and big grains and land slide. the range is much less than down the full costs the heaviest best bit further west between the south. maybe the north mcdonough reviewing the headlines, dissecting what they say, which has decided to go live. was there really a full scale innovation, exposing how the media is used to shape the one factor that never seems to make a difference is it's on true. it never happened. and how political power can suppress free speech. you tried to record that need to be in public. the police would be there in the matter of seconds. we are under constant surveillance. the listening post you guy to the media on tuesday around the bank failure of this week in the united states. i'm concerned about others following the collapse of credit suisse and much. what's behind these events and the leasing volatility of the sector as all the risk of a broader financial crisis. this is inside story,

the hello welcome to the program of adrian. instead of going concerns about the stability of banks in the united states and elsewhere persist. first republic failed this week of 2 banks collapsed in march. the white house is keen to reassure americans and the world that everything is under control, but the sector is at its most of all the time since the 2008 financial crisis. the recent collapse of switch jobs, the credit suisse means the shockwave. so rippling through a globalized apple interconnected financial system. so all these isolated unconnected events or signs of something deeper and more worrying will be finding out what our guests think in just a few moments. but 1st, a report from milan gotta be,

looks at pace the regulators in the united states seized. and that sold 1st republic bank early on monday and promptly sold it, hoping to end the term while that's raise fresh questions about the health of the banking system. first republic was one of the lend despatches by a crisis and confidence in much clients with logic counts were quick to pull their money at the 1st sign of trouble following the failure of silicon valley bank and signature bank they and 1st republic were hooked by retakes it looks like the federal reserve will probably continue raising interest rates, and that will compound the problem. the 1st republic bank faced where it was earning less interest on its loans than it was paying for its liabilities. the collapse of san francisco based 1st republic is the 2nd largest in us history. jp morgan chase took over the bank and the deal broke it by regulators . but it renewed political debates about financial regulation. if your bank fails,

you should be re core, the. the regulators should be required to callback the executive compensation for the last 34 or 5 years. similarly, if your bank fails, you should be barred from ever being an officer or director at a, at a bank in the future. they all worries to about bigger banks becoming too powerful . as a result of government intervention of us has backed itself into a corner where um, the way that we protect uninsured depositors. when a bank fails is to have a larger bank. gobble it up. that then makes the larger bank more likely to be too big to fail and each time this happens, the problem is compounded in washington has been to abide and attempted to reassure people that there's nothing to worry about these axes. going to make sure that the

banking system is safe and sound and that includes protecting small businesses across the country who need to make payroll for workers and their small business concerns about the banking sector and just confined to to the u. s. in much so far to useful credit suisse, to agree to a take over by rival u. b. s. the demise of its 2nd largest bank severely damaged switzerland's reputation for financial stability and dented sentiment among investors further afield. i haven't looked at before inside story. well let's bring it out. guess for today's discussion from los angeles, we're joined by william lee, chief economist at the new can institute and independent economic thing. try and cut a full month division chief at the international monetary fund from london. nicky price chief, the comic advisor at the center of economics and business research. one of the u. k is leading consultancies and in massachusetts, cornelius electra and financial law,

the boston university school of law enforcement, assistant general counsel of the federal was a portable welcome to all righty. and let's start with you then why did 1st republic go under? is it assigned a broad banking crisis? we have a crisis in thank supervision, not a banking crisis. what we see. busy are badly managed banks or specialized banks that took very strange business models that, that deviated from standard banking. standard banking generally says that you should diversify your loan portfolio. and united states is a very different country than in many countries in europe and asia, where there are over $4000.00 banks noted states, but banks on the account for about 11 percent of total corporate financing. so the corporate sector really depends upon capital markets more than they do banks. however, banks to serve as the small businesses. and what we found in with the fail things is that the management of those banks chose to specialize in either crypto currencies or venture capital with us or chasing after rich people and rich

