WEBVTT - Surveillance: Banking Jitters with Roubini 0:00:05.080 --> 0:00:08.440 This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:08.480 --> 0:00:12.240 with Jonathan Faroe and Lisa Abramowitz. Join us each day 0:00:12.320 --> 0:00:16.800 for insight from the best and economics, geopolitics, finance and investment. 0:00:17.239 --> 0:00:22.000 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.239 --> 0:00:26.560 anywhere you get your podcasts, and always I'm Bloomberg dot Com, 0:00:26.600 --> 0:00:30.160 the Bloomberg Terminal, and the Bloomberg Business App. We are 0:00:30.200 --> 0:00:32.120 thrilled to have one of our good friends back. Nora 0:00:32.280 --> 0:00:36.000 Roubini is the CEO of Rubini Macro Associates, but far 0:00:36.080 --> 0:00:40.280 more than that, someone who brilliantly was out front of 0:00:40.400 --> 0:00:45.720 previous crisis. Will keep the introduction short. This morning, Noriel, 0:00:45.840 --> 0:00:49.239 good morning to you. How is this crisis different than 0:00:49.360 --> 0:00:52.560 ninety eight? How is this crisis different than two thousand 0:00:52.600 --> 0:00:55.320 and eight, Well, compared to two thousand eighth. Right now, 0:00:55.440 --> 0:00:59.680 we don't have the credits yet, we're not in a resison. 0:01:00.280 --> 0:01:02.960 And the losses that occurred they seemed to be related 0:01:03.000 --> 0:01:06.240 to market race. A number of financial institution did not 0:01:06.360 --> 0:01:10.360 realize that with rising interest rates the price of bonds 0:01:10.400 --> 0:01:14.920 would fall, and last year US banks alone have something 0:01:14.959 --> 0:01:19.120 like six hundred and twenty billion dollars of unrealized losses 0:01:19.160 --> 0:01:22.400 on their securities with a capital of about two point 0:01:22.400 --> 0:01:25.639 two trade, so the average losses about twenty eight percent 0:01:25.720 --> 0:01:29.720 will reduce significantly the capital ratio, the Tier one ratio 0:01:30.080 --> 0:01:34.680 for some banks actually the numbers like Silicon Valley Bank. 0:01:34.760 --> 0:01:37.000 Of course the number was one hundred percent, but I 0:01:37.000 --> 0:01:40.840 would still have the regional banks where that possess will 0:01:40.840 --> 0:01:44.679 be fifty percent of the current capital. I want to 0:01:44.680 --> 0:01:47.400 go back to your Tellian economics, your public service to 0:01:47.480 --> 0:01:51.919 President Clinton, where you were experts on the regulatory framework. 0:01:52.280 --> 0:01:56.800 Switzerland is a devolved federal government with the cantons with 0:01:56.920 --> 0:02:01.560 great strength. What is your knowledge of Swiss regulators right now? 0:02:01.960 --> 0:02:05.640 How removed are they from the credit Swiss crisis? Or 0:02:05.720 --> 0:02:10.880 they can they be active today to help their beleaguered bank. Well, 0:02:11.080 --> 0:02:13.720 they can be active today, even if they're a system 0:02:13.800 --> 0:02:17.959 that is delegated. However, the problem is that trying to 0:02:18.040 --> 0:02:21.080 twisted by some standards might be too big to fail 0:02:21.160 --> 0:02:24.320 but also too big to be saved. Is not clear 0:02:24.440 --> 0:02:27.720 that I Unlike the United States, the federal system is 0:02:27.880 --> 0:02:32.240 enough resources who engineer a bailout and what they need 0:02:32.320 --> 0:02:34.639 certain is more capital and the question is whether they're 0:02:34.680 --> 0:02:37.600 going to get that capital or not. Otherwise bad things 0:02:37.639 --> 0:02:40.320 can happen. Well, bad things are happening this morning, Noria, 0:02:40.400 --> 0:02:42.160 I'd love your take on this. There might be some 0:02:42.200 --> 0:02:44.400 people waking up this morning looking at what's happening with 0:02:44.480 --> 0:02:47.639 Credit Suis, perhaps perhaps based here in the United States, 0:02:47.639 --> 0:02:49.240 and thinking what does this mean for me? Why is 0:02:49.240 --> 0:02:52.200 this important? Could you explain to those people, Norille, just 0:02:52.240 --> 0:02:55.200 how important Credit Swiss might be to the financial system. Well, 0:02:55.240 --> 0:02:58.840 it's important because the SVP was only about