When Silicon Valley Bank failed, the FDIC brought in veteran turnaround exec Tim Mayopoulos to handle the resolution. Previously the President and CEO of Fannie Mae, Mayopoulos stepped into the middle of the 2023 banking crisis. He sat down with American Banker Editor-in-Chief Chana Schoenberger to discuss what happened to SVB before and after its failure, how to prevent bank runs, and what bankers can learn from the fast-moving, social-media-fueled crisis.
Transcript:
Chana Schoenberger:
Hello, thanks for joining us here in The Leaders Forum. I'm Chana Schoenberger, the Editor-in-Chief of American Banker, and I'm here with Tim Mayopouolos, who is the former CEO of Fannie Mae and Silicon Valley Bridge Bank. Thanks for coming.
Tim Mayopoulos:
Oh, thanks for having me. I appreciate it.
Chana Schoenberger:
So everyone knows the story of Silicon Valley Bank. It's now almost two months, almost three months since it failed. It was taken over by regulators, and then you flew in. So what happened?
Tim Mayopoulos:
So I got a call on a Sunday morning asking if I would go be the CEO of a bridge bank that the FDIC was setting up after they seized Silicon Valley Bank.
Chana Schoenberger:
What's a bridge bank?
Tim Mayopoulos:
So a bridge bank, essentially with, when the FDIC typically puts a bank into receivership, they just seize it on a Friday. They sell all the assets over the weekend, and it opens as a new institution with an existing bank, having taken them over a bridge bank is what happens when the FDIC seizes the institution, but decides they need to run the institution for a while until they could actually go and sell it or recapitalize it.
Chana Schoenberger:
And why would they do that? Because they don't have anyone to buy it right away or because it's troubled in some way?
Tim Mayopoulos:
Well, typically, when the FDIC seizes an institution, it knows for a while that that institution is in trouble and it's able to go out and market it and find buyers for it. I think what happened in the case of Silicon Valley Bank was that the failure was so fast that it caught, I think, everyone by surprise, including the FDIC. And so while they made efforts over the weekend that they seized the bank to try to sell it, they weren't able to find buyers for it. So they decided to continue to run it until they could find buyers and organize a process that allowed them to market it more effectively.
Chana Schoenberger:
What was the stat? 42 billion left in one day.
Tim Mayopoulos:
42 billion of deposits left Silicon Valley Bank in less than 24 hours the day before it was seized.
Chana Schoenberger:
Wow. How do you even do that? How do you get your money out that quickly?
Tim Mayopoulos:
Well, I think one of the realities of life is that in today's modern world, you don't have to go stand in line and talk to a bank teller to take your money out of the bank. You can a few swipes, a few keystrokes, enter, enter the information that is needed digitally, and you can move tens of millions of dollars in a matter of seconds. And of course, the kinds of people who were customers of Silicon Valley Bank, which served the technology community, the innovation economy, they're very tech savvy people, so they know exactly how to move their money very, very quickly.
Chana Schoenberger:
It's a little frightening. I mean, there's been a lot written and there at this point. There've even been congressional hearings about the variety of things that happened, and there's been a lot of talk about social media and the role that social media played, the role that influencers played and customers in getting this bank to fail. How did that work?
Tim Mayopoulos:
So I think the most interesting aspect of the failure of Silicon Valley Bank is just the speed, the velocity of the bank run. I mean, bank runs have been around for a hundred years.
Chana Schoenberger:
It's the reason we have FDIC insurance.
Tim Mayopoulos:
It's the reason why we have depositor insurance. But no one had ever seen the velocity like we saw at SVB. You know, I was listening to Randy Quarles a week or two ago, and he was describing how the previously the last major bank run that we had, 18 billion left a bank in the course of a month. Wow. Here we had 42 billion leaving in less than 24 hours, and another a hundred billion in the queue to leave on the Friday that the FDIC seizes the institution. So 142 billion in less than 48 hours is really, really, really remarkable.
Chana Schoenberger:
So you showed up, you got a call on a Sunday. What happened?
