WEBVTT - Behind the Silicon Valley Bank Collapse 0:00:03.120 --> 0:00:07.960 This is Bloomberg Law with June Brussel from Bloomberg Radio. 0:00:10.840 --> 0:00:15.200 After two historic bank failures, President Joe Biden sought to 0:00:15.240 --> 0:00:19.799 reassure jittery consumers and markets that the US financial system 0:00:19.920 --> 0:00:23.000 is on solid footing. Look, the bottom line is this, 0:00:23.640 --> 0:00:27.560 Americans can rest assured that our banking system is safe, 0:00:28.240 --> 0:00:31.640 your deposits are safe. Let me also assure you we 0:00:31.680 --> 0:00:34.680 will not stop at this, will do whatever is needed. 0:00:34.920 --> 0:00:38.120 He promised to hold responsible those behind the collapse of 0:00:38.159 --> 0:00:40.920 the two banks and said he'd call on Congress to 0:00:41.080 --> 0:00:44.840 strengthen regulation of the banking system. Joining me as business 0:00:44.920 --> 0:00:48.320 law expert, Eric Tallely, a professor at Columbia Law School, 0:00:48.960 --> 0:00:53.160 start with the basic question what happened to Silicon Valley 0:00:53.200 --> 0:00:59.120 Bank SEB basically fell prey to a pretty conventional bank run, 0:00:59.400 --> 0:01:03.000 and sort of odd to think, after so many years 0:01:03.040 --> 0:01:06.840 of knowing what can cause bank runs, that it happened 0:01:07.040 --> 0:01:11.760 again here, But I guess There are two critical insights 0:01:11.840 --> 0:01:15.120 from modern finance and banking that most people try to 0:01:15.200 --> 0:01:19.880 keep in mind. The first is that concentration of any 0:01:19.959 --> 0:01:23.560 type of investment or asset can be really hazardous in 0:01:24.000 --> 0:01:27.640 volatile markets, particularly if you don't try to diversify or 0:01:27.720 --> 0:01:31.760 heads that concentration. And then the second rule is that 0:01:32.120 --> 0:01:35.880 accounting tricks don't help you solve the first problem. So 0:01:36.000 --> 0:01:39.839 I think both of those managed to work their way 0:01:39.920 --> 0:01:44.560 into this SVB collapse. They managed sort of to ignore 0:01:44.600 --> 0:01:47.760 the insights that are served there, or at least ignore 0:01:48.040 --> 0:01:50.080 parts of them. And so there's a sense in which 0:01:50.120 --> 0:01:52.320 I think a lot of people think that although this 0:01:52.400 --> 0:01:55.120 was a conventional bank run, it also was one that 0:01:55.440 --> 0:01:58.880 on some level would not have been all that difficult 0:01:59.040 --> 0:02:03.120 to avoid, but it required sort of thinking through how 0:02:03.200 --> 0:02:07.680 some of these issues work. Explain how Silicon Valley Bank 0:02:08.000 --> 0:02:11.959 was in essence v bank for Silicon Valley. You know, 0:02:12.080 --> 0:02:15.639 the offense, Unless you were in the VC or startup community, 0:02:15.639 --> 0:02:18.720 you probably had never heard of Silicon Valley Bank. On 0:02:18.800 --> 0:02:21.520 the other hand, if you were a Silicon Valley startup 0:02:21.639 --> 0:02:24.320 or a VC fund, there's a chance you'd probably never 0:02:24.360 --> 0:02:26.320 heard of any other bank, or at least you were 0:02:26.360 --> 0:02:29.720 discouraged from doing any business with them, because that was 0:02:29.880 --> 0:02:33.880 the bank for venture finance and basically not anything else. 0:02:33.880 --> 0:02:38.520 There really were certain concentrated the venture capital funding and 0:02:38.600 --> 0:02:41.880 fundraising community, and that, you know, sort of is a 0:02:41.880 --> 0:02:46.480 big degree of concentration, and while having VC funds and 0:02:46.639 --> 0:02:49.560 startups all banking at the same place, that was sort 0:02:49.560 --> 0:02:51.560 of the bank where all the cool startups and the 0:02:51.600 --> 0:02:55.000 cool VC funds went. That has some advantages on day 0:02:55.000 --> 0:02:58.440 to day transactions and transferring balances and making payments and 0:02:58.480 --> 0:03:02.440 so forth. It really did suggest that SVB was susceptible 0:03:02.480 --> 0:03:06.320 to all kinds of boom and bust risks that might 0:03:06.400 --> 0:03:11.760 befall the sector of VC finances. Startups explain how the 0:03:11.800 --> 0:03:15.520 