a one 0:02:58.919 --> 0:03:01.560 hundred and fifty billion lawlers of assets, while in the 0:03:01.600 --> 0:03:04.400 case of Credit Swiss were speaking about at least a 0:03:04.639 --> 0:03:08.640 seven hundred billion. So anything will happen to Credit Whiss 0:03:08.680 --> 0:03:11.920 will be of systemic effect for not just the European 0:03:12.000 --> 0:03:15.400 financial system, but also for the global financial system. So 0:03:15.440 --> 0:03:20.600 if Silicon Valley Bank create repal effects in global financial market, 0:03:21.000 --> 0:03:24.000 something bad happening into Credit Swiss will be an order 0:03:24.040 --> 0:03:28.160 magnitude more, something more like a Leman moment. A lot 0:03:28.160 --> 0:03:30.639 of people are talking about the implications of this on 0:03:30.760 --> 0:03:34.760 monetary policy, and Torsten Stock earlier said when the facts change, 0:03:34.880 --> 0:03:37.960 his view changes from no landing to a hard landing. 0:03:38.280 --> 0:03:41.600 He sees perhaps the end of a rate hiking cycle, 0:03:41.640 --> 0:03:43.880 as does the market, including one hundred basis points of 0:03:43.920 --> 0:03:47.320 cuts in the next year. Nuriel, do you agree with 0:03:47.360 --> 0:03:50.840 this assessment. Have the facts changed where suddenly rate hikes 0:03:50.840 --> 0:03:52.640 are out of the picture and you see that the 0:03:52.680 --> 0:03:56.800 inflation story will get solved by a crisis elsewhere. I 0:03:56.880 --> 0:03:59.040 don't think so. I think that the dilemma for central 0:03:59.080 --> 0:04:02.440 bank has got to be worse because the latest economic 0:04:02.560 --> 0:04:05.960 data for inflation in the Eurozone or the US suggests 0:04:06.000 --> 0:04:08.800 that inflation is still to ye, is falling, but is 0:04:08.840 --> 0:04:11.760 not falling as fast as the FED or ECB wanted 0:04:11.840 --> 0:04:14.880 to be. So, based on what's the economy doing right now, 0:04:15.080 --> 0:04:17.760 we need to hike and like much more. The FAT 0:04:17.760 --> 0:04:20.479 should go at least closer to six percent. The CEB 0:04:20.560 --> 0:04:23.240 should bring the deep or rate to at least four percent. 0:04:23.640 --> 0:04:27.480 The problem right now we're facing a situation of financial instability, 0:04:27.720 --> 0:04:31.520 and financial instability would suggests to stop hiking, maybe even 0:04:31.600 --> 0:04:34.880 cutting rates and maybe even resuming quantity division. And what 0:04:34.960 --> 0:04:37.560 the FAT has done is back to or quantity divising. 0:04:37.800 --> 0:04:39.479 But if you do that, you have a risk of 0:04:39.800 --> 0:04:44.279 the antoorg of inflation inflation expectation that tradeoff existed even 0:04:44.320 --> 0:04:47.960 before raising rates would have led to stresses in financial 0:04:48.000 --> 0:04:51.560 market like last year where bond yields went much higher 0:04:51.800 --> 0:04:55.640 credit spread widen. That stress is becoming more severe today 0:04:55.760 --> 0:04:59.080 because now we have systemic financial problems, But we're also 0:04:59.120 --> 0:05:01.800 in a situation in the state way to hyge, and 0:05:01.839 --> 0:05:04.000 the idea that this financial stress is going to cause 0:05:04.240 --> 0:05:07.640 inflation of drop is not yet in economic data, So 0:05:07.720 --> 0:05:09.839 there is a dilemma for sentle bands. Although a lot 0:05:09.880 --> 0:05:12.360 of people are saying that they see credit conditions tightening, 0:05:12.640 --> 0:05:15.080 we heard earlier from Larry Fink of Black Rock saying 0:05:15.080 --> 0:05:17.760 that he sees a slow rolling crisis that's going to 0:05:17.839 --> 0:05:21.680 move from the banking system to private credit to private equity. 0:05:22.040 --> 0:05:24.640 How does your view kind of tie into this sort 0:05:24.680 --> 0:05:27.920 of inherent credit tightening that we see across a whole 0:05:27.920 --> 0:05:32.280 host of assets. Certain there's going to be a tightening 0:05:32.320 --> 0:05:35.880 of financial conditions, at least in terms of credit spreads. 