Speaker 1: First Republic Bank has become the second largest bank failure
Speaker 1: in US history.
Speaker 2: Another Bay Area bank goes down.
Speaker 3: We're back with some breaking news this morning.
Speaker 4: First Republic Bank has been taken over by federal regulators
Speaker 4: and sold to JP Morgan.
Speaker 1: Chase as America's bank and crisis flares up again. In
Speaker 1: a statement this.
Speaker 5: Morning, Hello Stephanomics, here the podcast that brings you the
Speaker 5: global economy. We're back a few weeks later than expected,
Speaker 5: but just in time to talk about the collapse of
Speaker 5: First Republic, the fourth US bank to hit the rails
Speaker 5: since we went off air at the end of January.
Speaker 5: Why are these smaller lenders under pressure and if they
Speaker 5: stop lending, is that going to be enough to tank
Speaker 5: the economy? I found myself asking these questions in Los
Speaker 5: Angeles this week at the Milklin Institute's big annual conference.
Speaker 5: It's not a bad place to get expert answers. Some
Speaker 5: of the biggest names in US finance were here, along
Speaker 5: with some senior US politicians and the Managing Director of
Speaker 5: the International Monetary Fund, Chris Selina Gorgieva. I'll play you
Speaker 5: my chat with her and with Milkin's chief economist William
Speaker 5: Lee in a few minutes. But with the best will
Speaker 5: in the world, these movers and shakers aren't going to
Speaker 5: be able to tell you how it feels to be
Speaker 5: at the sharp end of this slow moving US credit crunch.
Speaker 5: For that, we ask Bloomberg's Mike Sasso to go to Florida.
Speaker 1: Pickleball has exploded in popularity across the country at.
Speaker 6: Kickleball and now Picklebob, popularity has exploded, with an estimated
Speaker 6: more than four point eight million players nationwide.
Speaker 7: If a pickleball business is having trouble getting alone these days,
Speaker 7: then you know the credit crunch sweeping the US must
Speaker 7: be syric. In Nakatie, Florida, a suburb in the fast
Speaker 7: growing Jacksonville area, Lauren Garvey and her husband are eager
Speaker 7: to open a new bar and grill with quartz for pickleball,
Speaker 7: the popular paddle sport that's kind of like tennis for
Speaker 7: the everyman. They want to combine it with a restaurant,
Speaker 7: either by creating their own spot or buying a franchise
Speaker 7: of Chicken and pickle where you can gobble down some
Speaker 7: wings with a beer then hit the quartz.
Speaker 1: When I started noticing pickleball was when you know maybe
Speaker 1: five seven years back, when my grandmother was in her
Speaker 1: retirement community and she was playing pickleball and she was
Speaker 1: raving about it, and it sounded like such a funny
Speaker 1: term until we started noticing more and more people playing
Speaker 1: in our community in Nokti, and there were multiple pickleball
Speaker 1: courts and they're constantly full in the mornings. When I
Speaker 1: take walks past there, I'll see people playing pick a ball,
Speaker 1: you know, as early as seven am, and they're there
Speaker 1: until the sun goes down. So we just realized what
Speaker 1: kind of opportunity was there.
Speaker 7: But like so many other lately, the Garvey's entrepreneurial dreams
Speaker 7: are a little more remote than they were just a
Speaker 7: few weeks ago. Getting a two and a half million
Speaker 7: dollar loan from their bank once looked all but certain,
Speaker 7: but when the best rate they could get was around
Speaker 7: nine percent or ten percent, the Garvey's put the brakes on.
Speaker 8: You know.
Speaker 1: It got to that point where when we were told
Speaker 1: that the interest rates were going to be at ten
Speaker 1: plus percent, we realized that's just higher than what we
Speaker 1: could afford or what made sense. And there's a high
Speaker 1: probability that you know, they wouldn't approved the concept or
Speaker 1: the loan anyway, and obviously it doesn't support our financial model.
Speaker 1: We you know, it would make it difficult for us
Speaker 1: to even break even, let alone make money time soon,
Speaker 1: so you know, we had to cut that off.
Speaker 9: It was expected over the weekend as well.