Tim Mayopoulos:
So I got a call on the Sunday asking me if I would agree to be the CEO of the Bridge Bank, and I was honored to get the call. It's a real privilege to actually go and do this sort of thing, but I was told, you need to be able to get to Palo Alto by tonight because we want you there to open up the bank at 7:00 AM tomorrow morning.
Chana Schoenberger:
Did they issue you like a superhero cape when you get a call like that?
Tim Mayopoulos:
No, no. And I don't have an S underneath my shirt today either, but they did get me a ticket on an airplane and I flew out to Palo Alto. I arrived in San Francisco, well into the evening, drove down to Palo Alto and met the FDIC receiver at 7:00 AM the next morning.
Chana Schoenberger:
And the receiver's an actual person?
Tim Mayopoulos:
Well, the receiver is a legal entity, but it's personified by real people, people at the FDIC who are acting as the receiver.
Chana Schoenberger:
Yes. Had they been there all night going through records and things?
Tim Mayopoulos:
They'd been there for a couple of days at this point because they had seized the bank on Friday. It's now Monday morning. So they'd been there for a few days and they were clearly working very, very hard and they'd been working well into the night every night.
Chana Schoenberger:
Wow. So what did you actually have to do once you were in place?
Tim Mayopoulos:
So when I arrived, I was told, You're now the CEO of this institution. You're, congratulations. Congratulations. You're responsible for running it. Good luck to you. We're here to help you. We here at the FDIC here to help you, help you. And they did help me. But there wasn't like there was a big binder or briefing materials. You basically, you're showing up, you don't know anybody, you don't really know what's happened other than what you've read in the newspaper, and you're trying to figure out what needs attention right away. So the first thing I did was after spending about 30 minutes with folks from the FDIC is meet with the leadership team, about half of whom were in Palo Alto and half of whom were in other locations around the country because the company had been working remotely for quite a long time.
Chana Schoenberger:
And what did they say?
Tim Mayopoulos:
So they all looked pretty shell shocked. I mean, they seemed remarkably resilient given all that had happened to them because not only had the institution failed, but for them it turned their lives upside down. They knew they were likely to lose their jobs. All the wealth that they had in the bank was gone. All the people who worked for them were very confused and didn't really know what was happening. So extremely stressful situation. But I was incredibly impressed by the professionalism of the senior folks at SVB. And what we basically talked about was, while we knew that what everybody wanted to know was what was going to happen to them, that's what everybody in one of these circumstances thinks about is: what's going to happen to me?
Chana Schoenberger:
Is my job safe?
Tim Mayopoulos:
Is my job safe? What's going to happen to my family? What's going to happen to, what's the future going to bring for me? I said, look, I don't have any way of telling you the answer to that question. All I know is that we're here to try to operate the bank as effectively as possible for the benefit of our clients and for the good of the stability of the banking system. That's what we're here to do. And while we don't know what's going to happen, what we can know is that we're going to be judged. We're going to be evaluated by how we comport ourselves over the coming days and weeks. I don't know how long this is going to last. What I've been told when I got the call was, this might be a matter of days, might be a matter of weeks, might be a matter of months. We just don't know. We just need you to come run it until we decide what to do next.
Chana Schoenberger:
Wow. How many shirts do you pack for an assignment like that?
Tim Mayopoulos:
Well, only a few, but the good news is it's Silicon Valley, so you don't have to wear too many suits and ties. Right. And you're putting your, you're packing your blue jeans, your sneakers, and a couple of shirts, and you're pretty much good to go.
Chana Schoenberger:
So how did you prioritize after you met with the people? What were the sort of banking tasks that, was there a physical door you needed to open?
Tim Mayopoulos:
Well, there's, I mean, there was a physical door and there were security guards there because there were customers who were upset and there was lots of media around. But inside the building, this a place was operating remotely. So the space that we were in was not like the regular offices of SVB. This is actually space they were planning to decommission. But there was lots of space available for both the FDIC as well as for the SVB folks. And so that's where we set up shop, and basically what we're trying to figure out is, okay, we've been charged with opening the bank and running it as effectively as what's standing in the way of doing that. So we knew that depositors need to have access to their money. And the FDIC had made a very good judgment to basically protect all the deposits regardless of the FDIC insurance limit. We knew we needed to communicate to our employees. We knew we needed to communicate to customers. We knew, knew that we needed to calm the market generally, but we also need to figure out what were the impediments to us actually operationalizing all those things. And there were lots and lots of challenges in that regard.