0:05:36.240 --> 0:05:38.680 Bond deals are falling, But on the short and long end, 0:05:38.839 --> 0:05:42.600 that's an easing of financial condition that eventually might lead 0:05:42.640 --> 0:05:45.160 to an economic slow down. But there we have the 0:05:45.400 --> 0:05:48.360 inflation today is way too high and it's going to 0:05:48.400 --> 0:05:51.680 remain too high because the forces are leading to high inflation, 0:05:52.120 --> 0:05:55.440 like for example, very tightly or market are still with us, 0:05:55.720 --> 0:05:58.960 and therefore that's going to be a cause of persistent inflation. 0:05:59.360 --> 0:06:02.160 And the idea that eventually sighting of financial condition is 0:06:02.200 --> 0:06:04.280 going to cause a slowdown of the column and a 0:06:04.400 --> 0:06:07.480 weakening of inflation is not yet in the data. So 0:06:07.520 --> 0:06:11.719 there is a really contradiction between achieving economic stability and 0:06:11.839 --> 0:06:15.960 lower inflation and maintaining financial stability. To today, what a conflict. 0:06:16.040 --> 0:06:18.479 What a conflict. I've got forty five seconds left. I 0:06:18.520 --> 0:06:20.479 wanted to give the opportunity to try and answer this. 0:06:21.000 --> 0:06:23.760 Banks found out that the risk was where they thought 0:06:23.839 --> 0:06:27.280 the safety was Noria West the safety now when the 0:06:27.279 --> 0:06:29.839 safety is not in long term treasuries. I've been writing 0:06:29.839 --> 0:06:32.440 for it for over a year. You know, if average 0:06:32.480 --> 0:06:35.840 inflation were to be say five percent, ten year treasury 0:06:35.839 --> 0:06:38.960 eventually have to be seven percent to data around three 0:06:39.000 --> 0:06:41.840 and a half. Last year, you lost twenty percent on 0:06:41.880 --> 0:06:44.559 your safe bonds, more than you lost on your SMP 0:06:44.720 --> 0:06:47.320 because yill went from one towards three. If they go 0:06:47.480 --> 0:06:49.680 from three and a half to seven or the medium term, 0:06:49.839 --> 0:06:53.000 they'll be further blood bat on twenty three dollars of 0:06:53.120 --> 0:06:56.320 long duration risk assets. The solution is going to be 0:06:56.560 --> 0:07:00.919 short term treasury tapes, gold pressures, matter another head just 0:07:01.160 --> 0:07:03.919 against inflation. That's where you have to outgo, and investor 0:07:03.960 --> 0:07:06.760 sort only now started to realize it that that's where 0:07:06.800 --> 0:07:08.600 you have to do. It's going to be a conversation. 0:07:08.640 --> 0:07:10.200 You and I have the whole of this team for 0:07:10.200 --> 0:07:12.480 a long time, no doubt, Thank you, sir, No Robeini, 0:07:12.520 --> 0:07:15.440 the Robini Macro Associates and Tom of course, the author 0:07:15.800 --> 0:07:23.520 of Mega Threats. Peter Cha, head of Macro Strategy Academy Securities, 0:07:23.560 --> 0:07:26.840 joins us. Pete, let's talk about it one ninety seven. 0:07:27.000 --> 0:07:28.880 I think we're all sort of clude on the interday 0:07:28.960 --> 0:07:31.200 chat tick for tick at the moment, Pete, what's your 0:07:31.200 --> 0:07:35.160 take on what's unfolding? You know, I'm watching the CDs market. 0:07:35.200 --> 0:07:37.560 We've seen the one year jump to say eight to 0:07:37.640 --> 0:07:39.440 nine points up front, so someone has to pay eight 0:07:39.520 --> 0:07:43.120 or nine percent of principle to ensure the credit risk 0:07:43.160 --> 0:07:45.880 per year. Part of that's concerning because you're starting to 0:07:45.880 --> 0:07:49.040 see the curve invert, so there's a bid for frind 0:07:49.080 --> 0:07:51.640 AD and CDs. Having said that, I think two things 0:07:51.680 --> 0:07:55.000 that are mitigating that are liquidity is still just abysmos, 0:07:55.040 --> 0:07:58.080 so liquidity is low. European credit to false twap. Liquidity 0:07:58.160 --> 0:08:00.000 is not what it once was, so the moves can 0:08:00.080 --> 0:08:02.720 be exaggerated. And it is a name that people hold 0:08:02.840 --> 0:08:04.600 so much that they do need to hedge. People have 0:08:04.640 --> 0:08:07.440 been playing around in the cocos various parts of the 0:08:07.480 --> 0:08:10.680 cap structure, so you do get this volatility. It is 0:08:10.720 --> 0:08:13.280 a bit concerning though that every you know it seems 0:08:13.320 --> 0:08:15.760 to be reaching you highs in terms of CDs spreads. 