reasons slowed down in the economy played into this. In 0:03:15.639 --> 0:03:18.720 early twenty twenty one and twenty twenty two, I guess 0:03:18.760 --> 0:03:21.000 there was just a huge boom and so they managed 0:03:21.040 --> 0:03:25.520 to ride this boom in which scb's deposits grew astonishingly fast. 0:03:25.680 --> 0:03:28.200 But then when we hit the recent slowdown in the economy, 0:03:28.320 --> 0:03:32.760 startups faced a much injured environment, and that also kind 0:03:32.760 --> 0:03:36.680 of plamed Silicon Valley Bank. Now, even in that situation, 0:03:36.920 --> 0:03:39.440 you could still try to hedge some of those risks 0:03:39.640 --> 0:03:43.320 using various types of strategies, but that largely was going 0:03:43.360 --> 0:03:46.280 to be up to Silicon Valley Bank. It was not 0:03:46.400 --> 0:03:49.760 one of the big banks that you would be subject 0:03:49.840 --> 0:03:55.560 to Relatively stringent requirements that would effectively require them to 0:03:55.680 --> 0:03:58.680 have assets on hands to deal with the bank run. 0:03:59.080 --> 0:04:02.760 This is a smaller bank, and in twenty eighteen, the 0:04:02.800 --> 0:04:06.520 Trump administration actually rolled back some of those stringent requirements 0:04:06.520 --> 0:04:08.760 for banks of this size, and so it was really 0:04:08.840 --> 0:04:12.360 up the Silicon Valley Bank to develop its own policies 0:04:12.480 --> 0:04:17.120 on how best to insulate itself against these sorts of 0:04:17.240 --> 0:04:19.760 bank runs, and therefore Silicon Valley had to kind of 0:04:19.800 --> 0:04:22.800 come up with its own approach. Now, the approach they 0:04:22.839 --> 0:04:26.920 came up with itself wasn't obviously super risky. A lot 0:04:26.920 --> 0:04:29.719 of banks, for example, might start lending money out to 0:04:29.839 --> 0:04:33.279 various of their customers and those borrowers could actually bring 0:04:33.320 --> 0:04:36.159 in even more risks to the bank, and Silicon Valley 0:04:36.320 --> 0:04:39.440 largely didn't do that because they were pretty much catering 0:04:39.480 --> 0:04:42.000 to the venture capital community, and there isn't a lot 0:04:42.000 --> 0:04:45.000 of debt that's floating around in the venture capital community, 0:04:45.040 --> 0:04:48.120 or at least long term debt. A few short term 0:04:48.160 --> 0:04:51.640 pet debt instruments, but it's pretty much a cash set industry, 0:04:51.760 --> 0:04:54.760 so they didn't really have customers that were in that 0:04:54.839 --> 0:04:58.560 industry that were demanding loans. So instead they parked that 0:04:58.760 --> 0:05:03.400 money in what looks to be relatively safe government or 0:05:03.440 --> 0:05:08.320 corporate bonds, but they were importantly long term corporate bond 0:05:08.440 --> 0:05:11.520 and that is one of the potential risks. Even though 0:05:11.600 --> 0:05:13.760 those investments look safe on their face, it's not like 0:05:13.760 --> 0:05:16.760 they're going to default or likely not going to default. 0:05:17.160 --> 0:05:20.520 It does sort of give rise to a standard problem 0:05:20.640 --> 0:05:24.200 that all banks face, which is that they have creditors 0:05:24.200 --> 0:05:28.000 who are basically their depositors, who have short term claims 0:05:28.000 --> 0:05:30.320 on the company. They can show up any time and 0:05:30.440 --> 0:05:33.440 ask for their money. And what the banks typically do 0:05:34.160 --> 0:05:37.200 is they have those funds parked in various types of 0:05:37.360 --> 0:05:42.280 longer term investments, and so they basically transform short term 0:05:42.320 --> 0:05:45.760 claims into long term claims. And when those two sorts 0:05:45.800 --> 0:05:49.200 of claims go crosswise with one another, like they did here, 0:05:49.839 --> 0:05:53.440 that can cause a bank run. And that's effectively what 0:05:53.680 --> 0:05:58.240 happened in this case. So you've got this sort of concentration. 