For example, we had this queue of deposit withdrawal requests, which was so long, and that it was difficult to even process all of them. And basically what the FDIC had decided over the weekend, they were going to cancel all those instructions and require people to resubmit them on Monday. Now with the new information that the deposits were protected and that the institution was remaining open. So we had to figure out how were we going to process those, how we going to prioritize those deposit requests. We had customers who were trying to engage in foreign exchange transactions, but the FDIC had created a new legal entity over the weekend. The SVB no longer existed. It was now the SVB Bridge Bank. So we had counterparties who weren't sure they actually wanted to do business with us or weren't sure they would recognize those transactions.
So we had to sort our way through that. We had lots of customers who had money in the bank to pay their employees. A lot of these were technology companies, and they kept their deposits at SVB to be able to make payroll. We had payroll providers who wouldn't provide us with the data, be able to actually make those payments. And so had to work with the FDIC to kind of get that sorted out. So there were lots of operational issues that were the things that were most immediately challenging for us. We knew we had the money there. We knew we had the backing of the FDIC. We knew that we needed to communicate with employees and with customers, but we had these operational challenges as well.
Chana Schoenberger:
It's kind of funny because the worst possible thing that could happen to a bank is that it fails. This bank had already failed. So really nothing worse than that could happen. It wasn't going to go out of business.
Tim Mayopoulos:
Well, we already knew that SVB as an institution was going out of business. The question is, right, was there going to be a new entity that was going to either get recapitalized or purchased by someone else? But there are plenty of things that could go wrong. I mean, we worried about fraud. Yes. When you have troubled situations like this, people try to exploit those vulnerabilities. So we were very focused on fraud prevention. We worried about major operational issues. If you had a major data breach, for example, we worried about would processes be able to actually keep up with the volume? Would we be able to actually execute the transactions in accordance with customer instructions? So there were plenty of things that still could go wrong. We knew that we weren't necessarily trying to preserve the old svb, but what we were trying to do was to maintain the franchise values so that the FDIC could sell it to someone else.
Chana Schoenberger:
So how did you convince those customers, the a hundred million worth of deposits that was supposed to leave, and then they got their instructions canceled and had to go back? How did you convince them to stay?
Tim Mayopoulos:
So interestingly, I think the client base of Silicon Valley Bank was really quite committed to it. In a way, SVB had played a truly instrumental role in the whole development of Silicon Valley as a place, as an economy. And I think the clients understood that. So they were really rooting for us. On the other hand, they were quite nervous about their own immediate needs to make sure their money was safe and to know that they were actually going to be able to meet their payroll and other financial obligations. So first thing I did was, after talking with the leadership team and communicating with employees, was to get on a bunch of Zoom calls with clients that were ended up being attended by thousands of people over the course of the week. And explain to them some of the things you and I have been talking about.
What is a bridge bank? How long is this going to be in place? What's going to happen to me? What's going to happen to my money? And describing for them the fact that the FDIC was protecting all the deposits, both new deposits and all deposits and commercial deposits and personal deposits. So I think that that was calming. And then there was a focus on these operational issues that we were having that made it difficult to actually execute all of the client needs. So I think as the market started to understand that the FDIC was standing behind the deposits, that the institution was going to continue to operate in this status for some period of time, clients started to say, you know what? We're going to diversify our deposits. We're not going to keep everything there, but we don't need to pull everything out. And so by the end of the week, by the first week, we'd managed to basically get deposit outflows to stop.
Chana Schoenberger:
Wow. Yeah. I think this was probably the crisis that explained to people what FDIC insurance means. People did not really understand it. And now they do.
Tim Mayopoulos:
Now they do. No, I think interestingly though, so much of the deposit base at SVB was above the insurance limit. That was really one of the great challenges of it. And I don't think most people had anticipated how much mobility there was in those deposits and how quickly those depositors might choose to take their deposits elsewhere. Interestingly, SVB actually lost very few customers, but a lot of the money left. The clients love the institution and they love their bankers, but they were acting in their own economic self-interest to protect their financial security.