0:08:16.080 --> 0:08:18.720 So I'm watching that and I think one lesson all 0:08:18.760 --> 0:08:21.600 the US banks should be taking is when it comes 0:08:21.600 --> 0:08:23.840 to capital raising, you have to be aggressive and get 0:08:23.840 --> 0:08:25.840 it done early. Right. This seems to be today's story 0:08:25.920 --> 0:08:28.840 is about not raising capital maybe a few months ago, 0:08:29.040 --> 0:08:31.360 and that's what's hurting them today. I think every US 0:08:31.440 --> 0:08:34.439 bank that's kind of that weaker end should be thinking 0:08:34.480 --> 0:08:36.920 how do I raise capital? Because we in the US 0:08:37.000 --> 0:08:42.640 have to fill that big void of the unmarked, unrealized 0:08:42.679 --> 0:08:46.199 losses and treasures. Some financial institutions that some people had 0:08:46.240 --> 0:08:50.080 never heard of would declared systemically impulsant by regulators in 0:08:50.160 --> 0:08:53.880 order to make DEPOSITUS hold over the weekend in America. 0:08:54.000 --> 0:08:56.640 How would you describe the important secredit swat to the 0:08:56.679 --> 0:09:00.439 financial system. You know, it's an incredibly important company. It's 0:09:00.480 --> 0:09:03.440 a awesome company's as you say, we all know people 0:09:03.480 --> 0:09:05.560 who are there. I think we need to see this 0:09:06.600 --> 0:09:09.480 get resolved, because the one thing we do tend to see, unfortunately, 0:09:09.600 --> 0:09:13.520 is if one gets into trouble, people very quickly start looking, oh, 0:09:13.520 --> 0:09:15.720 what's the next one that looks remotely like this? And 0:09:15.760 --> 0:09:18.120 it may be unfair, but that's kind of the pattern 0:09:18.160 --> 0:09:20.360 we saw during the European deck crisis, during the Great 0:09:20.360 --> 0:09:22.480 Financial Crisis. I think we just saw it here in 0:09:22.480 --> 0:09:25.400 the regional banks. So this has to be a priority 0:09:25.440 --> 0:09:28.960 for the ECB and Yes to get together. Peter, I 0:09:29.000 --> 0:09:30.760 just want to cut to the chase here in contagion. 0:09:30.800 --> 0:09:33.360 I'm looking at Deutsche Bank. I'm looking at the retail 0:09:33.440 --> 0:09:37.640 French giant BMP Perry, same idea. They give way as well. Peter. 0:09:37.720 --> 0:09:39.920 We don't have time for the tech dynamics, but it 0:09:40.080 --> 0:09:42.560 is grim. There's no other way to put it with John, 0:09:42.679 --> 0:09:45.840 help me here A one ninety four one point nine 0:09:45.920 --> 0:09:49.000 four zero five on credit sueees. Do you look at 0:09:49.040 --> 0:09:54.200 this is a EU regulatory contagion or is it contained 0:09:54.320 --> 0:09:58.520 to Zurich. It should be contained to Zurich. But again 0:09:58.559 --> 0:10:02.000 I think, just like the FED was the ECBs acknowledge 0:10:02.040 --> 0:10:04.520 that they've got to ring fence things and make sure 0:10:04.640 --> 0:10:06.880 that they're putting up firewalls in place, actually to help 0:10:06.960 --> 0:10:09.959 cs lets get time, but more importantly to ensure that 0:10:10.000 --> 0:10:13.000 there's no chance of this attracting the attention of other 0:10:13.080 --> 0:10:15.800 banks and people pushing on them. That's what happened to 0:10:15.800 --> 0:10:18.680 the US, That's happened past, and I do like what 0:10:18.720 --> 0:10:20.440 the regulators did in the US. I think they were 0:10:20.520 --> 0:10:22.880 very aggressive on Sunday night. I think there's more to do. 0:10:22.920 --> 0:10:24.800 They've got to address the core problem, which again is 0:10:24.840 --> 0:10:27.800 these huge unrealized losses. But it's a step in the 0:10:27.880 --> 0:10:30.439 right direction. It starts ring fencing it and making sure 0:10:30.480 --> 0:10:32.680 that people understand there is time for these things to 0:10:32.720 --> 0:10:36.359 work out. The core problem is also though, that regulators 0:10:36.440 --> 0:10:39.559 missed some of the red flags, not only with respect 0:10:39.640 --> 0:10:41.840 to Credit Suite, so now having to go back and 0:10:41.880 --> 0:10:45.200 rethink some of the statements as the SEC raised flags, 0:10:45.200 --> 