WEBVTT - Advance Placement: Four Things to Know When Choosing a Bank 0:00:00.240 --> 0:00:03.680 So if I want to ask you four questions at 0:00:03.760 --> 0:00:09.119 one time, so I'll get some high second, Wait a second, 0:00:11.360 --> 0:00:16.680 some high level some high level information, high level information. 0:00:17.000 --> 0:00:18.439 Going back to this banking stuff. 0:00:18.840 --> 0:00:21.320 So when we're when we're looking at a bank, right, 0:00:21.360 --> 0:00:23.639 there's a couple of different factors that go into play 0:00:23.640 --> 0:00:26.200 in the in the banking system. And let's really break 0:00:26.200 --> 0:00:29.880 this down. So let's start with net interest margins. Okay, 0:00:29.920 --> 0:00:31.080 what's the deal with that? 0:00:31.200 --> 0:00:31.520 All right? 0:00:32.640 --> 0:00:36.400 The one metric that's most important to banks is net 0:00:36.479 --> 0:00:39.800 interest margins. That's the difference between the money they lend out, 0:00:40.080 --> 0:00:42.159 the money they take in and the money they lend out. 0:00:42.200 --> 0:00:45.479 That's their banking profit so to speak. So in normal 0:00:45.560 --> 0:00:48.199 times and any earning season, we got earnings coming up 0:00:48.240 --> 0:00:50.279 in two or three weeks. I know, Ian studies these 0:00:50.360 --> 0:00:53.480 charts like crazy. You're looking at these different key operational 0:00:53.520 --> 0:00:56.280 metrics within different sectors. Well, in banking, that's the one 0:00:56.280 --> 0:00:58.600 that counts how much are they borrowing money for and 0:00:58.640 --> 0:01:00.600 how much are they lending it out for and how 0:01:00.640 --> 0:01:03.280 often are they lending it out, And the difference between 0:01:03.360 --> 0:01:05.000 what they borrow for and what they lend it out, 0:01:05.319 --> 0:01:06.880 that's their net interest margin. 0:01:07.200 --> 0:01:08.399 That drives their profits. 0:01:08.440 --> 0:01:10.600 We used to have this joke, can't really use it 0:01:10.640 --> 0:01:13.039 that much anymore, but you might as well. Banks work 0:01:13.080 --> 0:01:14.800 on the three six. Bankers work at three to sixty 0:01:14.840 --> 0:01:18.080 three schedule. They borrow at three, they lend at six, 0:01:18.160 --> 0:01:20.840 and they're on the golf course by three. Right, That's 0:01:20.880 --> 0:01:23.160 how a good bank's supposed to work. But with interest 0:01:23.240 --> 0:01:26.120 rates this high, they're lending out at a very high rate. 0:01:26.440 --> 0:01:28.679 Very few people are borrowing because these rates are pretty 0:01:28.760 --> 0:01:32.480 terrifying right now. It's dissuaded, it's caused demand destruction. So 0:01:32.520 --> 0:01:35.040 their net interest margins are really low. So you want 0:01:35.080 --> 0:01:37.000 to look at lending activity, but you want to look 0:01:37.000 --> 0:01:39.160 at net interest margins to see which bank is bringing 0:01:39.200 --> 0:01:41.360 the most money down to the bottom line, down to 0:01:41.400 --> 0:01:42.080 the profit area. 0:01:42.840 --> 0:01:46.520 The next one is percent of uninsured deposits. 0:01:46.920 --> 0:01:48.200 Right, this is a big one. 0:01:48.440 --> 0:01:52.080 Silicon Valley Bank had an enormous percent of uninsured deposits. 0:01:52.080 --> 0:01:53.880 They had a lot of money. They had a lot 0:01:53.920 --> 0:01:56.240 of customers that were over that two hundred and fifty 0:01:56.240 --> 0:01:59.480 thousand dollars limit. So that could have been small businesses, 0:01:59.520 --> 0:02:01.720 that could have been startups, that could have been wealthy 0:02:01.760 --> 0:02:04.280 people in Silicon Valley or just tech people who work 0:02:04.280 --> 0:02:06.280 in that industry that have gotten stock options over the 0:02:06.360 --> 0:02:08.880 years that have a few hundred thousand dollars or a 0:02:08.960 --> 0:02:10.440 million bucks in the bank. 0:02:10.520 --> 0:02:11.320 So the higher. 