>> this solution is the takeover of credit suisse by ubs. >> it was 9 billion of

contingency credit guarantees there. there's 100 billion of liquidity support. >> i can reassure the members of the committee that are banking system is sound. >> i was around in 2008. i think the bank sector is in a much stronger position. >> americans can rest assure our banking system is safe, your deposits are safe. >> this is a special edition of bloomberg surveillance with jonathan ferro and lisa abramowicz. jonathan: coming up, avoiding a weekend cliff edge. ubs agreed to buy credit suisse. this was government broking rash brokering a deal for more than $3 billion as officials raced to restore confidence. good evening. our special and of bloomberg surveillance continues. let's talk about futures -- we open up positive. lisa: was it enough?

people are tentatively feeling enthusiastic. the night is young, but there is this question of does this restore risk appetite given the fact you are giving such significant intervention from federal authorities. jonathan: i ask at the top of the program, have we created a solution or a monster? lisa: is it that moral hazard? is it the perception there's a bigger problem than people were aware of? is there this larger banking crisis or banking challenge people have not fully articulated underpinning some emergency steps? jonathan: how much would you read into early futures pricing this evening on a sunday? lisa: very little. people are going to be looking for monday morning, european banks, how do they trade and how much contagion risk is there? do people view this as a uniquely credit suisse issue that has been going on for a long time? jonathan: sonali basak is

joining us, mike mckee and kailey leinz. talk me through the numbers for people tuning in. >> there are a few things to member about this deal and it tells you how much a bank is worth under a time of stress. a ratio of more than 170. this is a deal that brings you to the share price of less then 99% less of what credit suisse was work -- was worth at its 2007 peak. this is also difficult for ubs and you have some things to watch. this is a tremendous impact on the job market, particularly investment banking and possibly wealth management given that these firms have synergies. then there are the investors to think about. you've been talking about it all evening -- these facts that these bonds will be wiped out and that makes you look at the

entire market for european coco's. you have to think about how much this increases the cost of funding for the european bank market and some of those are systemic global banks with the cost of funding overall. that has a ripple effect. lastly, keep an eye on cds prices. ubs is acquiring an investment bank it admits is a large liability which means that government backstop, taking on a billion dollars worth of initial liabilities was needed for this kind of deal to happen. lisa: when sonali talks about potential contagion, we've gotten word about what the next step could be or what the risks are. what's the latest? kailey: first republic was downgraded, getting cut to junk. that ratings agencies saying $30 billion in deposits it received from 11 large banks last week in an attempted rescue is not going

to be a longer-term solution. it's going to be difficult to attract meaningful deposits. this speaks to the issue of deposit outflows from midsize regional lenders to too big to fail banks everyone is concerned about because it is the deposit flight and liquidity challenges that have led to the collapse of two banks already. we are waiting to see if a deal can happen for silicon valley bank and signature bank. new york can unity bank is looking at pursuing signature. no guarantee that deal is done and we remain on watch. it is interesting that in light of the deal between credit suisse, we heard from treasury secretary janet yellen and chairman powell saying they welcome what switzerland did today but still are saying the u.s. financial system is resilient and liquidity positions at the u.s. banking system are strong. we are probably going to see how

strong over the coming days. jonathan: a key point of our coverage over the last week or so -- what does this mean for chairman powell on wednesday? mike: it makes his job more difficult. we are getting to that point where we have to have these sunday night rescues and people don't know what's going to happen when the markets open on monday. in the past, we go back to 2008, 2 thousand nine, monday mornings were not always the best. we did get the statement from the fed and treasury saying they were in close contact with their european counterparts and did increase the frequency of swap lines around the world which are probably going to be valuable to the swiss and europeans as they try to do some penance. the only thing they said about the u.s., the capital and liquidity positions are strong and the u.s. financial system is resilient, which raises questions about when futures start trading, what we are going to see with smaller u.s. banks we went into friday worried

about and are still worried about as we come out of this weekend because credit suisse and ubs did not have anything to do with those banks, although the europeans blamed their troubles on why credit suisse went bad. it's going to be an interesting morning and it will have a lot of influence on what happens with jay powell and the fed on wednesday. jonathan: everyone has to have someone to blame. lisa: this is ludicrous. it's insane to called the demise of credit suisse the fault of silicon valley bank. that is nuts. jonathan: and the news conference a couple of hours ago, they took shots at twitter and what happened at the end of last year. make sense of that. lisa: people are saying sentiment destroyed -- accelerated the demise. as recently as two weeks ago, this has been in discussions for quite a while. that said, these sudden turns and sentiment has caused a lot of concern among regulators and