Speaker 3: Let's get a little bit more insight on the collapse
Speaker 3: of Silicon Valley Banks is rapid.
Speaker 1: How quickly this bank went into total collapse. It was
Speaker 1: just a couple of days, and it happened.
Speaker 9: In the middle.
Speaker 7: The banking turmoil that sunk Silicon Valley Bank in rattled
Speaker 7: markets worldwide. So far hasn't led to the wholesale crisis
Speaker 7: that some feared. Yet it's causing banks in other lenders
Speaker 7: to think harder about making loans, and it's reducing the
Speaker 7: size of the loans they do make. This credit crunch
Speaker 7: is more than a little worrying for the world's biggest economy,
Speaker 7: especially as the US Federal Reserve met this week in
Speaker 7: raised interest rates for their tenth and possibly final time
Speaker 7: of the current cycle. Those higher borrowing costs played a
Speaker 7: role in stoking today's banking trouble. A year ago, the
Speaker 7: US Central Bank launched an aggressive campaign to squelch the
Speaker 7: worst inflation America had seen in forty years. Suddenly, new
Speaker 7: car loans that once had low four point four percent
Speaker 7: interest rates now carry burdensome seven percent rates. And for
Speaker 7: a min America's mom and pop shops, the average loan
Speaker 7: backed by the US Small Business Administration has nearly doubled
Speaker 7: to more than eleven percent interest. It was too much
Speaker 7: to stomach for the Garvey's.
Speaker 1: Yeah, we kind of got to the point where we
Speaker 1: just realized it was too high for us.
Speaker 2: Only about twenty percent of the money in the United
Speaker 2: States is in currency and coin. The other eighty percent
Speaker 2: is check with money, and that check with money is
Speaker 2: in the form of deposits in our commercial banking system
Speaker 2: commercial banks.
Speaker 7: Americans have generally parked their money in banks for a
Speaker 7: long time without moving it, but they started to withdraw
Speaker 7: when the FED began raising rates last year. When svb's
Speaker 7: troubles made headlines in March. In First Republic and Signature
Speaker 7: Bank soon followed, depositors got spooted and yanked their cash
Speaker 7: out calls all three to.
Speaker 8: Fail, and as those deposits flow out of the bank,
Speaker 8: that severely cuts down on their ability to make new loans.
Speaker 7: Here's Ben Johnston Enough Capitis a lender to small businesses.
Speaker 8: And in fact many cases, these banks are needing to
Speaker 8: shed assets and courtail lending in the future in order
Speaker 8: to make sure that they can supply that outflow of deposits.
Speaker 7: Eventually, bank regulators in a coalition of large banks stepped
Speaker 7: in to quell the crisis, but many see troubling signs
Speaker 7: for the bank loans and the companies that depend on them.
Speaker 7: Just this week, JP Morgan agreed to acquire First Republic
Speaker 7: Bank after it was seized by authorities. John Tuhig works
Speaker 7: for the investment bank Raymond James Financial, overseeing a unit
Speaker 7: that packages up loans and trades them. He normally surveyed
Speaker 7: about two hundred regional banks recently and found that about
Speaker 7: a quarter had toughened their lending standards after svb's collapse.
Speaker 10: They're charging higher rates, so that again that comes back
Speaker 10: to liquidity, right, their cost of funds is going up.
Speaker 10: It's not necessarily credit, but I mean if they have
Speaker 10: to do a borrowing or have to do a CD special,
Speaker 10: they're borrowing costs or four or five percent today, they
Speaker 10: have to charge something north of that, right, But you're
Speaker 10: starting to see lending slow because of those higher rates.
Speaker 7: Meantime, the amount of corporate debt trading at distress levels
Speaker 7: has soared by twenty eight percent since SVB collapsed in March,
Speaker 7: and bankruptcies are climbing, especially among small firms with money
Speaker 7: harder to get at traditional banks. More firms likely will
Speaker 7: turn to high interest alternative lenders like Cappitis. The New
Speaker 7: York based company offers loans in other forms of credit
Speaker 7: with interest rates starting in the teens and going up
Speaker 7: from there. Despite its priceier loans, the companies saw loan
Speaker 7: applications spike to their highest level ever in March. Here's
Speaker 7: chief operating Officer Ben Johnston again, and.