0:05:58.720 --> 0:06:02.800 The bank buys the longer term bonds, which you know, 0:06:02.839 --> 0:06:05.480 when they bought them twenty twenty one. In early twenty 0:06:05.520 --> 0:06:08.560 twenty two, interest rates were really low, and so these 0:06:08.600 --> 0:06:13.000 bonds they bought a pretty low interest rates, and when 0:06:13.080 --> 0:06:16.480 interest rates suddenly start to spike in the latter half 0:06:16.520 --> 0:06:20.160 of twenty twenty two. In early twenty twenty three, the value, 0:06:20.200 --> 0:06:22.200 the fair market value if you wanted to sell one 0:06:22.200 --> 0:06:24.039 of those government bonds, or if you wanted to sell 0:06:24.040 --> 0:06:26.680 one of those Clipper bonds, it goes down. And the 0:06:26.720 --> 0:06:28.640 reason it goes down is because you've got to find 0:06:28.640 --> 0:06:31.400 someone to buy it from you. And then investors looking 0:06:31.440 --> 0:06:33.200 around and saying, well, interest rates has just gone up. 0:06:33.200 --> 0:06:35.760 I can invest in some of these high interest rates 0:06:35.960 --> 0:06:38.880 assets right now. Why should I buy your really low 0:06:38.960 --> 0:06:41.120 interest rate asset. The only way that you can make 0:06:41.120 --> 0:06:44.039 an attractive is to basically give people a price cut, 0:06:44.400 --> 0:06:48.160 and that's effectively what happened is the Silicon Valley Bank 0:06:48.560 --> 0:06:51.200 realized they were starting to get hit with a bunch 0:06:51.279 --> 0:06:54.680 of demands to withdraw the cash from the accounts because 0:06:55.000 --> 0:06:58.320 these startups were having to make payroll, and they will know, 0:06:58.320 --> 0:07:01.200 the venture capital funding it down a little bit. They 0:07:01.200 --> 0:07:04.200 had to sell some of these bonds, and when they did, 0:07:04.600 --> 0:07:08.800 they had to officially recognize in their accounting statements that yeah, 0:07:08.839 --> 0:07:10.880 they lost a bunch of money on these things, and 0:07:11.560 --> 0:07:13.360 then they had to sort of make up for that 0:07:13.520 --> 0:07:16.520 that amount of money. Now, in reality, they had already 0:07:16.600 --> 0:07:19.560 kind of lost that money. The fair market value of 0:07:19.600 --> 0:07:23.920 those government bonds had been going down because of the 0:07:24.440 --> 0:07:27.120 fact that interest rates were going up. But given the 0:07:27.120 --> 0:07:30.320 way that they treated these government and corporate bonds on 0:07:30.360 --> 0:07:34.600 their accounting statements, they didn't have to recognize those losses 0:07:34.680 --> 0:07:37.920 until they actually sold them where they in, which they did, 0:07:38.160 --> 0:07:42.200 and at that point the market is susceptible to freaking out. 0:07:42.240 --> 0:07:45.160 And that's exactly what happened. A bunch of these startups 0:07:45.200 --> 0:07:47.320 start trying to pull their money from the bank. In 0:07:47.400 --> 0:07:49.360 order to provide that money, you got to sell even 0:07:49.360 --> 0:07:52.600 more of these bonds, recognized even more of it had lost, 0:07:52.840 --> 0:07:55.960 and the whole thing can unravel. And that's effectively what happened. 0:07:56.200 --> 0:08:00.120 In a remarkably fast forty eight hours last week, two 0:08:00.200 --> 0:08:05.679 days after as Phoebes collapse, regulators close another crypto friendly bank, 0:08:05.800 --> 0:08:10.160 New York Signature Bank, and Barney Frank, the co sponsor 0:08:10.280 --> 0:08:13.679 of the Dot Frank Bill and also on the board 0:08:13.880 --> 0:08:17.040 of Signature Bank, said, I think that if we've been 0:08:17.040 --> 0:08:19.720 allowed to open tomorrow, that we could have continued. We 0:08:19.760 --> 0:08:22.120 have a solid book where the biggest lender in New 0:08:22.200 --> 0:08:25.440 York city under the low income housing tax credit. I 0:08:25.560 --> 0:08:28.560 think the bank could have been a going concern. Did 0:08:28.600 --> 0:08:32.720 the regulators act too quickly? Well, First of all, that statement, 0:08:32.800 --> 0:08:35.240 whether it comes from Barney Frank or anyone else, is 0:08:35.280 --> 0:08:38.360 not an uncommon statement from any manager of a bank 0:08:38.600 --> 0:08:41.600 or board member of a bank that has fallen into crisis. 