0:10:47.959 but also over in the US where there wasn't even 0:10:48.000 --> 0:10:51.240 a chief risk officer at SVB I'm wondering, from your perspective, 0:10:51.520 --> 0:10:53.840 at what point does the market lose faith in the 0:10:53.880 --> 0:10:57.760 ability of regulators to flag risks that might emerge next? 0:10:58.880 --> 0:11:01.040 You know, it's I think one of the problems that 0:11:01.080 --> 0:11:03.559 we face is the regulators are often get caught fighting 0:11:03.600 --> 0:11:06.280 the last battle, and the Great Financial Crisis was all 0:11:06.280 --> 0:11:08.280 about the big banks, and that's where the focus was. 0:11:08.559 --> 0:11:10.440 And clearly we've got to do more to make sure 0:11:10.520 --> 0:11:14.760 that everyone's well managed, everyone's being within limits. You know, 0:11:14.920 --> 0:11:17.160 I think the things that they did, by the surface, 0:11:17.240 --> 0:11:20.240 looks completely allowed to do. Now why you would want 0:11:20.240 --> 0:11:22.680 to take that much duration Rims, that's a separate question. 0:11:23.280 --> 0:11:25.600 I know you like the midsize lenders in the United States, 0:11:25.600 --> 0:11:29.160 particularly after what you heard on Sunday evening. European banks 0:11:29.160 --> 0:11:31.240 have been a massive trade and if we can step 0:11:31.240 --> 0:11:34.320 away from Switzerland just for a moment, Soakedin's down eight percent, 0:11:34.760 --> 0:11:37.400 being paced down eight percent, I in Chase down six 0:11:37.440 --> 0:11:40.319 point five percent, Pete, can you say the same thing 0:11:40.320 --> 0:11:43.160 about the European lenders in this moment they faced this morning? 0:11:44.320 --> 0:11:46.400 Not yet. I prefer the US right now because I 0:11:46.440 --> 0:11:49.120 think it was way overdone. It was a very isolated case. 0:11:49.320 --> 0:11:51.559 And the regulators come out quickly. So I want to 0:11:51.559 --> 0:11:54.240 see some sense that the regulators and the ECB are 0:11:54.280 --> 0:11:56.600 coming out and doing what they can. Then I think 0:11:56.640 --> 0:11:58.520 it's a buying opportunity. Again, it's been a great run, 0:11:58.760 --> 0:12:00.959 so I'm much more comfortable right now with the US 0:12:01.080 --> 0:12:03.640 and the mid market banks. That's where I want. If anything, 0:12:03.640 --> 0:12:05.520 I expect news over the weekend where you see some 0:12:05.559 --> 0:12:08.400 progress from some of these banks and storing up their capital, 0:12:08.440 --> 0:12:11.520 whether it's to a merger or getting an infusion. That 0:12:11.520 --> 0:12:14.160 would be great for the market. So I like that. Europe, 0:12:14.200 --> 0:12:15.600 I think we got to see where this plays out. 0:12:15.600 --> 0:12:17.840 It's too early. I pay thank you, sir I As 0:12:17.880 --> 0:12:31.560 always Pittacha of Academy Securities. We are informed by ken 0:12:31.640 --> 0:12:34.440 Leon with decades of experience with CFI A and of 0:12:34.440 --> 0:12:38.000 course helping us with American banks. Is it trust and 0:12:38.120 --> 0:12:42.240 confidence Dearth and Zurich ken Leon? Is it basically the 0:12:42.360 --> 0:12:47.280 same as in Palo Alto or California? Is the trust 0:12:47.320 --> 0:12:51.599 and confidence lack? Is it the same everywhere for investors 0:12:51.600 --> 0:12:56.080 and customers? Yes, and it comes in different levels. This 0:12:56.120 --> 0:12:59.680 one is concerning because it's global and for the ft 0:13:00.120 --> 0:13:04.160 they're still in their domain of financial stability, which is 0:13:04.200 --> 0:13:09.880 an issue, and there's lots of new takers into the story, 0:13:10.280 --> 0:13:14.520 whether it be Congress policy makers. What does the central 0:13:14.520 --> 0:13:19.680 Bank in Switzerland say about perhaps their major franchise that 0:13:19.760 --> 0:13:22.560 has dwindled over the years. It's a pretty sad story. 