Speaker 8: We expect that volume to continue to be at quite
Speaker 8: high levels for the foreseeable future.
Speaker 7: Back in Florida, the Garvey's are going to wait out
Speaker 7: the high interest rates and credit crunch, hopefully returning to
Speaker 7: their pickleball, grill and bar concept when things settle down.
Speaker 1: No doubt that it would be profitable and that the
Speaker 1: demand is there, and it's something that we would love
Speaker 1: to pursue down the line, especially if the interest rates
Speaker 1: come down. It's not going to come off of our radar.
Speaker 1: We're going to continue to proactically pursue it. There's just
Speaker 1: so much demand for it, especially in this area.
Speaker 5: So we're sitting in a crowded hall at the Milkin
Speaker 5: Institute's big annual shindig in LA at the kind of
Speaker 5: charmingly old fashioned Beverly Hilton, and I'm delighted to be
Speaker 5: joined by William Lee, who's the Milcan Institute's chief economist
Speaker 5: and often helps us explain what's going on in the
Speaker 5: global economy. So I appreciate William.
Speaker 6: Well, I've had the privilege of being on Bloomberg Radio
Speaker 6: in Asia, so I visit almost every Bloomberg office in
Speaker 6: places where I've worked my entire professional life.
Speaker 5: And somehow we've not had you on Stephanomics. So I'm
Speaker 5: glad we finally resolved that problem. I want to talk
Speaker 5: to you about lots of things, but let's get into
Speaker 5: the all this talk of credit crunch. And you know,
Speaker 5: obviously this conference this week began with the resolution of
Speaker 5: the First Republic situation, the JP Morgan buying this bank.
Speaker 5: We've had four US banks fail in the last few
Speaker 5: years for a few months, and not all of them big,
Speaker 5: but certainly raising questions about mistakes being made in their
Speaker 5: business model, but also the impact of this big increase
Speaker 5: in interest rates that we've had in the US. So
Speaker 5: I guess I should ask you how concerned are you
Speaker 5: by the state of the US banking system, which of
Speaker 5: course lends to a lot of households and a lot
Speaker 5: of companies, and if they can't lend, then the economy
Speaker 5: might be affected.
Speaker 6: You know, when you bump into anybody here at Milkin
Speaker 6: as an icebreaker, they always ask you. In fact, they've
Speaker 6: been asking me all morning, what do you think of
Speaker 6: happened in the First Republic? Is this the start of
Speaker 6: something really big in the banking is just them? Will
Speaker 6: the banking system be in trouble? And I think if
Speaker 6: you're given answer of the sort that says, oh gee,
Speaker 6: the credit crunch might lead to a recession, they shake
Speaker 6: your hand and they leave because they know. The professionals
Speaker 6: here are capital markets people. They know that corporate America
Speaker 6: raises most of its money through debt and equity, and
Speaker 6: bank lending right now has become much less important source
Speaker 6: of capital for major corporations. Where banks are still very
Speaker 6: important would be among the smaller and medium sized businesses
Speaker 6: and in certain sectors like real estate. They're the local banks,
Speaker 6: the small and medium sized regional banks are incredibly important
Speaker 6: in supplying money to these particular businesses. So if indeed
Speaker 6: there were a banking credit crunch, and there's a banking
Speaker 6: crisis that prevented banks from lending, you'll see the impact
Speaker 6: mainly in those areas. Now, when I say it's only
Speaker 6: eleven percent of total corporate borrowing, do you think, oh
Speaker 6: my god, that's such a small number. Why are we
Speaker 6: so worried about it? Well, small businesses account for the
Speaker 6: bulk of the employment, and the real estate market is
Speaker 6: absolutely vital to a lot of people, because, let's face it,
Speaker 6: we didn't want to go through two thousand and eight again.
Speaker 6: But as far as tanking the entire use economy is concerned,
Speaker 6: that's unlikely to happen unless we really have a very
Speaker 6: severe banking crisis that spreads into the capital markets that
Speaker 6: prevents companies from raising money there.