deposits. and those models are very specialized and highly highly um, and diversified. and so they were subject to, to runs that came about because the interest rates started going out. so. so what we have a series of bad banks, and they were made by the banks united states that the supervisor failed to identify and shut down. so that could be the is the problem, not a systemic problem in the back to the system per se. vicky price you, do you agree with that? we have a series of, of bad banks. i mean, how can a bank be hurt by a federal reserve interest rates hike? i mean, i'm surely isn't an interest to as something but banks pass on to that customer's so. oh, that is absolutely true. i mean, what tends to happen with cost is to interest rates a high. then what you owe are on the way up, what banks do is that they charge a lot more on the loans, but they don't necessarily increase deposit rates, interest rates, as fast as that. so they make a big margin. so if you are

a normal retail bank, which is diversified, then you do reasonably well, but interest rates go up. you don't just so well, but interest rates are low. and the trouble is, of course, according to the bank. so we're talking about that also. why the, if you look at what happened over in europe with credit suisse, is that you have a retail of bank. you have a commercial side effect, which of course lends quite a lot to businesses which may be great to difficulty because of the higher interest rates. themselves so they have to pay on the loans and then you've got a wealth management division, which is the $1.00 that credit suisse also had was just quite, you know, doing reasonably well, but where money started flowing out, debates. but also you had a very strong wealth management division as well, a number in the 1st republic bank as well, which was the one that jp morgan decided it really wanted to have those wide bid for us. now a very significantly how this varies bits of the bank too,

depending on what happens with the cycle and also with interest rates. and it is absolutely true that if one isn't diverse, you find significantly because one specializes may be in the tech sector, which is what was happening with a number of the banks in the us. oh, you quite slow or relatively, in relation to some of the why did market and you depend a lot on particularly the policies which may suddenly disappear. so you're not just the 1st you find new deposit based only the, then your in great to risk of changes in the environment, particularly changes and interest rates, and another of those more of banks which tend to specialize. in date, i have 10 to tool. so no, no, we specialize at the tech sector and commercial property each other. they also have to enter to invest in relatively safe assets like treasury bills in the us. in other words, bones, government bones which have tended to be very safe from yet when interest rates go up, of course, the value of those bones goes down very significantly. so when people withdraw the

depots or somebody, because they've worried about you and you try to sell those assets, you have which are bones which are funding in price. then you have a serious in balance due by the bank, and you end up having to be rescued or have someone by you or basically folding, which is exactly what we've seen happen in a number of cases in the us recently. excellent, good ideas of 1st republic had been looking for a signature in the weeks leading up to it's the purchase of its assets by it, by jp morgan. if market forces and been allowed to play out, i didn't find a bio and it had been allowed to collapse. what would have been the repercussions as well? and i think the policy makers who are concerned vitally about the still over effects of failure, particularly, particularly with regard to the regional banks. i agree with all that's been said previously except for the club. the comment that i could go back to that we might consider, but um, you know what we have to this current situation is unusual from past crises and

past credit crises. the problem has been with assets, mainly loans and investments. here we have 2 bags, 3 bags, 4 bags, now that the sale largely due to their liabilities, so their deposits and that has been compounded by technology. the policy makers really haven't caught up to the side. the customer has viewed the retail or commercial, can move their deposits with a click of a house. you know, in, in the seconds we, we tend to think of a bank runs as a deposit is lined up at the branches. but that's that, that's not the nature of a, of a bank panic today. today it happens in, in the minutes an hour. it's not in days and months. that's uh, that's a i agree with the previous commentator who said that we have a bank supervisory process more than

a banking crisis. the bank supervisors are there. i'm thinking particularly of the said the federal reserve and the federal deposit insurance corporation. we're well aware of these banks, particularly 1st republic and silicon valley, had significant problems as much as 9 months ago and their failure to act deserves much more scrutiny then it's gone today. there has been a reply. busy by the sat in the s t i c. however, those were entirely superficial. and i, i think the congressional hearings to come in or research research on this. we will validate your previous speaker as a comment that this was largely a supervisory problem and not a i a inherent banking problem. as a william, it was even better the comment about the supervisory problem. but to what extent did the markets themselves play a role in the collapse of not just 1st republic,