0:08:41.640 --> 0:08:44.760 That's sort of the standard point that bank runs, you know, 0:08:44.920 --> 0:08:48.400 in some respects are as much about psychology as they 0:08:48.440 --> 0:08:52.199 are about anything else, and so in principle, sure, if 0:08:52.240 --> 0:08:55.120 you can reverse the psychology that causes the bank run, 0:08:55.600 --> 0:08:59.240 then you're unlikely to have to pay the huge consequences 0:08:59.280 --> 0:09:01.960 of it. The problem is that to the extent that 0:09:02.080 --> 0:09:06.040 some of these bank failures or bank moments of distress 0:09:06.080 --> 0:09:09.600 are also contagious to other parts of the banking system, 0:09:10.080 --> 0:09:12.080 that's not going to be something that the manager of 0:09:12.120 --> 0:09:16.400 the bank in question is themselves going to internalize, right, 0:09:16.440 --> 0:09:19.400 They're just really hoping to turn things around in this 0:09:19.480 --> 0:09:23.640 particular instance, And the signature bank exposure in many ways 0:09:23.760 --> 0:09:27.839 was much more sort of akin to the already familiar 0:09:27.960 --> 0:09:31.040 tale of the sort of banks with a fair amount 0:09:31.040 --> 0:09:35.640 of crypto exposure having their own valuations undercut, and signature 0:09:35.920 --> 0:09:38.440 far more than Silicon Valley Bank in fact had that 0:09:38.520 --> 0:09:41.280 type of exposure. So you know, on some level, the 0:09:41.320 --> 0:09:45.280 decision to lump in the Signature with Silicon Valley Bank 0:09:45.440 --> 0:09:49.640 was really more of a macro decision. The two institutions 0:09:49.760 --> 0:09:53.920 faced a slightly different set of portfolio risks, but it's 0:09:54.000 --> 0:09:57.040 clearly the case that the federal government stepped in. Even 0:09:57.080 --> 0:10:02.719 though these were officially classified as all regional banks. The 0:10:02.760 --> 0:10:07.320 move over the weekend sees them ensure them up was 0:10:07.920 --> 0:10:10.280 you know, in many ways the type of move that 0:10:10.400 --> 0:10:14.200 is appropriate for a so called systemically significant bank, and 0:10:14.280 --> 0:10:18.320 that's effectively the exception that federal authorities kicked into play 0:10:18.360 --> 0:10:21.160 when they did this. So I think the move here 0:10:21.280 --> 0:10:24.720 is to say, Signature and Silicon Valley Bank, we don't 0:10:24.720 --> 0:10:26.480 want them to be the first threat of a sweater 0:10:26.520 --> 0:10:29.760 that unravels, and so it's important for the federal government 0:10:29.800 --> 0:10:34.280 to step in and assure depositors, even those that don't 0:10:34.280 --> 0:10:38.160 have insurance deposits, that they'll have access to their funds. 0:10:38.400 --> 0:10:40.160 But the challenge is to do so in a way 0:10:40.160 --> 0:10:43.360 that doesn't create any so called moral hazard problem of 0:10:43.880 --> 0:10:47.720 every bank realizing, oh, we've got this great backstop of 0:10:47.800 --> 0:10:50.760 the federal government writing to the rescue, So why do 0:10:50.800 --> 0:10:53.520 we have to engage in very much discipline ourselves? And 0:10:53.559 --> 0:10:56.880 so part of the structuring of both the STB and 0:10:56.920 --> 0:11:01.000 the Signature resolution plans was to try to figure out 0:11:01.040 --> 0:11:03.880 a way to do that that wouldn't sort of encourage 0:11:04.080 --> 0:11:08.760 other future banks and bank managers and owners to go 0:11:08.800 --> 0:11:10.679 down the same path and think that they're going to 0:11:10.760 --> 0:11:14.280 get bailed out or rescued by the federal government. Well, 0:11:14.280 --> 0:11:18.079 I think President Biden was attempting to convey that this morning. 0:11:18.640 --> 0:11:21.319 Biden also said they need to get a full accounting 0:11:21.320 --> 0:11:25.240 of what happened and promised to hold responsible those behind 0:11:25.280 --> 0:11:28.400 the collapse of the two banks. Do you have any 0:11:28.400 --> 0:11:31.319 idea what he means by that hold them responsible legally 0:11:31.480 --> 0:11:35.480 financially well, part of the issue, I think it really 0:11:35.559 --> 0:11:38.800 is trying to figure out how to structure one of 0:11:38.840 --> 0:11:41.440 these bank resolutions. I'm not going to call it a bailout, 0:11:41.440 --> 0:11:43.760 though some people are calling it that in a way 0:11:43.800 --> 