that is what they are responding to to prevent some sort of run on the bank. jonathan: what was this bank worth in the crisis? $100 billion? at the close of friday, 7.4 and this weekend, $3 billion. that is a massive change. to the three of you, thank you. if you are just tuning in, we have a deal -- ubs agreeing to buy credit suisse for 3 billion dollars. a controversial part -- what happens with the riskier debt? the government granting a nine billion dollar -- 9 billion frank loss. joining us now is greg peters from pgm fixed income. we touched on this the last few hours. thanks for being with us. we said this -- last week, svb, people turned around and said it's a bank for startups and venture capital. it is idiosyncratic.

credit suisse, idiosyncratic -- it's been a story for the last decade. it's all of this idiosyncratic or do we have a bigger problem? stephen: not anymore -- gregory: it not anymore. right now, the markets are hunting, so it is looking for any weakness across financials, so whether it is fractional or not doesn't matter. this has a tendency of taking on a life of its own and that is where we are at now. it is important to member that ultimately, financials are a confidence game. there's a call to question around confidence and that is the state of play. how has your view changed? has your investment thesis change given what has happened over the past couple of weeks, the fact that this does tend to take on a life of its own? it makes us more cautious on the economic outlook. we thought there was a higher

probability of a soft landing, just the inherent underlying growth is quite robust. that is definitely not the case today. i think the pullback matters a lot and we've had problems around the money center banks and they are getting thrown in as well. we very much liked that part of the market but it is hard to step into the breach. the big thing that happened today was the at1 at1 -- the at1 market. it is a 200 billion euro market. the fact that entire part of the capital stock was wiped out and there was a small portion left over for equity players goes against how it is supposed to work. that is a part of the market that has to work itself out over the next weeks or year even. lisa: can you build on work itself out and what that means? is everyone going to go through

their at1 portfolios and press sell? gregory: they definitely have to be repriced. the issue we have had with that market is it's really hard to value. we thought it was mispriced equity risk relative to what you are actually getting paid in terms of coupon and yield. first order is those yields have to go higher, those prices have to go lower and that equity option totally gets re-struck and that changes the whole dynamics of the market. then there has to be some regulatory explaining as to why the waterfall wasn't a waterfall. to assure that 200 billion size market. jonathan: can i come back to equity risk -- haven't we just figured out they are riskier than equities? gregory: [laughter]

which is why i have a problem with it. it's ok for those securities to be wiped out, that was part of the documentation and that's what we thought all along. what is less ok is the stub equity is treated higher, so that doesn't make a lot of sense to me and i think there has to be some explanation as to why that occurred. jonathan: if you stay there, we will continue this conversation. i'm going to open up a little question i don't think you want to be part of. a lot of people are logged on the bloomberg terminal this evening for good reason. there's a lot to discuss. as soon as the headline dropped, messages straight away. there are questions being asked about whether this was a political decision. this is what we know so far -- on the analyst call, they were

asked about why this happened. we have been told by ubs leadership that this was a decision taken by the swiss regulator. the question being asked, and i'm not implying this is my judgment on the situation -- this is just the question being asked, so we should address it. was this a political position because of the nature of the shareholders and the assistance this name received only a few months ago from the saudi's? is that why the equity portion is being protected to some extent? i'm sure they are not happy with where this is. think about where this is priced today and where it was when they offered this assistance. lisa: it's a relevant question as people stepped up from the middle east, different big funds to support credit suisse in its time of need. all these questions will be hashed out. what greg peters is talking about right now is regardless, people are understanding that perhaps in practice, that has

been established by the swiss regulator that these particular instruments are riskier than equity and as he just said, the entire market will need to be repriced. what kind of losses will it look like on monday morning when it starts coming to for as people reassess evaluations? jonathan: greg peters is going to join us on the others of the commercial break. 17 minutes now -- from now, we catch up with the research director at argus. from new york city this evening, good evening. ♪

