18:38.720 I think we need more of an explicit maybe deposit 0:18:38.760 --> 0:18:42.600 guarantee for uninsured deposits, you know, for like a period 0:18:42.600 --> 0:18:45.399 of a year or two, uh, just given given the 0:18:45.480 --> 0:18:47.880 volatility of the market. And and I think the thing 0:18:47.920 --> 0:18:50.880 that we can point to is during the financial crisis 0:18:51.080 --> 0:18:54.560 October two thousand and eight, we had that tg T 0:18:54.840 --> 0:18:58.960 LGP Treasury Liquidity Guarantee program and as a part of that, 0:18:59.440 --> 0:19:04.520 UM non interest sparing deposits were guaranteed for over a year, right, 0:19:04.560 --> 0:19:07.159 So when when when when the market psyche is is 0:19:07.400 --> 0:19:12.040 a little hectic and people just move deposits will um 0:19:12.119 --> 0:19:16.800 on maybe some um insignificant news, maybe that sort of 0:19:16.840 --> 0:19:19.240 thing is necessary, right, And so even though we've gotten 0:19:19.240 --> 0:19:23.520 these deposits uninsured deposit um were made whole after these 0:19:24.040 --> 0:19:27.439 you know, signature and SEB when it's a receivership, maybe 0:19:27.440 --> 0:19:30.040 that's what's needed to kind of explicitly say to everybody 0:19:30.400 --> 0:19:33.959 you don't need to move your deposits out of regional 0:19:34.000 --> 0:19:36.640 banks into the bigger banks. So I think a couple 0:19:36.640 --> 0:19:39.480 of things might be needed just to maybe calm the 0:19:39.840 --> 0:19:44.600 market sentiment. But yeah, that's that's why I think. Thank you. 0:19:44.680 --> 0:19:46.639 I hope you'll write that it's not a Leman moment. 0:19:47.160 --> 0:19:50.120 This is the biggest story in global finance right now. 0:19:50.400 --> 0:19:52.600 And you can read all of the analysis of banks 0:19:52.600 --> 0:19:56.399 by Arnold Kakuta and You're Newlius on the Bloomberg terminal. 0:19:56.440 --> 0:19:59.320 Thank you so much to you both, and thanks again 0:19:59.400 --> 0:20:02.280 to Amelia Lord from Bloomberg News. Read all of her 0:20:02.320 --> 0:20:05.320 scoops on the terminal and at Bloomberg dot com. Really 0:20:05.359 --> 0:20:07.760 important to keep an eye on that big bank credit 0:20:07.800 --> 0:20:09.600 story right now. No matter what part of the market 0:20:09.640 --> 0:20:12.280 you are in, Amelia and her team will continue to 0:20:12.280 --> 0:20:14.399 break a lot of news about that in the coming weeks. 0:20:15.640 --> 0:20:17.920 I'm James Crumby. It's been a pleasure having you. See 0:20:17.920 --> 0:20:27.040 you next week on the Credit Edge.