but the, the, the of the us banks as well in the, in the markets smelled blood. there was a certain amount of manipulation market manipulation, in short, selling that went on a, did that contribute to the collapse of these us bank ships short selling a bank stocks we barrens. you may, you may have to explain for us what short selling is before you give us the onset to. yeah, i think one of the things that we have to remember is that the market starts to smell the blood in the water is because the supervisor's at the bad managers put the blood there. but don't forget, as interest rates rose, not all banks have problems. well managed banks were able to manage your liabilities, keep the depositors, and offer them the services that retain their highly valued customers. what we found was that 1st republic, silicon valley, and the crypto banks that specialize in crypto currencies failed because the managers did not put in place the proper governors and risk management structure

that most banks had in place. take, for example, silicon valley bank. they operate for over 9 months without the chief risk officer . and the chief nursing officer is one of the most important people in a bank because that person's responsibility is to make sure that they've taken to account all foreseeable risk. and then the environment that we were in, it was absolutely clear that as an inflation started to take off the federal reserve is going to fund raising embrace, i guess we, i agree that the federal reserve raise rates that historically faster pace, but face should not have been caught salt flood for the that, that their customers, patty, and now we do have a new technology. what thank panics, are now induce or, or, or, or capitalized by social media. so in silicon valley, which had people that were subject to a lot of groups, think you have one social influence or put out of a huge message it via their social media. that's that hate. pull your money out because silicon valley is not a safe, is your thing. and suddenly everyone did that. well, the risk manager should have known that there people,

their customers were subject to such a group thing and had the 1st of 5, their, their, their asset management and their liability management. so not all bank software because interest rates went up and in the evidence for that is look at the larger banks, jp morgan city bank, and as a bank of america, they were all subject to the same interest rate environment. they, they are very well look at the other smaller banks around the country, the other 4000 banks. all of them managed to survive quite nicely. unfortunately, markets are slowly getting the funded their head that perhaps the us banking model of having community bank servicing small businesses is not advised the model that is wrong. and that has to be something that the supervisors come out and absolutely state explicitly that they fell on their job. they fell off on their jobs because of that markets. punny. not because of 80 wrong with the banking system, per se, whatever it is, perhaps something more. it's not a question, i'm sorry, but is there something more serious going on here in but there are those in the

markets who would be willing to push small. uh, uh, struggling banks towards collapse so that the federal deposit insurance corporation, the f b i c steps in 1st and then gives any potential buyers that are tons and there are always nefarious investors. also, you're looking for vulnerabilities, but you're a short attack. that is a, an investor that tries to attack institution by selling their stock and try to induce their price decline and panic. the management would never succeed if there weren't fundamental vulnerabilities. and one of the things that, that we found in the past where that speculators always lost money from last. it was something to win on and, and we saw it in very many different places, even including as, as big. oh, it's too much like the united kingdom of joyce sources able to break the pounds because inspect, because he was able to induce us so much volatility in the foreign exchange market

that the british pound suffered. so. so there are many speculators out there. but if you have a cell institution, you actually will find that speculators which tried and they'll fail. what the reason why they succeeded was silicon valley, was that there was something there to keep. what are the implications of this for, for your pin bank, your pin bank, some of that that the, the 2 systems a very different regulatory systems. is there any similarity between what's going on right now in the united states with credit suisse and, and you'll be asked, i think, is besides the manual banks into us original bank, specialized banks, a little, the smaller banks, which is good actually in terms of supporting the communities in particular, sectors in your lives been huge amounts of consolidation that took place off to the financial crisis. or we have many fuel banks and they are very tied tree regulators . i mean, remember in the us, of course, under president trump, there was