0:13:22.840 --> 0:13:25.360 Training again at one point eight seven, John, A nice 0:13:25.440 --> 0:13:28.360 lift there, but nowhere above even on the last ten 0:13:28.400 --> 0:13:31.559 minute interval that would need to get to one point 0:13:31.640 --> 0:13:33.680 nine two or one point ninety three, and we're not 0:13:33.760 --> 0:13:36.760 even there yet. One five is music to nobody says, yeah, 0:13:36.760 --> 0:13:39.160 I'm looking at that stock. Let's continue with Ken Leon. 0:13:39.280 --> 0:13:43.079 Is kredit suis trade this morning, Ken Leon, As you mentioned, 0:13:43.160 --> 0:13:45.839 Kredit suis a global name. It's all part of our 0:13:46.200 --> 0:13:51.240 heritage as well. I'm thunderstruck at where Swiss regulators are. 0:13:51.400 --> 0:13:56.360 Can American regulators apply any sense of force here on 0:13:56.480 --> 0:14:02.960 a foreign bank? They they can im as it relates 0:14:03.000 --> 0:14:07.320 to their assets in the US or the cooperation that 0:14:07.520 --> 0:14:11.520 you see at the highest levels of Japal working with 0:14:11.559 --> 0:14:15.199 other central branks around the world, the ECP in particular. 0:14:16.400 --> 0:14:20.600 But this one spot on the timeline is short. You 0:14:20.720 --> 0:14:24.600 don't have to may Or June J. Pal Monday said 0:14:24.640 --> 0:14:28.600 to Michael Barr, head of Supervision, is that I need 0:14:28.640 --> 0:14:30.880 a report and it will be shared with the public 0:14:30.920 --> 0:14:35.160 by May first. Congress will have hearings about what's happened 0:14:35.160 --> 0:14:38.600 in the US with the regional banks. A lot of 0:14:38.600 --> 0:14:42.560 this is trust and confidence versus panic, and then when 0:14:42.640 --> 0:14:46.320 you get into the weeds, that's the important areas what happened, 0:14:46.400 --> 0:14:49.520 when did it happen, what went wrong? And I'd like 0:14:49.560 --> 0:14:52.360 to share more about that because the other major part 0:14:52.360 --> 0:14:55.560 of the feed is bank supervision. Again, there's a story 0:14:55.600 --> 0:14:58.400 of trust and confidence when it comes to specific issues, 0:14:58.680 --> 0:15:01.600 whether it's hedging interestry risk or whether it's just you know, 0:15:01.680 --> 0:15:05.360 management missteps on consecutive years. In the case of Credit 0:15:05.440 --> 0:15:09.560 suis where are the linkages beyond just simply a lack 0:15:09.600 --> 0:15:15.480 of confidence, But the weakness is really getting large banks 0:15:15.640 --> 0:15:19.240 and in this and now smaller banks to invest in 0:15:19.360 --> 0:15:24.640 technology platforms for compliance and regulation. Michael Corbetta City Group 0:15:24.680 --> 0:15:28.840 for years was told to invest and he didn't, and 0:15:28.880 --> 0:15:31.560 then there was penalties and hundreds of millions of dollars 0:15:31.560 --> 0:15:35.200 spent at City Wells far goes another example, and you 0:15:35.320 --> 0:15:38.760 take this at that scale of a global bank, Credit Swiss, 0:15:39.680 --> 0:15:44.000 it's critical to have that. It's taken US five seven 0:15:44.080 --> 0:15:48.720 years for all of our globe and Sacks Morgan Stanley 0:15:48.800 --> 0:15:51.960 to do that. But when you get down to midsize 0:15:52.040 --> 0:15:54.880 banks one hundred billion or more or intent to one 0:15:54.920 --> 0:15:59.160 hundred billion, they don't have the manpower or the resources 0:15:59.200 --> 0:16:02.560 to do it like the large banks who've done it well. 0:16:02.880 --> 0:16:06.280 And on the other side is the set has thousands 0:16:06.280 --> 0:16:11.400 of bank examiners, but after twenty eighteen regulation just staying 0:16:11.760 --> 0:16:15.080 very focused and tight for those above two hundred and 0:16:15.080 --> 0:16:19.120 fifty billion, not fifty and long. Behold Barney frank Is 0:16:19.160 --> 0:16:22.000 on the board of truck. There's a signature back unreal. Yeah, 0:16:22.320 --> 0:16:24.600 we're going to get theater and Congress on all this, 0:16:25.040 --> 0:16:29.440 but also the bank examiners and what the banks respond 0:16:29.520 --> 0:16:32.720 to really matters a lot. Kennon got thirty seconds on 0:16:32.760 --> 0:16:35.880 the clock. There might be some people engaging in this program. 0:16:36.000 --> 0:16:38.680 Maybe they've never listened or watched this program ever before. 