0:11:48.560 that doesn't kind of reward the decision makers that put 0:11:48.679 --> 0:11:52.000 the bank into that position to begin with. And so 0:11:52.240 --> 0:11:56.360 I think there's been a fairly strong sense of kind 0:11:56.360 --> 0:11:58.559 of rules of thumb when one of these things is 0:11:58.600 --> 0:12:01.360 going on, and some of my own research is kind 0:12:01.360 --> 0:12:03.320 of you landed in this place as well, is that 0:12:03.360 --> 0:12:06.400 if you are going to step in from the government's 0:12:06.440 --> 0:12:10.440 perspective and do something that resembles a bailout of a 0:12:10.480 --> 0:12:12.959 bank or a big institution, you don't want to then 0:12:13.000 --> 0:12:15.000 sort of say oh, and don't worry about it. You know, 0:12:15.200 --> 0:12:18.280 shareholders and managers that put the bank into the spot, 0:12:18.320 --> 0:12:20.640 We'll just give you a second chance. That the more 0:12:20.679 --> 0:12:22.880 prudent roles to say no, you are now going to 0:12:22.920 --> 0:12:25.079 be moved out. You're going to be replaced by new 0:12:25.120 --> 0:12:29.199 shareholders and new managers. And therefore the you know, you're 0:12:29.240 --> 0:12:31.280 going to have to eat your own cooking, and the 0:12:31.320 --> 0:12:34.120 bank's going to go forward under new management with a 0:12:34.200 --> 0:12:39.000 new ownership structure, probably consisting of some of the lenders 0:12:39.040 --> 0:12:41.319 to the bank some of the creditors off the bank. 0:12:41.360 --> 0:12:43.720 And so I think that's the idea, the good chunk 0:12:43.760 --> 0:12:47.360 of the idea behind these resolutions. And if you're going 0:12:47.440 --> 0:12:49.360 to do a type of a bank resolution like this, 0:12:49.480 --> 0:12:51.839 it makes a great deal of sense to play hardball 0:12:52.000 --> 0:12:55.040 on some level as a way to avoid some of 0:12:55.080 --> 0:12:58.400 these moral hazard problems. The risk in doing that is 0:12:58.440 --> 0:13:02.880 that if you can't find, say, bank managers who are 0:13:02.920 --> 0:13:05.640 as good as the ones you're getting rid of, then 0:13:05.760 --> 0:13:08.600 that could be problematic as well. And so it is 0:13:08.600 --> 0:13:11.600 a little bit of a kind of a hardball policy 0:13:11.640 --> 0:13:14.480 tactic is one that makes a great deal of sense. 0:13:14.880 --> 0:13:17.240 It might come with a little bit of risk, but 0:13:17.320 --> 0:13:20.199 I think for all intents and purposes, it's probably the 0:13:20.520 --> 0:13:24.720 prootive way to step in and back up some banks 0:13:24.720 --> 0:13:28.439 without it constituting what you know basically amounts to an 0:13:28.480 --> 0:13:31.040 invitation to all the other banks out there to go 0:13:31.080 --> 0:13:33.720 down the same road. I mean, is it going to stop? 0:13:33.760 --> 0:13:35.720 Do you think at these two or they're going to 0:13:35.760 --> 0:13:41.439 be spillover effects on other regional lenders or the broader economy. Well, 0:13:41.480 --> 0:13:43.840 I think that's the huge concern right now, and that is, 0:13:43.880 --> 0:13:47.080 in fact a very significant question. It's it's one of 0:13:47.080 --> 0:13:51.000 the reasons why a senior government officials worked feverishly all 0:13:51.040 --> 0:13:54.280 weekends to put this plan in place. You know, to 0:13:54.320 --> 0:13:57.200 the extent that things like bank runs are largely the 0:13:57.320 --> 0:14:01.839 artifacts of psychology and freaked out you know, depositors who 0:14:01.840 --> 0:14:04.280 are worried about losing their deposits to step in and 0:14:04.320 --> 0:14:07.439 say actually, no, we got your back on this depositors, 0:14:07.480 --> 0:14:09.559 even the ones who are above the two hundred and 0:14:09.559 --> 0:14:13.080 fifty thousand SEIIC assurance, We've got your backs on this. 0:14:13.520 --> 0:14:16.559 The hope is that that's going to cause depositors of 0:14:16.640 --> 0:14:19.880 other banks to be less concerned about it. Now, there 0:14:19.920 --> 0:14:22.760 are still several regional banks that I think are you know, 0:14:23.000 --> 0:14:25.840 kind of on that bubble themselves, and I think the 0:14:26.360 --> 0:14:30.200 hope