a deregulation, particularly of the smaller banking sector, which is i think, one of the problems that we facing right now with the issues that have arisen in, in europe. it isn't quite like that, but people still can move their money out very fast. the way in which the system now works is such that we've electronic transfers. that can be a run on the bank, which can be very, very quick. and one of the things that happened, of course, with crazed risk, which indian had to be bought out by us has been indeed this lack of, of the phrase if you like that. so the bank was going to be going concerned. instead of going ahead looking forward so you can have the same things happen in your material. but the real concern is this, because it is a vision, but it is an issue as to this is inability to the banking system at the time when interest rates are rising so fast. and that would be bad loans without a doubt. and a lot of lending was given when interest rates were low and there's a loss commercial that commercial property that jobs that,

that we may indeed see that it, there is a type name coming ahead in lending and credit conditions. we've seen that already in europe happening as hopeless willingness to lend a lot more concerned as to what the implications would be trying to avoid having anything like what's going on in the us right now, spread into europe and that is bought, that is bog for businesses by for consumers is also schools bad for the economy as a whole. and there is a concern that we've interest rates continuing to be raised for central banks. we might see a slow dying become a new foster, right? some would otherwise have been the case on already, of course, in the us want us to, to the post recession because of everything has been happening later. the see how possibly 2024, calling this all big banks, a bad thing. and where's the bite, the administration, and all of this, there was a long held view that the government would block banking john's getting any bigger

uh, 5 himself involved to take a tough a stance on the bank. much is that when he came into office and yet he said that he was pleased by the 1st republic deal. he said he would make sure that the banking system is safe and sound a. yeah. so yeah, we have in this country. yeah. and in many countries, what we call too big sale banks. and if you think about that term, what it means is uh bang is either too big or complex or inter related that it will not be allowed to fail. that, that implies a significant government taxpayer subsidies up to that bank because they will never fail so. so whenever you have a boss on the road like we're experiencing now, deposits either fleet voluntarily to those 2 big to fail safe banks for involuntary li, as in the case of the 1st republic, where the government acts as

a chaperone to make the j. p. morgan chase, even larger than it was before we. we had other banks that were interested in buying for a script uh that were not too big to fail themselves. and i'm thinking in particular the cnc back, but i disappointed in the administration in that they actually subsidized the purchase of 1st group cover to buy jp morgan, thereby making j. p. morgan even larger and more so me to say all that it was before, this is the minus and a piece of business from the last financial crisis in 2008 where we, we failed to run size these institutions. now, if we're willing to live in a world of basically socialized banks that are more of the state, then we'd like to make the conscious public policy decision. but in steps that we

tend to pull ourselves into thinking that we have a competitive system. we're really what we have in the us is, is a subsidized to the big to fail. after all, the too big to fail. banks account for about 60 percent of all banking assets in the us. and as william pointed out in the us system is not as bank septic as, as a european system. but we, we have this dichotomy and ultimately we're going to have to reconcile. williams is jp morgan too big to fail is jamie diamond. the man who runs at to pa, for one of the changes of us banking, consolidating around a handful of these 2 big to fail banks for the both for, for consumers who of course, will face less choice. and for the government. the notion of having very big dies or something the uh, administration uh, all administrations and banks supervisory regulatory agencies are well aware of.

and i think they would have rather pnc bought the 1st republic unfortunately by law . the if the i see was mandated to always accept the least cost solution, and jp morgan outbid pnc simple as that. now what we can do going forward is to make sure that the, the competitive pressures are restored and that jp morgan isn't given of unfair advantage just because they're to be and you're absolutely right. when you have a large bank dominating so much of the bank is just them with so much of the assets . and if they make a mistake, then surely the tax payers will be on the heart. and so that means that going forward, the regulators and supervisors are or have a even tougher job to make sure that these large banks do not fail. so we should put much more effort going forward on the supervisory responsibilities for making sure these banks operate properly. what we saw, what we see,