>> i am expecting the fed to cut rates in september to stave off recession and there are so many things -- you can look at the

inversion of the yield curve, you can go back and look at one of the things jay powell told us was their favorite indicator -- the three month versus three months 18 months forward. that invert it at the end of last year and generally, once that inverts, you have recession about a year later. jonathan: bob michele at j.p. morgan asset management in the last hour -- just absolutely fantastic. off the back of this banking turmoil over the last couple of weekends, he believes we get a cut from the federal reserve in september. what's interesting is we started talking about cuts in september, priced in the hikes and we haven't even gotten through q1. lisa: let's see where we are in three weeks and perhaps we can reprice them in or talk about inflation he counted out. it is all moving so quickly and when things move quickly in a vacuum, things break. this is one of the key questions and why we are watching how the

trading evolves. how do things shake out among a lot of investors who have gotten spooked by the emergency measures taken? jonathan: we've got another message across the bloomberg terminal. as a former credit suisse employee, i can't help but feel emotional. lisa: this is a 160 six-year-old institution, one of the major banking institutions of the world. a massive implication in the u.s. as well. that's one of the big questions. it is an emotional moment for the employees who work there who now have great uncertainty around their future of employment. jonathan: my argument for being let down by leadership after leadership after leadership. lisa: the legal questions, the oversight, the businesses they've gotten into an gotten out of and the people they've lost along the way, there have been so many missed opportunities highlighted with this rather dramatic denouement today. jonathan: back with this is greg

peters. what has changed for you in the last couple of weeks after let's call it the chaos we have witnessed? stephen: i think -- gregory: i think what changed is the economic outlook. of all the financial news we are dealing with over the past week, it has been a week that has changed the outlook. the possibility of a soft landing is much less today. the probability of recession much higher. i do you think that changes the fed trajectory, but the one thing we haven't talked about is inflation. these fed cuts have to occur only and if only inflation comes down to a level that makes them comfortable and we are not there yet. everyone is expecting this shakeup will bring the economy

down and inflation with it. but if that doesn't occur, that's a whole different outlook and that changes the entire trajectory of the fed curve. lisa: the chief global economist at pgm fixed income said the balance of risks has shifted. your colleague, the former markets chief at the new york federal reserve -- i'm curious from your vantage point whether you see that reflected in your inflation expectations, to join with bob michele and say he can see the whole curve hundred 3% over the next year? gregory: i'm not convinced of that. i think there is inflation in the system that is much more in bedded. i don't see cutting rates to the same degree we witnessed before. i could be wrong around that. this presupposes inflation gets to 2% or below. i think we are operating above

that line, not below that line. the ability for central bankers to make that aggressive move cutting rates, we don't have that capacity today. let's not forget, i thought we got the playbook from the ecb last week where financial stability was a concern, but they put that on the side and said monetary policy on the other side. i'm not convinced the fed is going to have the luxury the ecb had but still, there's two tracks they have to take and they are battling each other. lisa: would you be more confident in risk or less confident if the fed raised rates by 25 basis points on wednesday? gregory: [laughter] i don't know. i think a pause is the best outcome for that. i'm not in that camp. i'm not convinced that makes

sense. i thing a pause would be an appropriate risk response. raising rates as -- act tone deaf and cutting rates acts to suspicious that there is something going on. so i'm hoping for a pause. jonathan: i'm with you when it comes to the economy -- this idea the fed know something we don't know is ridiculous and they have proven that themselves . but when it comes to the financial system, don't they know things right now that we don't? gregory: if they knew so much, maybe we would not have the svb problem and some other things. let's not give them too much credit as far as that is concerned. i do think central bankers globally are really focused on contagion risk and making the system function. i really believe this is a very different response function out of the global central banking

community than what we have seen in the past. i think that matters a lot. there is a clear, decisive you to make sure we function globally from a financials ability standpoint. that gives me a lot of comfort. whether that translates into a different rate policy, that is the question. jonathan: i think we are both on the same page -- we don't want to make a habit of this on a sunday evening. thank you, as always. the psychological question -- the team in frankfurt after that ecb decision came out, according to people familiar with the matter, those around the table making the decision, they were worried about the signal it would send if they did not hike. whether you think that should be a thing, it is clear inside the ecb that it was. will the same be true for the fomc? lisa: people have tried to draw a distinction between the fed situation and ecb situation, saying the fed is dealing with a

later stage of the rate hiking cycle. they are further along in their process. so they could potentially pause. that said, other people, including the former vice chair of the federal reserve said the fed was going to take a signal from the ecb. they are going to raise rates to send a signal. do these events change the scenario that much? jonathan: shall we do this all night? lisa: no. do you want to do this all night? jonathan: i would love to do this all night. lisa: really? jonathan: no. stephen bigger, that conversation is coming up shortly. ♪