is to increase confidence in the integrity of the 0:14:30.920 --> 0:14:33.760 deposits of those banks as well. And so there is 0:14:33.840 --> 0:14:36.240 you know, almost a sense of moving in aggressively and 0:14:36.280 --> 0:14:39.400 assertively early on, playing a little bit of hardball with 0:14:39.480 --> 0:14:42.400 the managers the banks that are being sailed out as 0:14:42.440 --> 0:14:46.920 a way to affect the psychology of depositors for future banks. Now, 0:14:47.040 --> 0:14:51.240 whether that work is in many ways itself a question 0:14:51.400 --> 0:14:55.680 of psychology, how credible is the governmental move, how credible 0:14:55.800 --> 0:14:57.680 is it going to be that they do it again 0:14:57.880 --> 0:15:01.560 if necessary. But I think the part of the structuring 0:15:01.560 --> 0:15:03.960 of this plan that was that was announced over the 0:15:04.000 --> 0:15:07.680 weekend was also meant to give people at least some 0:15:07.720 --> 0:15:10.920 degree of confidence that the government is not going to 0:15:11.040 --> 0:15:14.800 let contagion run amuck, even if some banks end up, 0:15:14.920 --> 0:15:18.880 you know, having to be liquidated or sold off like STP. 0:15:19.600 --> 0:15:21.800 So Biden said he's going to ask Congress and the 0:15:21.880 --> 0:15:25.640 banking regulators to strengthen the rules for banks to make 0:15:25.680 --> 0:15:29.000 it less likely this kind of bank failure would happen again, 0:15:29.480 --> 0:15:33.040 But no specifics. As you know, during the Trump administration, 0:15:33.480 --> 0:15:38.120 Congress row back some of the strictest post crisis regulations 0:15:38.120 --> 0:15:40.800 from midsize bank So what's your take on what would 0:15:40.800 --> 0:15:44.520 be best to put those regulations back into effect or 0:15:44.560 --> 0:15:48.240 to strengthen the regulations for all banks. Well, that's kind 0:15:48.240 --> 0:15:51.080 of the interesting question right now. You know, after the 0:15:51.320 --> 0:15:54.520 financial crisis and the wake of the financial crisis, fairly 0:15:54.560 --> 0:15:58.640 stringent regulations were in place that in fact would have 0:15:58.920 --> 0:16:03.040 covered many meet in size banks in this range. Those 0:16:03.520 --> 0:16:07.240 in mid twenty eighteen were rolled back, you know, rodly 0:16:07.440 --> 0:16:11.960 under the narrative of we're just you know, eliminating unnecessary 0:16:12.040 --> 0:16:15.720 regulation and opening up small regional banks to lend to 0:16:15.840 --> 0:16:18.720 small businesses and to grow the economy. And you know, 0:16:18.760 --> 0:16:21.800 the taglines are pretty easy to predict here. But what 0:16:21.960 --> 0:16:25.720 that did leave is this kind of open field for 0:16:25.840 --> 0:16:29.560 banks of that size to you know, decide what the 0:16:30.080 --> 0:16:33.000 best approach would be for trying to head their risks, 0:16:33.000 --> 0:16:36.080 and in both of these cases there was a fundamental 0:16:36.160 --> 0:16:40.520 miss calculation. So my sense is that the political winds 0:16:40.600 --> 0:16:44.200 may start to blow in President Biden's favor. Whether those 0:16:44.240 --> 0:16:46.760 winds are going to be strong enough to tip a 0:16:46.840 --> 0:16:50.920 Congress that is less friendly to regulatory interventions remains to 0:16:50.960 --> 0:16:55.080 be seen. But you know, the quaysie, you know, panic, 0:16:55.120 --> 0:16:56.600 I'd say more of a you know, kind of a 0:16:56.760 --> 0:16:59.840 systemic concern that that that really spawned what happened over 0:16:59.840 --> 0:17:03.040 the weekend is definitely going to have at least some 0:17:03.080 --> 0:17:07.320 implications in the political landscape and trying to understand how 0:17:07.320 --> 0:17:10.840 to go about reregulating some of these banks that look 0:17:10.920 --> 0:17:13.920 like they may be more systemically significance than they were 0:17:13.960 --> 0:17:16.840 given credit for. I mean, is a question of putting 0:17:16.880 --> 0:17:20.600 more of the banks under the stricter regulations of Dodd 0:17:20.600 --> 0:17:25.320 Frank or making all the Dodd Frank regulations if both 0:17:25.359 --> 0:17:27.800 are possible. I