unfortunately in the us congress, is a move in toward changing the regulatory structure so that smaller banks get more emphasis. and we reverse some of the, the regulation that went on the past. the purpose of the truck and ministration to regulation efforts was to focus all of the supervisor retention, or at least more of that onto the sceptically important things because of any one of these banks failed. it would be a catastrophe for not only the us financial system, but also the global financial system because they are so inter related and so international. and so global vicki, to what extent has to be the increasing volume and complexity of a banking and trading made banking risk, you know, safe since the 2008 financial drives crisis to to europe have had its fair share of, of, to big to fail banks, of course it does, i mean if you look at each country, there are a handful of banks to donate. i mean, of course, in switzerland which is what has been the focus of attention recently. we really

only have 2 big banks, and now there's only one. so you can imagine what that means in terms of too big to fail. absolutely. we do have lots of those banks which have to have in order to operate to prop. uh, so the resolution regime, if you like, we've just been agreed not just across the you, but also internationally. and those rules are still there. but this seems to, in many ways that of change when the need arises. like for example, what was so in europe with increased risk where i ended up that it was boned holders who lost out or special bond holders who lost or significantly whereas shareholders last top less so. so rules can be changed over night. so even those who invest in the banks not just have money deposit, this is becoming a considerably more risky situation. so what's going on right now in your visit? talk of possibly increasing the deposit guarantees that are offered because a lot of people just because i'm insured and that could cause

a run at any point in the us. so the positive guarantee is a $250000.00 that may go up so far. we've all the bank failures we've had in the last few weeks. all the parties have been guaranteed most of those up to 250000 pounds in new york. it's a lot less. it's about 800000 euros across the u, and it's 85000 pounds v k. there is now talk of increasing that of course, just as we've been hearing from you other contributors that could well mean of course the tax period. the end of may have to folk have more money to support those banks, but that makes it also a lot more difficult to let any of those banks go. because you're not guaranteed so much of that funding. you've got to it's, i'm going and i think we're going to see probably this move to customer addiction continuing, but also i think supervision of those big banks tightened as well. to make sure that the all new risks attached. grevious,

how worried show the likes to be at any one watching be worried about all of this? is that going to be another credit crunch as, as i was, of course the one that precipitated that the, the 2008 financial crisis, or should we rest easy but, but the banks and the governments know what they're doing and i'm just going to worry about yeah, i don't, i don't know a lot of credit across, but certainly the outside of much of this is that the banks will be much less eager to land. and that's probably less of a problem in the us where banks are not. that is significant. a part of the financial system as opposed to lead a u d u, where it is highly bank center. i will point out one feature of the us banking system that i think is very concerning. and most of your listeners probably have never heard of this, but there is a to trillion dollar government facility or halting 2 trillion dollars. that

lands in discriminatory 2 bags. and in doing so, it masks many of the problems that these 4000 banks of william over to earlier have, thereby interfering with the market discipline process. that system is called the federal home loan bank system. it has been around for 90 years. however, it has never been as large and is systemically important as it is today, and it's fingerprints. it's fingerprints are all over the banks failures that we're talking about today all over them. for example, if it had almost $30000000000.00 in house standing loans to 1st for public and comfortable amounts to some of the other banks that failed. so that's, that's a policy, a feature of the us system that, that you're being banks do not have to be concerned about. okay, a very,

very quickly, according as it answers the question, should i be worried? yes, no, maybe i would be cautious time. the people are paying a lot more to attention today to the, the metrics of what is mature in, not insured as a reasonable thing. it's not panic, so your money to a, either a money market mutual fund or too big to sell day. okay. the, i'm afraid we're going to have to leave it. we're out of time. many thanks indeed, willingly vicki, price and quantity as early as always, thank you for watching. don't forget, you can see the program again at any time by visiting the website without 0 dot com for further discussion, join us about facebook page that's at facebook dot com forward slash ha. inside story out. of course, you can join the conversation on twitter handle at a inside story from the adrian fed again. and the team here though, thanks for watching. we'll see you again the

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