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Speaker 1: This is Bloomberg Surveillance the victory of Leave and Brexit.

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Speaker 1: I'm doing different things given the NATO majority with which

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Speaker 1: Leave has won, but actually my in fact never occurred.

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Speaker 1: The UK is really not that importer for most of

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Speaker 1: oberg in Asia, Coreason for China. This is a continuation

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Speaker 1: of the crisis that has not gone away, and we

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Speaker 1: may well see the more year. Good Bloomberg Surveillance your

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Speaker 1: link to the world of economics, finance and investment on

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Speaker 1: Bloomberg Radio. Good morning everyone, Michael McKee and Tom Keane

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Speaker 1: this day from Washington, d C. We welcome all of

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Speaker 1: you to our studios here in Washington. Later this morning

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Speaker 1: a conversation with Alan Greenspan, and then Michael McKee and

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Speaker 1: I will travel one or two blocks away for a

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Speaker 1: conversation with a former Secretary of State Madeline Albright will

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Speaker 1: join us as well. Let me get our good support

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Speaker 1: and messages for an eight am our Bloomberg Surveillance and

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Speaker 1: War Shton, London and New York March You by Cone

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Speaker 1: RESNEC Accounting Tax Advisory. Is your business ready to break through?

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Speaker 1: dot uh com. Michael, let's get through a data check

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Speaker 1: here to get to our steam guest, uh quickly, Sterling

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Speaker 1: simply doesn't have a bid one STE is at an

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Speaker 1: ugly half hour of it continued appreciation. We are well

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Speaker 1: over ten big figures away from where we were a

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Speaker 1: number of days ago. Euro rather under one ten one,

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Speaker 1: and Michael, very quickly, her future is negative eighteen non

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Speaker 1: negative sixteen a little bit. What else do you see, Mike, Well,

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Speaker 1: here's what we're gonna be talking to Karen through in

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Speaker 1: a moment. Let's look at what's happening with the banks

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Speaker 1: in Europe. The Europe the Eurostock six Bank index is

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Speaker 1: down seven point six percent this morning. It is the

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Speaker 1: worst two day performance in years. You're looking at Deutsche Bank,

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Speaker 1: you've been focused on that at UH twelve point two euros.

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Speaker 1: It's down eight and a half percent, Standard Chartered down

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Speaker 1: six percent, Barkley's is ugly down nine. Yeah, and so

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Speaker 1: far this morning. We need we need to be clear

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Speaker 1: that there's a nuance to banking from too big to

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Speaker 1: fail big European banks, And in every single interview, the

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Speaker 1: pros are looking at the midsize of the small banks,

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Speaker 1: and then uh, I want to look at this one.

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Speaker 1: UNI Credit is off seven point three percent this morning.

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Speaker 1: There are reports that the Italian government is planning a

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Speaker 1: forty billion euro injection of capital into the banking system there,

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Speaker 1: and yet that has not increased confidence in Italian banks.

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Speaker 1: This morning, we have a wonderful guest, really truly the

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Speaker 1: right guest at the right time. I'm banking. Karen Shaw

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Speaker 1: Petro out of Wellesley, out of m I T and

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Speaker 1: Berkeley owns the high ground on banking analysis. I think

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Speaker 1: I have right, don't I? Mike, Yes, Karen, as you

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Speaker 1: sit with your prism of American banking, I critically want

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Speaker 1: to know does Europe have the regulatory and processes to

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Speaker 1: adjust an amend their European system like we assume we

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Speaker 1: have here, or is it just a totally different beast

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Speaker 1: It's different there. Um. I very much hope that first

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Speaker 1: with they're back to the wall, some of the squabbling

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Speaker 1: will end. And also, I think very importantly in Europe,

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Speaker 1: as in the United States, the financial system is very

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Speaker 1: dependent on the very biggest banks, and particularly in terms

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Speaker 1: of overnight the kind of stock market and currency and

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Speaker 1: liquidity gyrations that Mike is describing all of that runs

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Speaker 1: first through the very biggest banks, and each of them,

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Speaker 1: even the weakest of the very big banks, like a

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Speaker 1: hunic credit is fundamentally and far stronger than it was

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Speaker 1: in two thousand eight. Well, even that may though that

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Speaker 1: may be the case, you have to ask how close

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Speaker 1: to a real systemic problem could we be in Europe

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Speaker 1: if you look at banks like those in Italy with

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Speaker 1: tough capital situations, who have now taken an even greater

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Speaker 1: hit on their equity. The the thing I think, Mike

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Speaker 1: is the near term, the really thing that that I'm watching.