Speaker 5: So what we're basically saying is that you know, a
Speaker 5: mum and pop store or a small business can't go
Speaker 5: and issue debt, issue a bond from mom and pop.
Speaker 5: They have to go to their local bank. And so
Speaker 5: whether or not that bank is feeling able to lend,
Speaker 5: and how tough requirements that are is going to make
Speaker 5: a difference on whether or not they can get that loan.
Speaker 5: But I guess if you're the FED, that's kind of
Speaker 5: why you're raising interest rates.
Speaker 3: Right exactly.
Speaker 6: One of the reasons why the FED is so worried
Speaker 6: about the efficacy and the power of mantrap policy these
Speaker 6: days is that they have been raising rates really almost
Speaker 6: at an unprecedented rate, from zero to now near five percent,
Speaker 6: and they still see the economy chudging along fairly strongly,
Speaker 6: and more importantly, the unemployment rate it's three and a
Speaker 6: half percent. So they're asking themselves, is has the transmission
Speaker 6: of monetary policy change It somehow has become less powerful. Well,
Speaker 6: it may have, but certainly the indicator they want to
Speaker 6: see change is consumers spending easing off. And we heard
Speaker 6: in today's session Jane Fraser, the head of City Banks,
Speaker 6: say the top two quintiles of people still have a
Speaker 6: lot of spending power. And it really struck me to say, yeah,
Speaker 6: you're right, it's the top two quintiles, But what about
Speaker 6: the rest of the population. They're going to paycheck to paycheck,
Speaker 6: they're using their credit cards, So we have two Americas.
Speaker 6: In America where the very rich are comfortably spending and
Speaker 6: going on vacation and filling up all the airplane going
Speaker 6: to Europe, but we have the bulk of US population
Speaker 6: still suffering from not having enough money to meet their
Speaker 6: daily needs because prices keep going up faster than their income.
Speaker 6: So when the Fed wants to ease inflation, the first
Speaker 6: thing they want to do is start to get the
Speaker 6: economy to slow down so that people don't demand as
Speaker 6: much goods and services and so that the price pressures
Speaker 6: are eased off.
Speaker 3: And I think that is starting to work now.
Speaker 6: In the latest GDP numbers, we're starting to see income
Speaker 6: gross domestic income has actually turned down, and that's a
Speaker 6: good sign that maybe we will have something that will
Speaker 6: restrain the economy. And if the banks start to ease
Speaker 6: off on lending to specifically to businesses that hire a
Speaker 6: lot of people, more people will get frightened that, my god,
Speaker 6: my job really is at risk.
Speaker 3: Maybe I shouldn't be going on that vacation. I can
Speaker 3: maybe delayed till next year.
Speaker 5: It's an uncomfortable conversation, though, isn't it, Because we tend
Speaker 5: to we talk about higher interest rates in the abstract,
Speaker 5: and maybe we encourage the idea that it's you know,
Speaker 5: going to just at the edges make people cut their spending.
Speaker 5: And you talk about holidays, some people think of the
Speaker 5: holidays a pretty essential item in their basket. But you know,
Speaker 5: the uncomfortable truth is you the whole point of the
Speaker 5: policy is to make it harder for people to get alone, right.
Speaker 6: So I'd rather have the money in my plucket now
Speaker 6: rather than spending it and then worry that I will
Speaker 6: get laid off for six months after I come back
Speaker 6: from my vacation. So I think those are the social
Speaker 6: issues that I think the FED is well aware of.
Speaker 6: But there is really only one policy instrument they have
Speaker 6: to control inflation, and that's by raising interest rates.
Speaker 5: I guess the only upside of this for people who
Speaker 5: don't like the sound of working Americans being hurt is
Speaker 5: that it's pretty tough for banks in the US at
Speaker 5: the moment for lots of reasons. But this increase in
Speaker 5: interest rates actually has turned out to be a bit
Speaker 5: of a problem for them. You know, normally they can
Speaker 5: make a lot of money from having a big gap
Speaker 5: between what you can get in a savings account and
Speaker 5: what they're lending out for but it hasn't quite worked
Speaker 5: out like.
