as you move to south asia, we're seeing a lot of extreme heat to cause eastern areas such as bangladesh and me and lots of just here continuing to climb much cooler temperatures below the average of course, much of noise in india, we will see them pick up however, and not pull, but it's a wet story for the soft, some extremely what weather to come for the likes of southern india and shalanda over the next few days. much talk to however, further east the latest news as it breaks 8 a. does it say that a hundreds of students, refugees within the community? why you have to be registered then people cannot access page with detail coverage. you believe this message of protecting fundamental rights and democracy will once again resume with voters from around the world. one thing it shows is russia's continued debility to be able to strike anywhere in this country whenever it pleases. i don't know the frank signing of this week,

but i just said some concerned about others. following the collapse of credit suisse and much. what's behind these events of the leasing for tennessee 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 peace, regulate us in the united states seized and battled 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 end 1st or public 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,

then 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 debate about financial regulation. if your bank fails, you should be record the. the regulators should be required to call back 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 2 of our bigger banks to be coming to possible 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. president are abiding, 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 6. the odds just confined to the u. s. in march. 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 to 2 minutes reputation for financial stability and dentist sentiment amount and visitors further afield by the zip before inside story. well let's bring it out. guess for today's discussion from los angeles for joined by william lee chief economist at the new can institute of independent economic

sink time. because a full month division chief at the international monetary fund from london, nicky price chief economic adviser at the center for 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 you. oh william, let's start with you. then why did 1st republic go under? is it assign, brought up by engine crisis, or we have a crisis in thank supervision, not a banking crisis. what we've seen failed or 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 that in many countries in europe and asia, where there are over 4000 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 with the fail things is that the managements 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 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 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 rate hikes? i mean, i'm sure it isn't an interest rate as something but banks pass on to that customers . and so 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 was purchased, risk is that you have a retail of bank. you have a commercial side of it, 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 one 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 diversified significantly, because one specializes maybe 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 basically 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 the banks which tend to specialize indeed have 10 to tool. so no, no, we specialize at the tech sector and commercial to teach up a dental assistant to invest in relatively safe assets like treasury bills in the

us. you know, the 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 that people say somebody because of 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, great if um the 1st republic had been looking for a signature in the weeks leading up to, uh its uh, the purchase of its assets, buy 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 were concerned might only about the still over

effects of failure, particularly, particularly with regard to the regional banks. i agree with all that has been said previously except for the club. the comment that i could go back to that as we might consider. but um, you know, what we have in 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 banks, 4 banks, now that the sale largely due to their liability. so their deposits and that has been compounded by technology. the policy makers really haven't caught up to the side. the customer is leaving the retail or commercial can move their deposits with a click of a mouse in in seconds. uh we, we do tend to think of a bank runs as a deposit is lined up at the branches, but that's not,

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 says that we have a thank supervisory presence more than a banking crisis. the bank supervisors are there. i'm thinking particularly of the said so reserve and under federal deposit insurance corporation. we're well aware of these bags, particularly 1st republic and silicon valley had a significant problems as much as 9 months ago. and their failure to act deserves much more scrutiny than it's gotten today. there has been a report by the sat in the s t i c. however, those were not entirely superficial. and i, i think was congressional hearings to come in or research research on this. we will validate your previous speakers. a comment that this was largely

a supervisory problem and not a i a inherent banking problem. as a william, it was even better to 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 and did that contribute to the collapse of these us bank ships short selling a bank stokes, be 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 supervisors are the bad managers put the blood there. but don't forget as interest rates rows, not all banks have problems. well managed banks were able to manage your liabilities, cheap the depositors and offer them services that retain their highly valued

customers. what we found was that 1st republic, silicon valley and the crypto banks that specialize in crystal currencies failed because the managers did not put in place to proper governance and risk management structure that most space had employees 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 gonna fund raising rates. i guess we, i agree that federal reserve raise rates that historically fast paced, 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 a huge message in the, their social media. that's that hate, pull your money out because silicon valley is not a safe to just say and suddenly everyone did that. well, the best managers 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 fund at 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 terms or 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 were 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. george stores was able to break the pound 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 sound institution, you actually will find that speculators which try 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 we find the minimal banks into us original bank specialized bank, settle this morning, bank,

which is good actually in terms of supporting the communities of particular sectors in your lives being huge amounts of consolidation that took place off of 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 on one of the things that happened, of course, with crazed risk, which indian had to be bought out by us and has been indeed this lack of, of the phrase, if you like, that 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 bit of an issue as to this is inability to the banking system at the time when interest rates are rising. so foss 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 us, 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, loveless, 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 bob for businesses by for consumers, a sole source goes 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 slow down in becoming a foster, right? some would otherwise have been the case on already, of course,

in the us want us to, to the possible recession because of everything has been happening later. the see how possibly 2024. 20 is all big banks. a bad thing. and where's the by the administration? and all of this, there was a long held view that the government would block banking john's getting any bigger of a 5 himself about to take a tough 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 it would make sure that the banking system is safe and sound of yeah. so yeah, we have in this country. yeah. and in many countries, what we call too big to fail, thanks. and if you think about that term, what it means is, uh, the thing 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 can. 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 pnc bank, but disappointed in the administration, in that they actually subsidized the purchase of 1st for color to buy j. p. morgan, thereby making j. p. morgan even larger and more so big to fail than it was before. this is the most finished 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 bank account for about 60 percent of all banking as it was 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. a william 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 is 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 an 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, the administration to regulation efforts, was to focus all of the supervisor attention, or at least more that onto the separately 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 the, 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 less of those banks which have to have a 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 there seems to in many ways that of change when the need arises. like for example, what was so in europe with the credit space where i ended up that it was boned holders who lost out or special bondholders who lost out significantly, whereas at home is low stop less so. so rules can be changed over night. so even

those who invest in the banks not just have money to positives, is becoming a considerably more risky situation. but 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 and that may go up so far with all the bank failures we've had in the last few weeks. all the policies have been guaranteed, most of those up to 250000 pounds in europe. it's a lot less, it's about a $100000.00 euros across the u. i'm. it's 85000 pounds. the k, the 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 from the 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 think supervision of those big banks tightened as well. to make sure that the all new risks attached grieves how worried should the likes of 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 that, 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, it 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 significant or 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, a 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 alluded 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 is 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 republic 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 european 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 cautioned stylish. josh is a people are paying a lot more to attention today to the, the metrics of what is nature and not ensures a, it's a reasonable thing. it's not panic, actually move your money to a either a money market mutual fund or too big to say all 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 websites without 0 dot com for further discussion. join us about facebook page that's on facebook dot com,

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