Chana Schoenberger:
So is there still a place in the economy, especially for technology, for a bank like this, which really centralizes the deposits of all these venture backed companies? Does a lot of venture debt, is involved with the portfolios?
Tim Mayopoulos:
Well, I've spent a number of years working in the VC backed world.
Chana Schoenberger:
You're on three boards now, right?
Tim Mayopoulos:
I'm on three boards, one of which is a venture capital backed company now public. And I am an advisor to a number of other VC backed companies. And look, that economy is different than the traditional big corporate economy. So much of this business is funding people's early stage ideas before they even have a dollar's worth of revenue, certainly before they're profitable. And I think one of the great successes of SVB was that it understood how to capture the top of funnel in that business. Everybody wants to bank Google or Microsoft or Apple after they get big. The question is who's going to bank them when they're just, it's two people in a garage someplace. And I think it's such an important part of the US economy, something that we really undervalue in some ways that I think what distinguishes the United States in terms of its economic prowess is that it's such a creative, innovative economy. We generate lots and lots of ideas, and the rest of the world doesn't do that with the same kind of abundance.
Chana Schoenberger:
And a lot of the banks in the US don't do that either. They mostly deal with actual companies, local Rotarians on Main Street, and they get traditional relationship banking type loans.
Tim Mayopoulos:
There's a reason why SVB was created and thrived for 40 years, and it's because the mainstream banking community has not always served that community as well as they would've liked. I do think what we'll see here is some of that business will now go to other banks. And I think there are some banks that are interested in cultivating those relationships. And you've seen that in the wake of the failure of SVB and Signature and First Republic. But I think you're also going to see a lot of that lending business go outside the banking system to venture capital back companies with venture debt and that sort of thing that will sit outside of the banking system. Exactly how that will play out remains be seen. But I think we'll see some banks try to step into that space and be successors to SVB. But I think we'll also see some of that actually migrate outside of the banking system.
Chana Schoenberger:
So almost like shadow banking, FinTech.
Tim Mayopoulos:
There'll be some of that. There's already some of that. If you're a venture backed, venture capital backed company and you're looking for a loan, it's at least as likely, probably more likely, you're going to get that loan from some private privately funded institution as opposed to a bank.
Chana Schoenberger:
No, definitely. Okay. So what did you learn during your very brief time? Two weeks running this Bridge Bank?
Tim Mayopoulos:
Yeah, I was there for two weeks. It was both a short and a long two weeks.
Chana Schoenberger:
Wow. Any lessons that you learned doing that other bankers might want to know?
Tim Mayopoulos :
Well, I think as is always the case, the thing that causes banks to fail is not lack of capital. It's really lack of liquidity. Liquidity is the most important thing in banking. And sometimes liquidity challenges are a function of bad credit decisions. Sometimes they're a function of deposit flight and it might be a function of other things. But I think if you're a banker, you have to just remember at the end of the day, while we all talk about what is the new risk on the horizon, it always comes back to how do you preserve your liquidity in times of stress. That's the most important thing. I think the second thing that really came home to me was just how quickly circumstances give rise to crisis. I've been about around a number of crises over the last 15 years, both in the days leading up to the 2008 crisis, then spending time at Fannie Mae. And then now this situation. I think what's different about this is just the velocity of it, just how quickly it arose and how quickly the damage gets done. And so I think that's super important for people, for bankers to remember is they may not get a whole lot of lead time on these issues. And then third is and is concentration risks matter. And I think the concentration risks at SVB, were first a set of customers who all listen to each other. They all talk to each other. They're very closely knit. They are.
Chana Schoenberger:
They're all extremely online.
Tim Mayopoulos:
They're very online, very, very much. It's a very digitally communicative group of people. The concentration risk in the amount of the deposits that were not protected by FDIC insurance, if they had been protected by FDIC insurance before receivership, I think the customers would've reacted differently. And then there's also serving a community. I, so much of SVB's business was tech related, and the tech industry was going through some challenges itself. It's one of the reasons why it was already starting to take deposits out even before the crisis hit, because it was becoming more difficult to take companies public to raise new capital for them. So they were drawing down on their cash reserves. So those three types of concentration risk, I think, contributed to the challenges at SVB.