Speaker 3: That well it so definitely I'm not sympathetic. I'm sorry.
Speaker 6: My former boss, Jane Frasier at City is doing quite
Speaker 6: well because they have a very diversified business model.
Speaker 3: So those banks that are able.
Speaker 6: To manage their businesses and manage their risks are doing
Speaker 6: quite well. What we have seen is that banks that
Speaker 6: go on the fringes and into fringe markets, like trying
Speaker 6: to service the venture capitalists in Silicon Valley, are going
Speaker 6: to really high net worth people and saying come do
Speaker 6: business with me, and offering very very specialized services to them.
Speaker 6: Those business models that are less diversified are also more risky.
Speaker 6: And what we've discovered is that as interest rates went up,
Speaker 6: they could no longer fund these special services as they
Speaker 6: did before with cheap money, and once funding became expensive,
Speaker 6: suddenly their customers noticed, oh gee, I can get better
Speaker 6: services or better return someplace else. And guess what rich
Speaker 6: people do. They really move their money fast when they
Speaker 6: see higher returns now. Silicon Valley also operated with no
Speaker 6: chief risk officer for nine months.
Speaker 3: They didn't have the kind.
Speaker 6: Of corporate governance that held them accountable for making management
Speaker 6: mistakes similarly, but First Republic also was subject to not
Speaker 6: enough corporate governance that said, hey, you should divorse by
Speaker 6: your business model. So the fact that individual banks like
Speaker 6: that they are not well run, failed is a good thing.
Speaker 6: What we actually do have, which we haven't talked about enough,
Speaker 6: is a crisis in.
Speaker 3: Supervision, not regulation.
Speaker 6: But supervision regulation is for everyone out there is having
Speaker 6: a lot of bunch of rules and having very stiff
Speaker 6: rules or less stiff.
Speaker 3: Rules applying to various banks.
Speaker 6: But a supervisor supposed to come in and actually say, hey,
Speaker 6: you're not following the rules. And the vice chairman Barre testified,
Speaker 6: we gave these banks three notices saying you've got to
Speaker 6: correct what you're doing. That's like saying when I was
Speaker 6: in grade school, my teacher said, this is going to
Speaker 6: go on your permanent record if you don't correct yourself.
Speaker 3: Well, these guys just said, well, so what now?
Speaker 6: From where you come from the Bank of England, the
Speaker 6: worst fear of every banker is to be invited to
Speaker 6: tea at the Bank of England.
Speaker 5: Back in the day, anyway, I'm not sure not just
Speaker 5: because the quality of the t we should say.
Speaker 3: Well, that could be true.
Speaker 6: But here the supervisors allowed these banks to continue, and
Speaker 6: that was the sin that really cannot be forgiven. And
Speaker 6: the fact that the FED on internal review said, oh gee,
Speaker 6: you know, this era of deregulation from Trump has caused
Speaker 6: our supervisory staff to feel that they really shouldn't be
Speaker 6: enforcing regulations.
Speaker 3: I'm sorry. That is not a reasonable excuse for supervisors
Speaker 3: pointing out in their jobs.
Speaker 5: But there is something that is not specific to those
Speaker 5: banks that you've talked about, or even the band supervision
Speaker 5: which we saw in these crises, all these failures of
Speaker 5: these banks. There's, as you mentioned, the sort of digital
Speaker 5: bank run that can happen overnight billions of dollars in
Speaker 5: twenty four hours going out of senecon valid bank example,
Speaker 5: which feels like a game changer, but also now a
Speaker 5: pretty large gap between where short term interest rates are
Speaker 5: and still where most banks are, you know, off what
Speaker 5: are offering in terms of savings rates. Now you look
Speaker 5: at a back that is one of the main ways
Speaker 5: they make money by having that gap and hoping that
Speaker 5: kind of people won't notice, or they talk about the
Speaker 5: deposits being sticky. You know, it does seem to be
Speaker 5: relevant to every bank if it's going to be harder
Speaker 5: to do to make money from that in the future.
Speaker 3: Absolutely, And so you have a business model.