0:02:12.680 --> 0:02:13.000 What's that? 0:02:13.600 --> 0:02:15.160 Do you know the percentage was? By chance? 0:02:15.360 --> 0:02:17.360 I think it was like seventy nine or eighty that 0:02:17.360 --> 0:02:19.799 that number rings in my head. But when you look 0:02:19.840 --> 0:02:21.360 at a lot of the regional banks that have been 0:02:21.400 --> 0:02:24.840 attacked by short sellers over the past week or two, 0:02:25.120 --> 0:02:27.079 what are they looking at. They're looking at the banks 0:02:27.080 --> 0:02:29.799 with the highest percentage of uninsured assets because those are 0:02:29.800 --> 0:02:32.160 the most vulnerable. And the Fed raise rates again right 0:02:32.240 --> 0:02:34.720 last week. They're just making this problem worse. The higher 0:02:34.760 --> 0:02:37.480 interest rates go, the title thos and that interest margins go, 0:02:37.800 --> 0:02:40.280 and the higher the harder it is for banks to loan. 0:02:40.320 --> 0:02:43.440 So they're getting squeezed because they're paying they have extremely 0:02:43.520 --> 0:02:47.560 high lending rates. Nobody's borrowing the money they have protected 0:02:47.800 --> 0:02:50.760 in government bonds. The price of those assets has really 0:02:50.800 --> 0:02:53.120 gone down a lot, and they have a higher percentage 0:02:53.120 --> 0:02:54.080 of uninsured assets. 0:02:54.200 --> 0:02:56.040 Perfect storm surrounding banks right now. 0:02:56.800 --> 0:02:58.959 Credit spreads. 0:02:59.040 --> 0:03:02.400 Credit spreads is basically that it's really how much lending 0:03:02.520 --> 0:03:03.720 is going on and you want to look at the 0:03:03.720 --> 0:03:05.560 credit spreads between banks. 0:03:05.560 --> 0:03:07.720 What a banks do and what does the Federal Reserve do? 0:03:08.040 --> 0:03:13.400 It facilitates lending between banks, and it loans money to banks. 0:03:13.400 --> 0:03:15.360 It loans money to banks through what we call the 0:03:15.400 --> 0:03:18.400 discount window. And if you heard Fed chair Power last 0:03:18.440 --> 0:03:20.240 week and two weeks ago, what did the Fed do? 0:03:20.440 --> 0:03:22.919 That discount window is usually a seven day window. I'm 0:03:22.960 --> 0:03:25.119 a bank, I'm loaning to ian. He's got seven days 0:03:25.160 --> 0:03:27.160 to pay me back. We're loaning him at a certain rate. 0:03:27.360 --> 0:03:29.320 He's got to pay me back plus that interest. Well, 0:03:29.320 --> 0:03:31.920 now that windows only one day long, so we don't 0:03:31.919 --> 0:03:33.840 have to wait seven days to see what happens to rates. 0:03:33.919 --> 0:03:36.960 That's a one day borrow. So when banks get tight, 0:03:37.240 --> 0:03:38.920 and when liquidity gets tight like we had in the 0:03:38.920 --> 0:03:41.040 Great Financial Crisis, banks stop lending to each other. 0:03:41.120 --> 0:03:42.680 So you want to look at how much. 0:03:42.600 --> 0:03:45.440 Lending is going on right now and the spreads between 0:03:45.600 --> 0:03:48.120 what this bank is loaning to this bank. It's super 0:03:48.160 --> 0:03:50.000 in detail for a lot of folks, but you're going 0:03:50.040 --> 0:03:51.920 to hear this word a lot. What are credit spreads? 