Chana Schoenberger:
So yeah, I was speaking to a, a CEO of another bank that's gone through some issues recently. And we were talking about the communications problem. We actually had an article about this in our magazine this month. The problem is that if you come out and you say, Hey, market investors, customers, everything's fine here. Nothing to see. These are not the droids you're looking for. Move on. Then people short your stock and they pull their deposits. And if you say nothing, people short your stock and they pull their deposits. So there's almost nothing that a bank CEO can do in a situation like this that will calm fears.
Tim Mayopoulos:
It's very difficult to calm fears. I think one of the things that people need to think about is that by the time you're describing the problem, you already need to be able to tell your investors what the solution is that you've already put in place. There can't be any gap between identifying the problem and saying, this is the solution we're going to put in place in a few days or a few weeks or a few months. They actually need to be delivered at the same time.
Chana Schoenberger:
That's very hard to do.
Tim Mayopoulos:
It's very hard to do, sometimes impossible to do. But in the case of SVB, obviously the communications that went out to investors about, we've had this much withdrawal of deposits because our customers are needing it, and this is before the receivership, and we've had to sell these assets at a discount and we're going to raise more capital.
Chana Schoenberger:
It was a lot.
Tim Mayopoulos:
It was a lot. And you need to have actually raised the capital and show that you had the liquidity to manage all that. The challenge here is that, I don't know what stress test you can run. If you're SVB, it allows you to withstand 142 billion of deposit flight in less than 48 hours.
Chana Schoenberger:
I can't imagine
Tim Mayopoulos:
Mean there's no way to solve for that problem.
Chana Schoenberger:
Right? Yeah, no, it's sort of unsolvable, which is not a great lesson for bankers.
Tim Mayopoulos:
Well, it does. It maybe that is the lesson, which is by the time you're in a crisis, it's too late. You actually have to anticipate these issues and you need to manage them more effectively at the outset or along the way. I mean, obviously SVB knew that it was heavily invested in long-term fixed rate instruments, interest rates were rising. They needed to be thinking about how they were going to manage that long before they had the call with their investors saying, well, we've taken a big loss on these investments or have deposit outflows and we need to raise more capital. By the time you're having that conversation, it's too late.
Chana Schoenberger:
It's all over. What do you think about how regulations could change or just be enforced differently to stop this from happening again?
Tim Mayopoulos:
Well, I think most of the regulatory structure works reasonably well. I think one of the key lessons out of this is just how much mobility there is in deposits, which I don't think most of us in the banking industry really appreciated to this degree. And so I think what that means is that if you think your deposits are at risk of leaving this quickly, you can't grow your balance sheet assuming that you're going to be able to fund it with those deposits. And so I think we will certainly see, I think more regulatory scrutiny about around the amount of balance sheet growth that will be permitted without discounting the availability of those deposits. The second thing I think will, I don't know that we'll see it in the immediate term, but I think that this issue about how to protect commercial deposits deposits over the $250,000 limit that's currently in place, which look for most households is well, more than enough to cover their personal deposits.
Chana Schoenberger:
The average American can't, doesn't have $4,000 in an emergency fund, I think, right?
Tim Mayopoulos:
So they're not bumping up against the $250,000 limit. But there are lots of businesses, including relatively small businesses that have have much more than $250,000 in their bank account. And I do think we need, and those deposits tend to be concentrated into, in a relatively small number of banks in the United States, they're not sitting at the community banks. It's one of the reasons why there's this been this debate about who's actually going to pay the increased assessment for the failure of SVB and Signature and First Republic. And I think maybe what we need to think about is how do we put a revised deposit insurance system in place that charges for protection of those commercial deposits? Because protecting those commercial deposits isn't about protecting fat cats. This is about
Chana Schoenberger:
Dry cleaners.
Tim Mayopoulos:
About protecting the dry cleaners and their employees, all these businesses who need to be able to pay their employees with the money they have sitting at the bank. So we need to figure out how we're going to solve for that. And that probably requires some congressional action, but that's something that I think it'd be good to spend some time and energy on.