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>> i'm expecting the fed to cut

rates in september to stave off recession and there are so many things -- you can look at the inversion of the yield curve. you can go back and look at one of the things jay powell told us was their favorite indicator -- the three month versus three months 18 months forward. that inverted at the end of last year and generally, once that inverts, you have recession about a year later. jonathan: bob michele at jp morgan weighing on the situation, weighing in on what he thinks is going to happen with monetary policy after the banking failures we have seen over the last few weekends. where now? lisa: this is the question. over to you, jay powell. people are saying if he raises rates by over 25 points, he will be tone deaf to the smaller regional banks that will have a harder time lending to commercial real estate advisors and others as well. other people's -- other people

saying hold or even cut rates. jonathan: lucky for us, this economy, relatively speaking, is in a relatively strong place. 3.4 only a couple of months ago. that is going to be the bullish argument tomorrow morning against all of this. that will be the pushback. lisa: if that's the case, if the fed doesn't raised by 25 basis points, what's the risk of inflation becoming more un-more in a way that's antithetical to what the fed would like? jonathan: that is the dye limit they face. equity futures opened up by .4% on the s&p 500. ubs closing a deal for credit suisse for 3 billion swiss francs. coming up about 10 minutes from now,

jonathan: we have a deal in switzerland. the coverage continues.

ubs agreeing to buy credit suisse for 3 billion swiss francs. equity futures trading underway about 30 minutes ago, positive .5% on the s&p 500. at this time of the day sunday evening stateside, not too much attention is paid to this. what a week nasdaq had over the last week. lisa: we are seeing move in first republic, down 19% in premarket trading. you are getting a sense that there is some response in banks as people take a look at what the readthrough will be in the united states. obviously we are looking at pretty thin trading for this point but especially the second downgrade by s&p does not exactly revive confidence in medium-sized banks. jonathan: i want to talk about the downgrade that we had on first republic. this is what standard & poor's had to say following thursday's uninsured deposit of $30 billion by the 11 largest banks in the country together with cash on hand.

first republic is well-positioned to manage short-term deposit activity. the support foxconn footage and first republic and its ability to continue to provide unwavering exceptional service to its clients and communities. kailey leinz joins us now from d.c. tell us the latest. kailey: this is the second downgrade further into junk territory first republic has gotten from s&p global ratings. that statement coming from first republic. the analysts sounding much more vicious about the long-term outlook for this bank. it they said the $30 billion which you just mentioned are not a longer-term solution to the bank's funding stress. those analysts went on to say attracting meaningful deposits will be disciplined -- difficult. this really comes down to the issue of the deposit outflows from these midsized regional banks into larger banks deemed too big to fail. this speaks to what we're hearing over the weekend from midsized banks asking the fbi

fdic to ensure all deposits for the next two years to prevent any kind of massive bank runs. they said notwithstanding the overall health and safety of the safety industry, confidence has been eroded in all but the largest banks. confidence in the banking system as a whole must be immediately restored. talking about that lack of confidence, first republic is just one primary example of that and that will be the study -- the stock we are watching when the opening bell rings tomorrow morning. jonathan: looking forward to that open. let's hope we get the result some of these lawmakers want to see because right now we do not want people to get worse. equity futures are positive on the s&p 500 by three quarters of 1% on this idea we have a two-tiered banking system. there was a fascinating exchange last week when secretary yellen testified in front of the senate finance committee. take a listen to what she had to say. >> every community bank godless

of the size of the deposit, will they get the same treatment that svp just got? >> a bank only gets that treatment if the failure to protect uninsured depositors would create systemic risk. jonathan: and that is the problem. stephen biggar from argus joins us right now. thank you for being with us late into the evening. 6:30, it's late for me. let's move past that. thank you for being with us. what do you make of what secretary yellen had to say earlier this week the senate lawmakers? this idea we have this two-tiered banking system, how do we address that this week? stephen: i think that has been the case with the systemically important financial institutions that are operated by a different set of standards and have greater backstops and so forth because they are deemed to be systemically important by virtue of the name.