0:03:51.920 --> 0:03:53.320 Credit spreads are getting blown out? 0:03:54.520 --> 0:03:56.480 Ernest, what's up? You have a walk into a small 0:03:56.520 --> 0:03:59.840 business and everything just works like the checkout is fast, 0:04:00.080 --> 0:04:03.720 or receipts or digital tipping is a breeze, and you're 0:04:03.760 --> 0:04:06.520 out the door before the line even builds. Odds are 0:04:06.960 --> 0:04:10.560 they're using Square. We love supporting businesses that run on 0:04:10.600 --> 0:04:13.320 Square because it just feels seamless. Whether it's a local 0:04:13.360 --> 0:04:16.240 coffee shop, a vendor at a pop up market, or 0:04:16.279 --> 0:04:19.480 even one of our merch partners, Square makes it easy 0:04:19.480 --> 0:04:22.719 for them to take payments, manage inventory, and run their 0:04:22.760 --> 0:04:26.720 business with confidence, all from one simple system. If you're 0:04:26.760 --> 0:04:30.040 a business owner or even just thinking about launching something soon, 0:04:30.400 --> 0:04:32.960 Square is hands down one of the best tools out 0:04:33.000 --> 0:04:36.280 there to help you start, run, and grow. It's not 0:04:36.360 --> 0:04:39.560 just about payments, it's about giving you time back so 0:04:39.600 --> 0:04:42.280 you can focus on what matters most ready. To see 0:04:42.279 --> 0:04:46.080 how Square can transform your business, visit Square dot com 0:04:46.120 --> 0:04:50.960 backslash go backslash eyl to learn more that Square dot 0:04:50.960 --> 0:04:55.920 com backslash, go backslash eyl. Don't wait, don't hesitate. Let's 0:04:55.960 --> 0:04:58.440 Square handle the back end so you can keep pushing 0:04:58.440 --> 0:05:04.360 your vision forward. This episode is brought to you by 0:05:04.440 --> 0:05:07.160 P and C Bank. A lot of people think podcasts 0:05:07.200 --> 0:05:10.440 about work are boring and sure, they definitely can be, 0:05:10.960 --> 0:05:14.200 but understanding a professionals routine shows us how they achieve 0:05:14.279 --> 0:05:18.479 their success, little by little, day after day. It's like 0:05:18.560 --> 0:05:21.359 banking with P and C Bank. It might seem boring 0:05:21.360 --> 0:05:24.200 to save, plan and make calculated decisions with your bank, 0:05:24.640 --> 0:05:27.120 but keeping your money boring is what helps you live 0:05:27.200 --> 0:05:31.280 a more happily fulfilled life. P and C Bank Brilliantly 0:05:31.360 --> 0:05:35.920 Boring since eighteen sixty five. Brilliantly Boring since eighteen sixty 0:05:35.920 --> 0:05:39.200 five is a service mark of the PNC Financial Service Group, Inc. 0:05:39.640 --> 0:05:43.080 P and C Bank National Association Member FDIC. 0:05:44.839 --> 0:05:48.440 An illegal alien from Guatemala charged with raping a child 0:05:48.520 --> 0:05:52.320 in Massachusetts. An MS thirteen gang member from l Salvador 0:05:52.560 --> 0:05:56.719 accused of murdering a Texas man of Venezuelan charged with 0:05:56.760 --> 0:06:00.680 filming and selling child pornography in Michigan. These are just 0:06:00.760 --> 0:06:04.520 some of the heinous migrant criminals caught because of President 0:06:04.560 --> 0:06:08.159 Donald J. Trump's leadership. I'm Christy Noman, the United States 0:06:08.160 --> 0:06:12.960 Secretary of Homeland Security. Under President Trump, Attempted illegal border 0:06:13.000 --> 0:06:16.520 crossings are at the lowest levels ever recorded, and over 0:06:16.600 --> 0:06:19.840 one hundred thousand illegal aliens have been arrested if you 0:06:19.880 --> 0:06:23.760 are here illegally, You're next. You will be fine nearly 0:06:23.839 --> 0:06:27.840 one thousand dollars a day, imprisoned and deported. You will 0:06:27.880 --> 0:06:31.520 never return. But if you register using our CBP home 0:06:31.560 --> 0:06:34.960 app and leave now, you could be allowed to return legally. 0:06:35.320 --> 0:06:40.080 Do what's right. Leave now. Under President Trump America's laws, 0:06:40.240 --> 0:06:42.680 border and families will be protected. 