mean, I think probably the easiest thing 0:17:27.840 --> 0:17:31.040 would really just be to bring back down the threshold 0:17:31.080 --> 0:17:33.760 for the Dodd Frank rules. I don't think anyone is 0:17:33.800 --> 0:17:36.280 worried that some of these larger banks that have to 0:17:36.440 --> 0:17:40.240 undergo routine stress testing and pretty much have the stringent 0:17:40.280 --> 0:17:43.080 requirements that require them to wapp the assets to answer 0:17:43.119 --> 0:17:46.200 a bank run. I don't think anyone has any significant 0:17:46.240 --> 0:17:50.080 concern about the integrity or the solvency of those larger banks, 0:17:50.400 --> 0:17:52.840 So it may well be the case that the easiest 0:17:52.880 --> 0:17:57.240 thing to do would be basically bring that asset threshold 0:17:57.280 --> 0:18:00.480 back down so that it ended up effecting some of 0:18:00.480 --> 0:18:04.439 these more medium sized regional banks in the future. The 0:18:04.520 --> 0:18:07.679 other possibility, of course, is just to increase the regulatory 0:18:07.720 --> 0:18:11.760 oversight or demand of DoD Freak rules across the board. 0:18:12.160 --> 0:18:14.600 That one, you know, I think probably would face a 0:18:14.600 --> 0:18:16.639 fair amount of blowback for the same reason that I 0:18:16.720 --> 0:18:20.080 just noticed that the larger banks out there don't seem 0:18:20.160 --> 0:18:23.240 to be in this same situation. The Dodd Frank Acts 0:18:23.520 --> 0:18:26.399 rules are actually kind of working for them right now, 0:18:26.800 --> 0:18:29.200 and so to say, okay, we're going to ratchet them 0:18:29.359 --> 0:18:31.399 up may not be the you know, the street of 0:18:31.480 --> 0:18:35.560 shooting approach from a policy perspective compared to, you know, 0:18:35.720 --> 0:18:38.000 making sure that the banks that really are at the 0:18:38.200 --> 0:18:41.840 root of some of these problems, which are typically specialty 0:18:41.920 --> 0:18:45.800 concentrated in regional banks, that those have greater degrees of 0:18:45.880 --> 0:18:48.880 oversight in them. So if I were wagering on this, 0:18:49.000 --> 0:18:52.960 I would think that an overall enhancement of Dodd Frank 0:18:53.520 --> 0:18:56.800 requirements is less likely than maybe an extension of them 0:18:56.880 --> 0:19:01.719 to a larger population of banks, or you know, possibly 0:19:01.840 --> 0:19:04.919 you know, causing those those regional banks to you know, 0:19:05.680 --> 0:19:09.000 be more likely to have their assets transferred into some 0:19:09.040 --> 0:19:11.199 of the larger banks, and so that you know, you know, 0:19:11.200 --> 0:19:14.960 auctioning off the assets of a bank in its resolution period, 0:19:15.080 --> 0:19:17.159 you know, those assets may end up wandering to a 0:19:17.240 --> 0:19:20.200 larger bank that is subject to some of those more 0:19:20.240 --> 0:19:22.760 stringent requirements, and that might be in a mechanical way 0:19:23.440 --> 0:19:26.000 to do it. But I would see the more likely 0:19:26.040 --> 0:19:28.760 approach if there is going to be a regulatory response here, 0:19:29.000 --> 0:19:33.280 is to extend some of the Dodd Frank requirements back 0:19:33.320 --> 0:19:36.600 to in the direction that they were before twenty nineteen. 0:19:36.720 --> 0:19:39.880 Thanks so much, Eric, that's professor Eric Talley of Columbia 0:19:40.000 --> 0:19:45.159 Law School. New Life for Relevant Sports Groups plans to 0:19:45.320 --> 0:19:49.119 market foreign soccer teams regular season matches in the US. 0:19:49.640 --> 0:19:53.600 A federal appeals court in Manhattan has revived an antitrust 0:19:53.640 --> 0:19:57.639 suit brought against two of soccer's governing bodies. The Second 0:19:57.640 --> 0:20:01.159 Circuit found it was plausible that FIFA and the United 0:20:01.200 --> 0:20:05.960 States Soccer Federation are enforcing an anti competitive policy that 0:20:06.000 --> 0:20:10.440 divides geographic markets and restricts access to the game. Joining 0:20:10.480 --> 0:20:13.520 me is Stephen Bank, a professor at UCLA Law School. 