it just means that banks a little farther down the asset curve may not have the same type of protections. they are not regulated in quite the same way. and they are not viewed as having the chance to disrupt in a huge way the american economy. so, it's interesting. at the same time, they are talking about raising deposit insurance and so forth to get a little bit more confidence restored int he deposit -- in the deposit. i think we have a deposit catharsis going on today, and more money will continue to leak out of smaller banks and into large institutions that are deemed systemically important. it is an interesting concept. lisa: the phrase systemically important is becoming confusing right now, especially since some of the measures taken for u.s. banks were under a systemically important provision. how can we determine when a bank is systemically important or

not, not only for the whole financial system, but for particular sectors that are very exposed to that particular bank? stephen: well, today, it's just asset size. i think that probably does get extended out. we're bound to get greater rules and regulations here, and most easily of which is you go back down to a lower asset size that would constitute systemically important. i think that is one thing that is likely to come out of this. and of course the rules were relaxed. we can debate even if silicon valley bank was in the systemically important category, this still would have been missed because the interest rate duration risk was not factored into the stress test equation. so yeah, the regulators have to do a lot more in terms of looking at a bank's underlying structure, looking at their deposit structure in particular,

seeing where their tentacles are in the economy, and creating regulations around that to try to prevent this in the future. lisa: in the meantime you talked about a deposit catharsis we are seeing take hold of a lot of smaller and medium-sized banks. what is this region going to look like in a year, two years time? is it going to be highly consolidated, highly regulated? how was it going to change in the face of this catharsis? stephen: yeah, this is just a long-running-type of consolidation of the banking industry. what we do not hear often enough is there were actually 10,000 fdic-insured banks going back to 1994. 1995 we dropped below 10,000. today we have 4700 heaven dropped below 5000 in 2021. that's a halving of the number of banks in the u.s. that just gives depositors fewer places to put their money.

so the large get larger and a small get smaller, and i think we continue out this trend. as far as regulations go, i think you will probably see higher deposit insurance costs. i think that is a given. particularly if they do plan to raise it to 500 or a million in terms of individual depositors. the last time we got an increase was after the financial crisis of 2008, from 100,000 to 250,000. new stress testing. the stress test is all about what happens when interest rates bottom out, when they drop to below 1%, .75% in the case of last year's stress test. i think you have a reverse of that testing. the thing i worry about is not for the large banks, because they can handle this, but what happens to the profitability of banks as they continue to be eroded from just additional regulation. and the need to maintain much

higher capital levels. jonathan: after this ubs credit suisse take out, i am sure you watched this news conference. they were keen to point out this is not a bailout. we heard that from the president too. if the insurance premiums go up to cover basically unlimited deposit insurance, who ultimately bears that cost? stephen: depositors will. obviously the banks will try to squeeze what they can. just means lower interest rates for them if banks have to kick in more deposit insurance fees for them. so yeah. and as far as the bailout goes, it is hard to see how it is not a bailout. you can call it something different, a recapitalization or something. but these are mergers that are happening, in the case of credit suisse, at lightning speed, over a weekend kind of thing. certainly the credit suisse story -- i do not cover it

personally, but it has been unwinding for some time, and this was maybe just the final nail in the coffin to do a deal like this over the weekend, after the troubles they had last week. so a doubt, yeah -- so a bailout, yeah, i would use that. jonathan: there are assumptions we are going to see tighter lending standards, and that profits will be challenged at the banks going forward. would you agree to both of those assumptions at the moment? stephen: definitely. the removal of liquidity, what the fed is doing just by raising rates, and they seem to be house strong and we believe they will continue to do it again this week -- that's removing demand from the loans and slowing things down. so add to that, the banks will be more cautious with the capital now and lower their lending standards at all. in fact they'll probably increase them. bank profitability will mean lesser loan growth and less