Speaker 6: Every bank does what the fancy term in business school
Speaker 6: they call it maturity transformation, right, which means, you know,
Speaker 6: you're ripping the consumer up, you rip off the depositors,
Speaker 6: and you give you know, very expensive loans to to
Speaker 6: your to your clients. What they did instead was, in
Speaker 6: the case of first of Public, they gave very cheap
Speaker 6: loans to these very rich people to attract them to
Speaker 6: come to their to their bank. And while the amount
Speaker 6: of deposits they were paying off were also low, the
Speaker 6: fact that they could fund these very low interest mortgages
Speaker 6: and very large size mortgages was really at the heart
Speaker 6: of their business model, aside from the touch aphead, you know,
Speaker 6: you can call your bank or any time stuff. So
Speaker 6: when interest rates rose, what's the first thing a banker
Speaker 6: knows that? You have to match your assets and liabilities.
Speaker 6: Maturity matching is something that every risk manager learns from
Speaker 6: the first day.
Speaker 3: Why didn't they do that?
Speaker 6: I'm sorry, it wasn't a surprise that the FED started
Speaker 6: raising rates four or five maybe even six percent interest rates.
Speaker 6: Not to have that as part of a contingency plan
Speaker 6: is a failure of bank management.
Speaker 5: Fascinating Well, William Lee, thank you very much.
Speaker 6: Well Seth, It's been a pleasure to talk to you,
Speaker 6: and I really feel privileged to be in your presence.
Speaker 2: Now.
Speaker 5: He's not the only one saying I told you so
Speaker 5: to First Republic and to the US supervisors who were
Speaker 5: asleep at the wheel. Crystallina Gorgieva said more or less
Speaker 5: the same thing when I spoke to her in the
Speaker 5: opening session of this milk and conference. So, Crystallina, you
Speaker 5: have the great and good of American finance, well at
Speaker 5: least the great of American finance arrayed in front of
Speaker 5: you as head of the IMF. What do you wake
Speaker 5: up thinking about in the morning that you want them
Speaker 5: to think about more.
Speaker 4: The unthinkable.
Speaker 9: What we have lived through in the last years has
Speaker 9: been series of unthinkable events, the pandemic, the war in Ukraine,
Speaker 9: the rapid jump of interest rates after many, many, many
Speaker 9: years of staying Lowell. And it is upon all of
Speaker 9: us to anticipate shocks and be ready to act when
Speaker 9: they occur, because they will be coming. So if your
Speaker 9: risk officers are only thinking about the predictable and well
Speaker 9: known from history. Risks, they're falling a little short, so
Speaker 9: give them a little push to think of what.
Speaker 4: Is so impossible to think.
Speaker 5: We're clearly still seeing continued strength on the consumer side
Speaker 5: of the economy in the US and indeed other places
Speaker 5: in response to this massive increase in interest rates, But
Speaker 5: there are building concerns of a credit crunch, a sort
Speaker 5: of slow motion credit crunch. Do you think we're underestimating
Speaker 5: the impact of those rate rises? Where are you looking?
Speaker 10: Well?
Speaker 9: The first we need to accept that we have handled
Speaker 9: incredibly significant challenges, actually not so badly. In twenty twenty,
Speaker 9: we were anticipating depression.
Speaker 4: Did not happen.
Speaker 9: Yes, the world economy is shrank by three point one percent,
Speaker 9: but that was far from our worst fears.
Speaker 4: So resiliency is for real.
Speaker 9: And actually, since it is morning and we need to
Speaker 9: all wake up, I'm gonna ask you to give a
Speaker 9: big round of applause to yourself because we have.
Speaker 4: Lived through these events.
Speaker 5: Shameless pandering to the audience, but of course there is
Speaker 5: a bud here and the bodies.
Speaker 4: They have not been without consequences.
Speaker 9: We still have the scarring from the pandemic, the geo
Speaker 9: political tensions that have been fueled by a Russia's invasion
Speaker 9: of Ukraine. Are accelerating something that has been already happening,
Speaker 9: more fragmentation in the world economy that has causing consequences.