0:06:42.800 --> 0:06:44.880 Sponsored by the United States Department of Homeland Security. 0:06:45.240 --> 0:06:48.480 Right, nobody's loaning at anybody at a reasonable rate because 0:06:48.480 --> 0:06:51.560 they're worried about that money. So when we hear this expression, 0:06:51.760 --> 0:06:54.160 they're blown out credit spreads. That means ingest rates have 0:06:54.240 --> 0:06:56.200 risen so high that banks are loaning to each other 0:06:56.400 --> 0:06:58.560 at exorbitant rates, and nobody's borrowing. 0:06:58.800 --> 0:07:01.159 So it's how I've just got one more. But this 0:07:01.240 --> 0:07:04.440 whole banking system is extremely interesting because it's like I live, 0:07:04.480 --> 0:07:10.600 there's twelve regional uh federal Reserve banks, and then those 0:07:10.680 --> 0:07:14.480 banks overnight they lend money to all of the banks 0:07:14.520 --> 0:07:17.760 in their area. And then as they raise interest rates, 0:07:18.280 --> 0:07:23.560 then banks that's borrowing money from the big. 0:07:23.360 --> 0:07:24.080 The big guys. 0:07:24.720 --> 0:07:28.560 It's gonna be more expensive, which gets passed down on 0:07:29.200 --> 0:07:35.280 the credit cards. And it's the car, so it starts 0:07:35.280 --> 0:07:38.320 it starts at the top. They're loaning money overnight to 0:07:39.080 --> 0:07:42.360 the smaller guys, and then the smaller guys are auditioning 0:07:42.400 --> 0:07:45.760 out money to everyday people. So every time the interest 0:07:45.840 --> 0:07:49.640 rates get raised, that's how you are impacted in your 0:07:49.680 --> 0:07:50.320 day to day life. 0:07:50.320 --> 0:07:54.360 And then inversely, the people who are depositing large amounts, 0:07:54.400 --> 0:07:56.280 they're using that money to now loan. 0:07:57.120 --> 0:07:58.440 Okay, one last question. 0:07:58.600 --> 0:08:01.760 The silver lining here real quick, is that there's finally 0:08:01.800 --> 0:08:04.080 money in the bank for actual depositors. So people who 0:08:04.120 --> 0:08:05.960 are freaked out about the stock market are freaked out 0:08:05.960 --> 0:08:08.080 about this, or that you could buy a CD right 0:08:08.120 --> 0:08:09.920 now for four or five percent, you can buy a 0:08:09.920 --> 0:08:12.320 money market for fun for four or five percent. So 0:08:12.360 --> 0:08:13.960 the silver lining and all of this is it's good 0:08:14.040 --> 0:08:17.000 for customers and depositors as long as our bank doesn't 0:08:17.000 --> 0:08:19.720 go under. But it's really rough between banks right now, 0:08:19.880 --> 0:08:22.280 and really rough for businesses. That's why everyone's talking about 0:08:22.280 --> 0:08:24.920 a recession. Lending is going to get so tight, nobody's 0:08:24.920 --> 0:08:27.120 gonna borrow, nobody's going to expand they're gonna start laying 0:08:27.120 --> 0:08:27.559 off people. 0:08:27.800 --> 0:08:29.120 That precipitates a recession. 0:08:29.560 --> 0:08:33.920 Arise in credit, the fault swaps, what is credit and 0:08:33.960 --> 0:08:36.480 this is, by the way, ladies and jail, this is 0:08:36.480 --> 0:08:38.040 your master's degree. 0:08:40.480 --> 0:08:42.520 If it sounds like a encyclopedia. 0:08:42.120 --> 0:08:44.920 Your master's degree in five minutes, because it is for free, 0:08:45.000 --> 0:08:46.040 by the way, right. 0:08:46.320 --> 0:08:50.000 Credit to fault swaps is basically derivative or an options contract. 0:08:50.000 --> 0:08:53.559 It's it's an insurance contract. So if I'm if I 0:08:53.600 --> 0:08:56.680 believe that the Bank of Ian Dunlap is getting risky, 0:08:57.000 --> 0:08:59.839 I may buy a credit to fault swap from you. Right, 0:09:00.000 --> 0:09:02.480 It's an insurance contract that says if he doesn't, if 0:09:02.480 --> 0:09:04.640 his stock price goes under, if his stock price keeps 0:09:04.640 --> 0:09:07.960 going down, you're going to each other on that insurance. 