margin expansion, higher costs related to regulation. so yeah, the picture is not particularly good for bank profitability. i do not think it is a big step down, but at the margin, yeah, you will have higher costs and lesser demand. jonathan: stephen, thank you for being with us on a sunday evening. stephen biggar there. assumptions, you are going to see tighter lending standards, and ultimately tighter financial conditions. and two, profits get hit and growth will hurt. we have seen that from wells fargo, jp morgan, all talking about the same thing. if you missed the program friday, we were talking about this. wells fargo essentially saying the following. recent developments in financial markets are compounding the fed's efforts to slow the -- which raises the profitability of recession. mike allete jp morgan just an hour or so ago saying, one might trip to that destination. they went on, we look for real

gdp in the u.s. to contract 1.2% later this year and into early 2024. lisa: this is reason why people are reassessing their view on risk assets as well as the interest rate path bob michele saying he could see as soon as september rate cuts. that specter raises the question , ok, what about inflation? these are some of the ways that the landscape has hermetically changed for a lot of people. jonathan: -- has dramatically changed for a lot of people. jonathan: hard landing, just like that. lisa: and the big bang is getting bigger. we have not even talked about that. honestly, the consolidation everyone was hoping to avoid is only accelerating at this point. jonathan: parts of the market that reach small and medium-sized banks, they dominate, who steps in? lisa: perhaps the next guest we have coming up -- that was good. [laughter] that is exactly where i was going. jonathan: senior advisor from

bain capital will be joining us shortly. if you're just joining us, ubs agreed to buy credit suisse for 3 billion swiss francs. ♪

welcome to ameriprise. i'm sam morrison. my brother max recommended you. so my best friend sophie says you've been a huge help. at ameriprise financial, more than 9 out of 10 of our clients are likely to recommend us. our neighbors, the garcias, love working with you. because the advice we give is personalized, hey, john reese, jr. how's your father doing? to help reach your goals with confidence. my sister has told me so much about you. that's why it's more than advice worth listening to. it's advice worth talking about. ameriprise financial. >> it is a bailout, and you

heard the minister say it is a bailout because they are dealing with systemically important bank at a time of market turmoil. of course you are always going to be dealing with a systemically important bank. that is by definition. but what happens to the systemically important bank in trouble. they just did not want to use that phrase. jonathan: weighing in on the latest with credit suisse being taken under, is the phrase i keep hearing this evening, by ubs for 3 billion swiss. i don't know, i am losing track. it is a messy one, 100 billion swiss franc liquidate assistance. a government grant of 9 billion. the other story, $17 billion worth of risky bonds taken down to zero. lisa: what i find really controversial is how the swiss regulators single-handedly wiped out more than $250 billion market of these bonds. essentially everything has to be

re-rated on these new assumptions that were defied it in -- were decided by swiss regulators. jonathan: midsize banks over the weekend, cleaving with officials to ensure deposits. for two years? lisa: for the fbi seat. there is a larger -- for the fbi see -- for the fdic. i will get the exact data source coming up. this is exactly why people are concerned. they counted almost 40% of loans to smaller businesses. this is one of the big mainstays of credit impulse in the u.s. what happens when they go away? jonathan: joining us now, a man who should be watching the basketball, but he is not, he is joining us, steve pagliuca, steve your advisor at bain capital. asked this earlier. what's changed in our financial system in the last couple of weeks? steve: we have had a recognition

that the inverted yield curve has hampered the balance sheet on a paper basis of some niche banks. when the first crisis happened in 2008 whole issue was systemic collapse. right now we have a crisis of confidence, and i can ratchet into a bad economy. i think the regulators and the fbi see -- and the fdic are trying to stop that. when you step back, all the focus was on systemic risk. this is not -- first republic and silicon valley bank were banks focused on a certain area. when customers lost confidence they started pulling capital out. i think people are doing the right thing. i would not call it a bailout. they are using insurance and that is the right thing to do for the economy.

something like 45% of consumer loans are from these small banks. 60% of residential real estate, 80%. if those banks are having issues because of crisis of confidence not because they have bad loans or bought derivatives that are worthless. just because there is a crisis of confidence and a flight to the larger systemic banks because people perceive those as money good and that will cause a problem for the economy. that is what we are trying to prevent here. we want to get out of a vicious cycle into a virtuous cycle. lisa: people are looking to u.s. perhaps the voice of private equity and private debt. are you the ones to step in when some of these regional banks pullback? steve: private equity debt has been growing dramatically in the last 20 years. i want to start in private equity. there was virtually none of it. it is a really good model.