Speaker 9: And as you pointed out to Stephanie, this rapid transition
Speaker 9: from low interest rates to high interest rates did what
Speaker 9: should be expected to do. It exposed vulnerabilities in the
Speaker 9: financial sector. I want to say that this should not
Speaker 9: be a surprise because it is just not possible to
Speaker 9: have that jump in interest rates and to find that
Speaker 9: everybody has matched the liabilities and assets and looked into
Speaker 9: the interest rates.
Speaker 4: In a responsible manner.
Speaker 9: What was a surprise, though, was that it happened in
Speaker 9: the banking sector, not in the non banking institutions, where
Speaker 9: we feared that may occur. So what should we be thinking, Well,
Speaker 9: it hasn't happened in the non banking sector. It doesn't
Speaker 9: mean that we have a free pass. It doesn't mean
Speaker 9: that there wouldn't be more vulnerabilities to come.
Speaker 4: And here is our reality.
Speaker 9: Growth is slowing down, but inflation is not going down
Speaker 9: as fast as we wanted to go. And unfortunately, with
Speaker 9: more protectionism, we are trying cold water on what is
Speaker 9: an anemic growth to begin with. You want me to
Speaker 9: finish on a positive site.
Speaker 4: Sure, well.
Speaker 9: The positive site is that we have proven to be
Speaker 9: incredibly resourceful, and I think it is now time to
Speaker 9: do that to prove it again resourceful.
Speaker 5: But as you pointed out, also kind of a bit
Speaker 5: stupid in the sense that we were worried about hidden
Speaker 5: risks and the non banking sector, and yet right there
Speaker 5: in plain sight was potential interest rate risks in a
Speaker 5: digitized world. When you think about the un thinkable, we
Speaker 5: certainly haven't seen nominal rates at four or five, six
Speaker 5: percent whatever in a world where money can immediately come
Speaker 5: out of billions could come out of deposits instantly, and
Speaker 5: banks have made a lot of money over the years
Speaker 5: from years of rising interest rates and not passing on
Speaker 5: those short term interest rate rises. Should that completely change
Speaker 5: the way we think about financial stability risk?
Speaker 9: Well, let's first recognize that since the global financial crisis,
Speaker 9: a lot has been done to strengthen banking sector, to
Speaker 9: strengthen our financial system. Banks are better regulated, they're better capitalized,
Speaker 9: and very important decision makers.
Speaker 4: Policy makers are very fast.
Speaker 9: This being said, now I'm going to say something that
Speaker 9: I avoid saying we told you so, the IMF, the
Speaker 9: IMF rot.
Speaker 5: The IMF, always saying we told you so.
Speaker 4: Well in this particular case, read the books.
Speaker 9: In the In the financial sector assessment we have done
Speaker 9: for the United States in twenty one and twenty two,
Speaker 9: we zero in on the problem that blew up the
Speaker 9: bank here in California.
Speaker 4: It's there.
Speaker 9: So there is a bit of complacency and now we
Speaker 9: saw the price to pay. We saw that you provision
Speaker 9: has not been quite up to par sol. There are
Speaker 9: things that can be done to reduce these risks. But
Speaker 9: you put your finger on something that for all of
Speaker 9: us is novelty and we are all going to be
Speaker 9: wrestling with it. It is the speed money can move
Speaker 9: from one place to another and the role of social media.
Speaker 4: Again, it goes.
Speaker 9: Into the into the territory of the unthinkable. But I
Speaker 9: am pretty confident we will see quite a lot of
Speaker 9: new regulatory and disclosure thinking around how we deal with this.
Speaker 5: Christina, good yeav Thank you so much. This has been
Speaker 5: a great start to the week.
Speaker 4: Thank you. Thanks, You'll be back much, jem Bag.
Speaker 5: Well, that's it for this episode of Stephanomics. We'll be
Speaker 5: back next week. In the meantime, as ever, you can
Speaker 5: get a lot more economic insight and news from the
Speaker 5: Bloomberg Terminal website or app. This episode was produced by
Speaker 5: Magnus Henrickson with help from Yang Yang and Summer Sadi.
Speaker 5: The new executive producer of Stephanomics is Molly Smith and
Speaker 5: the head of Bloomberg Podcasts is Sage Bowman.
Speaker 9: Two desc