Chana Schoenberger:
Yeah, that's going to be interesting. But it seems like the regulators were very involved. They were on site. They knew they were in close touch with Silicon Valley Bank in the weeks leading up to this problem. It, it's not like it was news to them on the Friday.
Tim Mayopoulos:
It wasn't news to them that there was this kind of asset liability mismatch between these fixed rate instruments and what was happening in the interest rate market. I don't think it was lost on them that a lot of the deposits were above the insurance limit. I think what regulators didn't appreciate, I think what the management team didn't appreciate, I think what the market didn't really appreciate is how quickly those depositors would move to withdraw their money. That I think that took a lot of people back.
Chana Schoenberger:
And it's interesting because the pandemic obviously was a completely different situation. But one interesting thing that we saw then was when the paycheck protection program started, there was this huge rush on the part of businesses to open new accounts at banks that were giving out PPP loans. And that was maybe the first time that we saw how quickly you could open an account as a business and fund it and just start using that money. And that was only two years ago that that happens.
Tim Mayopoulos:
The technology has changed dramatically. So the ability to set up accounts move money, and in terms of convenience for consumers and businesses and enhancing their ability to effectively manage their financial affairs, those are all great. That's all great progress. But the vulnerability with it for the bank is if the money can come in that quickly, it can also leave that quickly.
Chana Schoenberger:
Everything is hot money now.
Tim Mayopoulos:
In a sense. Yep.
Chana Schoenberger:
Yeah, I feel like we actually at American Banker are very wary of using Jimmy Stewart references because "It's a Wonderful Life" is sort of where everyone goes when they talk about bank runs. But I think that's the way Americans think of bank runs happening is you everybody crowds into the small room at the branch and starts asking for their money back and they want their $20, but it's not $20 anymore.
Tim Mayopoulos:
Well, it's literally called a bank run because people ran to the bank and people literally did show up at a teller and they asked for their money back. It's just not the way it works anymore.
Chana Schoenberger:
Well, the teller is an app.
Tim Mayopoulos:
Yeah. I mean, haven't been in a bank branch in years and the probably
Chana Schoenberger:
Notaries, that's why I go to a bank branch now cause I need to see a notary. But that's pretty much it.
Tim Mayopoulos:
The app is the bank teller, and for many of these customers, they, they're quite savvy in being able to use that technology to move their money very, very quickly.
Chana Schoenberger:
Do you think they're going to make, I mean, other than the FDIC limit changes that you were just talking about, are they going to make other regulatory changes?
Tim Mayopoulos:
Well, I don't know what the regulators will do, but I think that, as I say, there's this question of essentially discounting the amount of deposits that any institution should think that it has to account for the quick mobility of those deposits. And then taking that discounted number and having that be the basis for deciding how quickly you can grow your balance sheet. Now, I don't think you can discount it so much that you say, well, we have to assume that 90% of the deposits are going to leave. Cause there might be a bank run there was at SVB, because I'm not sure how you'd actually manage a bank like that. I don't know how you would, you'd actually be able to operate it effectively. But I do think that regulators will force bankers to be more thoughtful about examining what kind of deposits do they have, how concentrated are those deposits? How vulnerable are they to leaving and under what circumstances?
Chana Schoenberger:
Interesting. So it's a different kind of stress test.
Tim Mayopoulos:
It's a different kind of stress test. Yep.
Chana Schoenberger:
Yeah, no, it's just interesting because there are something like 4,000, 4,500 banks in the United States and all of this drama is about three, really three and a half of them.