0:16:39.080 --> 0:16:41.160 They've watched what's happened with banks over the last week, 0:16:41.160 --> 0:16:42.840 and they've taken an interest, and they hear us talk 0:16:42.840 --> 0:16:45.440 about Credit Suite and they say credit who They've never 0:16:45.480 --> 0:16:47.480 engaged with this Lenda before. They don't know what this 0:16:47.520 --> 0:16:50.480 bank does. They've seen futures down ken Why does this 0:16:50.560 --> 0:16:53.680 bank matter? Waking up in the United States this morning, 0:16:55.040 --> 0:16:58.800 such a global bank, there might be counterparty risk for 0:16:58.880 --> 0:17:03.720 some of the US banks. It's also, you know, significant 0:17:03.720 --> 0:17:06.440 in the cog of the capital markets. So if it's 0:17:06.480 --> 0:17:10.000 not related to direct lending in the US, it does 0:17:10.160 --> 0:17:13.879 matter significantly for the capital markets. And that's where you 0:17:13.960 --> 0:17:16.800 really have to look on what it impacts in terms 0:17:16.800 --> 0:17:21.200 of debt instruments, derivatives as well as equities. Can appreciate 0:17:21.240 --> 0:17:23.800 your perspective ready today, Thank you, sir Kenley on that 0:17:24.280 --> 0:17:31.679 CF all right, we are well timed here joining us 0:17:31.720 --> 0:17:33.760 as David Rubinstein, you know him of course from the 0:17:33.760 --> 0:17:36.560 Carlisle Group, his public service to the nation and the 0:17:36.600 --> 0:17:41.000 Carter administration and David Rubinstein peer to peer conversations, and 0:17:41.080 --> 0:17:44.199 as David knows, I'm wont to say we'll rip up 0:17:44.240 --> 0:17:46.440 the script today. We're going to rip up the script. 0:17:46.760 --> 0:17:49.560 I've got eight ways to go here. You with your 0:17:49.560 --> 0:17:53.639 philanthropy have a wonderful linkage between financial elites and the 0:17:53.760 --> 0:17:57.679 government in America. We've seen the government begin to step 0:17:57.720 --> 0:18:01.199 in in this crisis. Are you surprised that European and 0:18:01.280 --> 0:18:05.760 particularly Swiss authorities have not stepped in on credit suits. 0:18:06.640 --> 0:18:09.320 I am surprised that nothing has happened yet, But it 0:18:09.440 --> 0:18:11.600 took a day or two for the United States to 0:18:11.640 --> 0:18:14.280 get its act together, so I suspect it'll take a 0:18:14.320 --> 0:18:17.720 day or two there. But remember, the US regulatory scheme 0:18:17.800 --> 0:18:20.280 is much different than the Swiss one or the European one, 0:18:20.840 --> 0:18:23.520 and so we have one regulatory scheme more or less 0:18:23.560 --> 0:18:25.879 the United States. They have many different ones in Europe, 0:18:26.160 --> 0:18:28.199 and I don't think the Swiss authorities have quite the 0:18:28.200 --> 0:18:31.800 authority over the banking system that the US one does 0:18:31.840 --> 0:18:34.120 have over our banking system. David, That's what I wanted 0:18:34.160 --> 0:18:36.800 to go to. What would you suppose snapping in looks 0:18:36.840 --> 0:18:39.439 like in Swisland? What does that look like? Well, we 0:18:39.480 --> 0:18:42.199 did in the United States is we protected depositors, so 0:18:42.240 --> 0:18:45.240 we didn't protect creditors, and we didn't protect shareholders, and 0:18:45.280 --> 0:18:49.440 we didn't protect really employees. I suspect the Swiss situation 0:18:49.560 --> 0:18:52.760 is more complicated because the existence of the bank is 0:18:52.800 --> 0:18:55.640 more at stake here, and it's such a well known 0:18:55.680 --> 0:18:58.760 bank around the world that I think the Swiss authorities 0:18:58.800 --> 0:19:02.240 have to worry more than just about the depositors. The 0:19:02.359 --> 0:19:05.360 chairman of the Swiss of the Saudi National Bank, who 0:19:05.400 --> 0:19:08.880 I do know, made a statement that you broadcast recently 0:19:09.520 --> 0:19:11.160 saying that they were not going to put more money 0:19:11.160 --> 0:19:13.400 in and that would probably a bit of a blow 0:19:13.440 --> 0:19:15.520 to Credit Swiss. Were you surprised by that that he 0:19:15.600 --> 0:19:18.560 said that out loud on the record. I was surprised 0:19:18.560 --> 0:19:21.200 by it. I just saw him a few weeks ago, 0:19:21.280 --> 0:19:23.639 and I think, you know, they have a lot of 0:19:23.640 --> 0:19:28.200 authority in