0:20:13.800 --> 0:20:17.960 For those who don't know soccer, tell us about the 0:20:18.000 --> 0:20:23.520 alleged ban or why relevance efforts to host official season 0:20:23.680 --> 0:20:29.119 games between overseas teams in the US was denied. So 0:20:29.680 --> 0:20:35.240 US Soccer is a member the designated governing member of 0:20:35.760 --> 0:20:40.159 the United States Territory for the international sports governing body 0:20:40.440 --> 0:20:46.240 of soccer, which is FIFA, the Federation International Football Associations. Historically, 0:20:46.480 --> 0:20:49.960 the reason for FIFA is that soccer is such a 0:20:51.119 --> 0:20:56.480 international game gameplayed worldwide, unlike some American sports like American 0:20:56.520 --> 0:21:00.520 football for example, that they wanted to standardize the rules. 0:21:00.600 --> 0:21:04.360 They wanted to create opportunities for teams in different countries 0:21:04.440 --> 0:21:09.920 to compete against each other. So in creating the worldwide game, 0:21:10.200 --> 0:21:13.920 one of the things that they have done is given 0:21:14.119 --> 0:21:20.600 each federation, each governing body in the country jurisdiction control 0:21:21.080 --> 0:21:25.480 over the soccer played in that country. Historically, that's just 0:21:25.640 --> 0:21:28.760 meant that at most you'd have international tournaments like the 0:21:28.800 --> 0:21:33.080 World Cup you'd have some friendlies what they call friendlies, 0:21:33.080 --> 0:21:37.000 we would call scrimmages played in the offseason. So sometimes 0:21:37.000 --> 0:21:40.879 you have tours buy teams from in Europe or elsewhere 0:21:40.880 --> 0:21:43.280 in the world in the US where they're doing kind 0:21:43.320 --> 0:21:45.320 of a preseason training camp, and they'll play some games 0:21:45.320 --> 0:21:47.280 in the US, and so those were all games that 0:21:47.359 --> 0:21:49.800 you have to seek permission from the governing body in 0:21:49.880 --> 0:21:52.440 the local jurisdiction to play in those games. And it's 0:21:52.480 --> 0:21:57.240 only recently with the expansion of fans outside of a 0:21:57.400 --> 0:22:01.639 home country that there's demand and for people to watch 0:22:01.840 --> 0:22:05.840 a team from another country play. So people are watching 0:22:05.880 --> 0:22:08.920 games in other leagues. So it used to be you 0:22:09.000 --> 0:22:11.600 just watched your home league, that's all you did. So 0:22:12.359 --> 0:22:14.760 there's a lot of interest in for example La Liga, 0:22:14.960 --> 0:22:18.240 which is the Spanish first division league. So that has 0:22:18.280 --> 0:22:22.080 generated demand from those leagues to expand their base. They 0:22:22.080 --> 0:22:24.640 don't have to just rely on the fans within their 0:22:25.119 --> 0:22:28.280 within Spain. They can go outside of Spain, and so 0:22:28.359 --> 0:22:32.240 they'd like to mine what is viewed as a relatively 0:22:32.320 --> 0:22:36.320 untapped market at the United States. The rule came about 0:22:36.440 --> 0:22:41.560 because Relevant Sports, which is a soccer promoter. They were 0:22:41.640 --> 0:22:45.560 contacted by La Liga to try to arrange for games 0:22:45.560 --> 0:22:47.840 in the US. Now, that'd be fine, except that they 0:22:47.840 --> 0:22:50.800 were going to have league games in the US. The 0:22:50.880 --> 0:22:56.040 concern in that situation is that if you're trying to 0:22:56.040 --> 0:23:00.200 grow domestic league, especially one that's relatively new and in 0:23:00.240 --> 0:23:03.479 the case the United States, that demand for that league 0:23:03.960 --> 0:23:08.359 would get reduced potentially if a better league and more 0:23:08.400 --> 0:23:11.600 established league, more historical league Black LA Liga was playing 0:23:11.600 --> 0:23:14.199 its games to the US. This is not unique to 0:23:14.280 --> 0:23:18.440 the United States necessarily. This is a concern in lots 0:23:18.480 --> 0:23:21.399 of jurisdictions around the world that there's a few top 0:23:21.480 --> 0:23:25.960 leagues that will kind of dominate the domestic leagues, and 0:23:25.520 --> 0:23:30.800 the only protection the domestic leagues have is that they 0:23:30.880 --> 0:23:35.320 can control what's played in their country. So that led 0:23:35.520 --> 0:23:37.720