Tim Mayopoulos:
Well, yes and no. I mean, I think the word du jour has been idiosyncratic. Everybody I've heard talk about SVB and Signature and First Republic describe them as idiosyncratic circumstances. And there is some uniqueness to each of those stories. But there are a fair number of banks in the United States that have the basic asset liability mismatch that plagued SVB. There are lots of banks, including some of the biggest banks that have very big a OCI losses, lots of big marked market losses on their mortgage treasury books. And so that component of this problem is relatively widespread. What was perhaps idiosyncratic at SVB was kind of the very sort of close-knit nature of the customer base, the high degree of uninsured deposits and the technology available to move those deposits quickly. But I don't know that that's completely unique, and I'm not sure that there aren't other circumstances around the country where other banks might be facing those risks. But I do think that the fundamental building block of this problem, which is we're operating an environment where banks like SVB put lots of these deposits into what they thought were very safe instruments, agency mortgage backed securities with very low risk weight, extremely low credit risk,
Chana Schoenberger:
Which a ton about, which I know from your last job
Tim Mayopoulos:
And treasuries with virtually no credit risk. They thought they were investing in safe securities and they were safe from a credit perspective, but in a rapidly rising interest rate environment. They were not saved from an industry perspective. This is in a sense a little bit like the S&L crisis of the eighties. And I guess, thank goodness, early in my career I worked on, I was a lawyer early in my career and I did litigation work and I was involved in a lawsuit where there were 40 savings and loan associations involved. I represented the only institution that was not an S&L, it was an investment bank. And every one of those S&Ls was taken over by the RTC by the time the case was over. Wow. Every single one, thank goodness, we're not experiencing that. But this is a little bit like that situation where we have institutions that have invested in what they think are reasonably save assets, but those assets are getting crushed by a rapid rise in interest rates. And I think the other thing that has sort of been intriguing to me is that the market seems to think that on any given day, the Fed's going to stop raising interest rates. People are predicting what that day is for the last 18 months. I don't think that that's coming to an end anytime soon. No. And even when the Fed finally stops raising rates, they're not
Chana Schoenberger:
Going to lower,
Tim Mayopoulos:
Not going to lower them very quickly. So this is all going to last for longer than people think, and I think it's going to put stress on some institutions it already has.
Chana Schoenberger:
It also is, it's sort of an easy thing to do to blame the Fed. Oh, it's the fault of interest rates. And so when we hear and earning season just ended, so every bank CEO had to get up and make his case to the market about this is why my bank is not the next SVB. And a lot of them did talk about the Fed raising rates, and it's like, yes, that's true, but it's true for everyone, not just for you. And yet your balance sheet doesn't look as awesome as other people's.
Tim Mayopoulos:
Right. Well look, bankers are charged with managing within the macro environment that exists. Sure. They don't get to pick the macro environment.
Chana Schoenberger:
They neither does any other business person
Tim Mayopoulos:
And neither do households. Right?
Chana Schoenberger:
Nobody wants inflation and yet it's here anyway.
Tim Mayopoulos:
It shouldn't have been a surprise to anybody that the Fed was going to raise rates. What's surprising is that rates remained so low for as long as they did. Right. Shouldn't surprise anyone that the Fed was going to raise rates. I think there's been a little bit of unfounded hope that inflation would go away faster than it has and that the Fed would lack the will to continue to raise rates. The Fed's done exactly what it said it would do. It hasn't like it's, it hasn't misled anyone. It's told people what it was going to do and that's what it's happened.
Chana Schoenberger:
And in this era of Fed transparency, they literally said, this is what we're going to do. And then they did it and then they said, this is what we just did,
Tim Mayopoulos:
And this is what you can expect in the next meeting.
Chana Schoenberger:
They've gotten very good about very much, not even telegraphing, just flat out saying, this is what we're doing.
Tim Mayopoulos:
And look, I think there's a little bit of "hope as a strategy" for some. They just hope that the environment will get better when that buck, I spend much of my life in the mortgage world. There are many people in the mortgage world just hoping that the Fed will stop raising rates and will soon lower them because that's what's going to be good for their businesses. I don't think you can run a bank that way. You can't run a mortgage origination company that way. You have to assume kind of a range of outcomes. And I think some of these banks didn't do that very effectively.
Chana Schoenberger:
Great. Well, thank you so much, Tim. I really appreciate you coming to talk to us today.
Tim Mayopoulos):
Thanks for having me. I enjoyed it.
Chana Schoenberger:
Very interesting.
Tim Mayopoulos:
Thanks so much.
Chana Schoenberger:
Hope to not see you at the helm of another failed bank soon.
Tim Mayopoulos:
Me too. Me too.