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Speaker 1: Equity is a forward looking earnings price. Survival is overnight funding,

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Speaker 1: thank you. And we need to keep the lifeblood of

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Speaker 1: the financial system moving so that each one of the banks,

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Speaker 1: and therefore each one of their customers pays its bills

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Speaker 1: every minute of every day. And despite the blood all

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Speaker 1: over the floor and equity markets were, we're not in

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Speaker 1: a Lehman moment, at least not not yet. Let's go

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Speaker 1: back to our clinic. We need a Monday Primmer. What's

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Speaker 1: the different between solvency and liquidity? That's not a primary question, Tom,

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Speaker 1: because some days the line is very, very fuzzy, but

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Speaker 1: liquidity means you can pay your bills because you're solvent,

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Speaker 1: but you need your money that you lent to somebody

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Speaker 1: else to come back to you, so you can pay

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Speaker 1: your bills and turn to the people who you owe.

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Speaker 1: Every minute of every day, trillions, tens of trillions of

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Speaker 1: dollars are flying through the financial infrastructure, and that has

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Speaker 1: to work. What happened in two thousand and eight was

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Speaker 1: that Lehman couldn't pay its bills, not necessarily in a week,

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Speaker 1: but that minute. And that's what blew what the as

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Speaker 1: lungs we're doing the primer stage here, is there a

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Speaker 1: difference in funding models between the US and Europe. Are

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Speaker 1: European banks as dependent on the wholesale funding overnight funding

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Speaker 1: as American banks have been. Actually, in many ways they're

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Speaker 1: more dependent. Um. They and the financial systems in Europe

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Speaker 1: are more dependent on banks than in the United States. Um.

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Speaker 1: But let me just throw a statistic out that for

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Speaker 1: US banks, for example, the biggest US banks, the ones

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Speaker 1: maybe they're too big to fail, I hope they're not,

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Speaker 1: but they're the ones I know we depend on. Since

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Speaker 1: the crisis of the biggest US banks balance sheet are

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Speaker 1: now Treasury securities, government agency debt, highly liquid assets that

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Speaker 1: they can sell for cash. Maybe not as much cash

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Speaker 1: as they wanted, but they can sell for cash. When

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Speaker 1: the financial crisis hit in two thousand and eight, they

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Speaker 1: let alone the other and the EU banks are better.

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Speaker 1: They're better than they were. They're not great, but they're better.

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Speaker 1: What will we see mergers and acquisitions? I remember just

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Speaker 1: the rep up of my healthy I mean, Jamie Diamond

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Speaker 1: was at Bank one. I don't know what that became,

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Speaker 1: and that there was a whole Boston Bay Bank, uh

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Speaker 1: Bank of Boston things. Can that happen in Europe? That's

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Speaker 1: a great question, And that's where the difference is. It's

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Speaker 1: it's really here where we're one country. They're they're twenty

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Speaker 1: seven countries, most of whom don't really like each other.

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Speaker 1: And an integrated European banking system is a much more

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Speaker 1: complicated question than than ours here. I think it's states

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Speaker 1: support tom and not so much mergers and market solutions. Well,

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Speaker 1: it's not an integrated banking system yet, but you do

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Speaker 1: have one entity, the ECB that sort of gets stuck

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Speaker 1: with the bill um, you know, if it comes due.

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Speaker 1: How capable are European systems with dealing with any kind

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Speaker 1: of systemic crisis At the moment, they don't know, so

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Speaker 1: I don't know. I think the answer is they will

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Speaker 1: do what it takes. That's Mario draws longstanding promise and

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Speaker 1: he will keep that commitment at the market. I believe

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Speaker 1: expects that the complexity comes because you have the Eurozone,

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Speaker 1: then you have the peripherals, and you have local currencies

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Speaker 1: and the pound so within the Eurozone, I I really

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Speaker 1: do believe they will do what it takes and then

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Speaker 1: pick up the policy pieces later. Karen, uh what it's

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Speaker 1: like to see George Osborne on stage with James Diamond

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Speaker 1: in the United Kingdom last week. I can't imagine a

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Speaker 1: major banker in the United States, even Mr Stump of

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Speaker 1: Wells Fargo a bit removed from the folly on stage

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Speaker 1: with Jack lou what's the relationship of our bankers with

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Speaker 1: the rest of America, with the people of America? Now?