Swiss, the Saudi National Bank, and I suspect 0:19:28.400 --> 0:19:30.560 they wanted the Protector investment. But obviously there's a reason 0:19:30.600 --> 0:19:32.919 why they're not doing that. Well, there's a theory that 0:19:33.000 --> 0:19:36.239 perhaps Middle Eastern investors would want to come in and 0:19:36.280 --> 0:19:38.800 help Credit Swiss more substantially, not just because they think 0:19:38.800 --> 0:19:40.720 it's a good investment, so that they could do business 0:19:41.000 --> 0:19:43.640 and have that be the European node. Is that basically 0:19:43.720 --> 0:19:46.560 off the table based on the very public comments that 0:19:46.600 --> 0:19:49.800 we heard earlier this morning, I don't have enough information 0:19:49.840 --> 0:19:52.240 to say that that's the case. I was surprised that 0:19:52.320 --> 0:19:54.800 the Saudi National Bank chairman did not want to put 0:19:54.840 --> 0:19:56.960 more money in, but he may be under some regulatory 0:19:57.000 --> 0:19:59.680 constraints to put more money in so I just don't 0:19:59.680 --> 0:20:01.719 have all the facts there, but I do know that 0:20:01.760 --> 0:20:06.000 there's a lot of Middle East interest in Credit Swiss, 0:20:06.200 --> 0:20:07.600 and over the years there have been a lot of 0:20:07.880 --> 0:20:11.639 activity between the Credit Swiss and Noways bankers and Middleways investors. 0:20:11.920 --> 0:20:14.000 We'll just have to wait and see. David, you said 0:20:14.040 --> 0:20:17.200 that this is more complicated because of all the interconnectedness 0:20:17.200 --> 0:20:19.600 of Credit Swiss and the global banking system, and I'm 0:20:19.600 --> 0:20:22.280 wondering what your concern is, whether you think that the 0:20:22.320 --> 0:20:26.320 worry and market this morning markets is warranted based on 0:20:26.640 --> 0:20:29.680 how systemic it really is. Well. I think in the 0:20:29.760 --> 0:20:32.719 United States the regulators thought over the weekend they had 0:20:32.880 --> 0:20:35.520 solved the problem. Clearly, they haven't really solved the problem 0:20:35.600 --> 0:20:39.120 because some banks are still weaker than they would prefer 0:20:39.200 --> 0:20:42.320 to be. I think the contagion that spread to Europe 0:20:42.440 --> 0:20:45.200 is something that the regulators here probably did not anticipate, 0:20:45.480 --> 0:20:47.280 and so we'll just have to wait and see what 0:20:47.320 --> 0:20:50.000 the impact is. Right now, the US banking system is 0:20:50.000 --> 0:20:52.679 in pretty good shape. There's obviously some weak banks, but 0:20:52.720 --> 0:20:55.320 basically we don't have a systemic run on the major 0:20:55.359 --> 0:20:58.119 banks in the United States. I would say that Credit 0:20:58.160 --> 0:21:00.240 Swiss is a major bank in Europe, not as portant 0:21:00.240 --> 0:21:02.560 as it was many years ago, but still an important bank. 0:21:02.760 --> 0:21:04.600 So if we were to have serious problems and have 0:21:04.760 --> 0:21:08.520 more of a contagient effect than Silicon Valley Bank would 0:21:08.520 --> 0:21:13.400 have on our banking system, some people talk, other people do. 0:21:13.840 --> 0:21:16.720 In March of two thousand and eight, you did, Carlisle 0:21:16.840 --> 0:21:20.720 Capital to be polite, was challenged to be polite about it. 0:21:21.240 --> 0:21:25.600 You stepped up verbally and with action to help make 0:21:25.680 --> 0:21:30.000 people whole. How do we affect that now with this 0:21:30.160 --> 0:21:34.080 complex crisis that we have. Well, that was something that 0:21:34.119 --> 0:21:36.800 was unanticipated by many people. It came about in part 0:21:36.880 --> 0:21:40.640 because the concerns about the regulatory system and interest rates 0:21:40.640 --> 0:21:43.640 were going up. I think here the Federal Reserve probably 0:21:43.640 --> 0:21:46.040 did not spend as much time worrying about the impact 0:21:46.160 --> 0:21:51.160 on banks and their ability to survive. When interest rates 0:21:51.160 --> 0:21:53.840 were going up. The Fed was mostly focused, I think, 0:21:53.880 --> 0:21:56.959 on inflation and not worry about the bank regulatory system, 0:21:57.200 --> 0:21:59.320