0:09:08.559 --> 0:09:09.600 All right, sorry to use. 0:09:09.559 --> 0:09:13.120 You, go ahead, already use you. So it's basically it's 0:09:13.160 --> 0:09:17.880 an insurance contract betting on the health of a bank. 0:09:17.960 --> 0:09:19.400 In some cases, it could be anything. 0:09:19.400 --> 0:09:21.839 You can buy credit default swaps on a lot of 0:09:21.880 --> 0:09:24.800 different securities, but the ones we're watching really closely right 0:09:24.840 --> 0:09:28.000 now are the credit default swaps on banks. Why because 0:09:28.000 --> 0:09:31.319 they're the amount and the volume of credit default swap 0:09:31.360 --> 0:09:34.560 purchases and the price of credit default swaps against some 0:09:34.559 --> 0:09:36.600 of the biggest banks in the world, like Deutsche Bank, 0:09:36.840 --> 0:09:39.040 has been rising a lot in the past few days, 0:09:39.360 --> 0:09:42.640 more and more investors are doubting their ability to either 0:09:42.640 --> 0:09:45.160 get through a recession or they're doubting the ability, in 0:09:45.200 --> 0:09:47.160 the case of regional banks, for them to be able 0:09:47.200 --> 0:09:50.000 to survive this period of high interest rates, and they're 0:09:50.520 --> 0:09:54.280 depositors taking money out. So watch credit default swaps and 0:09:54.320 --> 0:09:56.040 if you need a really good explanation if I didn't 0:09:56.040 --> 0:09:58.520 do a good enough job, the Big Short movie, which 0:09:58.559 --> 0:10:01.000 was terrific, that really explained if I financial crisis. There's 0:10:01.040 --> 0:10:03.640 a great explanation of credit to fault swaps in that movie. 0:10:03.640 --> 0:10:05.840 You should watch, and I'm sure the clip is on YouTube. 0:10:05.840 --> 0:10:09.000 But basically it's an insurance contract between me and another 0:10:09.040 --> 0:10:12.320 investor betting on the health of a bank in this case, 0:10:12.360 --> 0:10:15.360 but it could be any security that was well put. 0:10:15.440 --> 0:10:16.760 Thank you for. 0:10:19.480 --> 0:10:23.040 My graduates from my school being force bad. 0:10:23.160 --> 0:10:27.760 Drop drop, Mike, drop bag drop drop. 0:10:38.120 --> 0:10:41.720 An illegal alien from Guatemala charged with raping a child 0:10:41.800 --> 0:10:45.600 in Massachusetts. An MS thirteen gang member from El Salvador 0:10:45.840 --> 0:10:50.000 accused of murdering a Texas. Man of Venezuelan charged with 0:10:50.040 --> 0:10:53.960 filming and selling child pornography in Michigan. These are just 0:10:54.040 --> 0:10:57.800 some of the heinous migrant criminals caught because of President 0:10:57.840 --> 0:11:01.440 Donald J. Trump's leadership. I'm Chris Denome, the United States 0:11:01.440 --> 0:11:06.240 Secretary of Homeland Security. Under President Trump, attempted illegal border 0:11:06.280 --> 0:11:09.800 crossings are at the lowest levels ever recorded, and over 0:11:09.880 --> 0:11:13.080 one hundred thousand illegal aliens have been arrested. If you 0:11:13.160 --> 0:11:17.000 are here illegally, your next you will be fine nearly 0:11:17.120 --> 0:11:21.120 one thousand dollars a day, imprisoned, and deported. You will 0:11:21.160 --> 0:11:24.800 never return. But if you register using our CBP home 0:11:24.840 --> 0:11:28.240 app and leave now, you could be allowed to return legally. 0:11:28.600 --> 0:11:33.320 Do what's right. Leave now. Under President Trump, America's laws, 0:11:33.520 --> 0:11:35.960 border and families will be protected. 0:11:36.040 --> 0:11:38.199 Sponsored by the United States Department of Homeland Security.