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Speaker 1: Are they bonding and connecting like Mr Diamond bonded with

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Speaker 1: the Chancellor of the Exchequer? Uh? No, I don't think

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Speaker 1: Americans like their banks very much, and in the in

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Speaker 1: London in particular, the the UK economy is so much

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Speaker 1: more dependent on finance and therefore banks than our or

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Speaker 1: is that the political relationship is a little bit different too.

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Speaker 1: Before we let you go, I have to ask the

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Speaker 1: how the the US is shaping up now with the

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Speaker 1: Republicans talking about repealing Dodd Frank UH and UM changes

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Speaker 1: coming in in regulation one way or another. Are we

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Speaker 1: at a point where banks can operate in enough certainty

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Speaker 1: that they can make money but still be safer. I

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Speaker 1: think the short answer to the terrific question is no. UM.

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Speaker 1: The uncertainty is I believe, and I've I've been working

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Speaker 1: on running some numbers that one of the major reasons

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Speaker 1: that recovery is so slow is that the banking system

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Speaker 1: is unable in some ways and uncertain in others about

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Speaker 1: putting money back into the economy. If we don't clear

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Speaker 1: up that uncertainty, I really don't see how we get

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Speaker 1: the economy moving. We need to stay on stage for

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Speaker 1: the next eight hours. You put a bit on the

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Speaker 1: s You single handedly have lifted Sterling in the last

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Speaker 1: five I'll stay here all week. Jaren Petro with Federal

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Speaker 1: Financial Analytics UH, talking to us on the future of

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Speaker 1: our banking system. Mike Sterling a low one thirty one

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Speaker 1: fifty two up to seven. It's the true rally. I'm

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Speaker 1: not gonna call about him yet. I guess fure future

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Speaker 1: is negative eighteen or now negative thirteen, So a little

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Speaker 1: bit of a better feeling the market, and I think

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Speaker 1: the key thing to stake this morning, folks, is Michael

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Speaker 1: McKee mentioned is with volume coming in towards the New

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Speaker 1: York trading day, uh, many of the vectors trying to

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Speaker 1: find a bid from Washington Later, Ellen Green Span this

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Speaker 1: is Bloomberg surveillance. Let's check in with Michael by now

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Speaker 1: and get the latest world and national headlines. Michael, Mine, Tom,

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Speaker 1: Thank you very much. The Supreme Court has set to

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Speaker 1: close out at the current term before the summer recess.

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Speaker 1: There are three remaining cases after a flurry of decisions

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Speaker 1: last week. The last trio of cases are regulation of

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Speaker 1: Texas abortion clinics, federal law that seeks to keep guns

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Speaker 1: out of the hands of people convicted of domestic violence,

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Speaker 1: and the public corruption conviction of former governor Bob McDonald

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Speaker 1: of Virginia. Secretary of State John Kerry has meetings today

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Speaker 1: in Brussels and London about Britain voting to leave the EU.

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Speaker 1: Carry is urging Britain and the European Union to work

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Speaker 1: together to calm markets. West Virginia has already been founded

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Speaker 1: by heavy rains and may have new flooding problems this week.

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Speaker 1: More heavy rain is forecast today in the same area

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Speaker 1: where floodwaters have already killed at least twenty five people.

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Speaker 1: Global News twenty four hours a day, powered by more

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Speaker 1: than twenty six hundred journalists and analysts more than one

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Speaker 1: hundred twenty countries. Michael Barr, this is Bloomberg, Mike, Tom Michael,

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Speaker 1: thanks so much. The Secretary of Treasury out with the

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Speaker 1: headlines now across the Bloomberg contingent. Steps are taken on liquidity.

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Speaker 1: We'll have more. It's Bloomberg Surveillance. What does Brexit mean

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Speaker 1: for the global economy? Coming up at nine o'clock Wall

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Speaker 1: Street Time. Alan Graidspen, the former FED chairman, joins Tom

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Speaker 1: Keane and myself on this special edition of Bloomberg Surveillance.