the use private equity context. you don't have the issue of losing depositor money. you have investors and you are responsible to those investors but you do not have the risk of bringing depositors down and bringing economic havoc. private capital is taking a large share and will continue to take a large share from the banks. i think the banks are still playing an important role. it is a very fixable problem and they are doing the right things. hopefully these guarantees of deposits will make people, comfortable. lisa: he said something i want to pick up on about this mismatch in liability time frames that get solved in the private equity, private debt model. do you think it is inappropriate to make longer-term loans with deposits as regional banks do? yes, they fill a void, but if there -- is tehre an inherent risk that is not solved by some of the measures we have seen? steve: it is interesting.

ironically, diversification is your friend. if you are a local bank, a specific lower industry bank or a bank with the same kind of customer, you do not have diversification. so diversification's, large banks create systemic risks, but they are more diversified and less likely to have issues because they can invest in a broader swath. i do think there are models that will work with regulation where you pay attention to making sure your matching liabilities with change in the guaranteed deposit rule. lisa: how concerned are you about a more market deterioration in the credit worthiness of companies? i say this as we hear a host of people saying that suddenly their view of recession was brought forward. that suddenly they see the lack of loans for these institutions will accelerate a downturn a lot of people have been expecting. are you seeing that on the ground with dealmaking, with portfolio companies? steve: at bain capital we have

been fortunate to hedge a lot of debt. we're not experiencing issues at the point. the economy has still been strong. i have flown many flights, probably 20 flights in the last month, they were all full. restaurants are full. the real economy has an inflation problem, but it's still very active. so i think there's a recession coming one way or another. there is always a catalytic event, it is always something you do not expect. silicon valley bank may be the harbinger to crystallize this recession and hopefully we get through it, it will get stabilized, and we can move but back forward. jonathan: by all means you do not have to answer this personal question. i imagine there are holdings above the fdic limit that you have, i imagine. have you changed how you bank personally over the last few weeks? steve: i have not. but probably by pure luck i have no banking relationships with

any of these banks that are in trouble. again, the u.s. banking system, the large banks are strong. bank of america is very well-run, j.p. morgan is very well-run. we do business with them all the time and they are very well-run banks. and the regulators have been on top of them ad infinitum. so this right now is a crisis of confidence. it is a containable problem, in my view. it could still go awry if we do not do the right things, but there's not a fundamental issue with these banks which there was in 2008. banks had fundamental issues, they had bought tranches of mortgage-backed security tranches and lost billions of dollars, and that put them in jeopardy. that is not what is happening right now. these are more specialist banks that had a liquidity problem. they have not lost hundreds of billions of dollars and they have not made, as far as i know,

really imprudent and risky loans that would put depositors at risk. so we have to stop this. we have to put confidence back in the system, and that is what we are working on doing. once we do that, we can get the economy going back again. and there are billions of dollars of private capital, private credit capital out there that i think will fill this void. jonathan: i imagine, and that is what lisa and i talked about, the idea that the bains of this world might step in and take on some of this. lisa: they have the cash, evidently. they have the dry powder. suddenly if you have a lot of companies and individuals and commercial real estate developers that need cash, where does it go? jonathan: steve, thank you for asking that question in the spirit of which it was intended. steve pagliuca there. these are all questions we are confronting as individuals. some people will come out on those questions differently. lisa: banking is a game of

confidence and the confidence has been breached at a lot of the smaller and visiting -- and medium-sized businesses. a record amount of borrowing. the question is how do you revive it, as you asked this evening. how do we look at a situation where potentially, this doesn't end in the way we needed to end? jonathan: coming up, we guide you towards the asian session. equity futures positive .5%. ♪

jonathan: equity futures positive .5%. david, what is coming up? david: we could have been in a much worse situation right now. it is not a normal day certainly. a very dependable gauge of risk appetite. i will leave you with this. s&p future weakness right now through, australia opens up top of the next hour. jonathan: looking forward to coverage. thank you. we doing this tomorrow morning? lisa: we are. i will see you in a couple hours. jonathan: from new york city this evening, good evening. ♪

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