Silicon Valley Bank's failure has bankers asking: what went wrong, and what should we do now? Three journalists at American Banker discuss the problems that led to Silicon Valley Bank's demise as well as what the crisis means for bank regulation, consolidation, and more. Hear Editor-in-Chief Chana Schoenberger in conversation with reporters Allissa Kline, who covers national banks, and Kyle Campbell, who covers the Federal Reserve.
Transcription:
Chana Schoenberger (00:15):
Hello, thanks for joining us today. I'm Chana Schoenberger. I'm the editor-in-chief of American Banker, and I have with me here two of the reporters on our team, Allissa Kline, who covers national banks, and Kyle Campbell, who covers the Federal Reserve. And the three of us are going to be talking today about what's been going on in the bank banking world over the last week, which is there's been a bit of a banking crisis. And Kyle, Allissa and the rest of our team of journalists here have been covering this pretty much nonstop 24-7 for the last weeks. So they have a lot of answers. So let's just start with what happened. Allissa, you want to kick us off?
Allissa Kline (00:52):
Sure. Thanks, Chana. You posed that question. And then I thought to myself as I was preparing, what hasn't happened yet, I guess in the last seven or eight days, pure and simple, a bank run happened and it, I guess we could go back a few days, and I'm not sure where exactly we start, maybe two or three days before last Friday in terms of what was going on with Silicon Valley Bank. They experienced simply a bank run on their deposits. And I think it was one day or a little more than one day, $42 billion left their coffers as people panicked about whether or not this bank is in trouble or not.
Chana Schoenberger (02:00):
And so the act of wondering whether it was in trouble actually got it into trouble.
Allissa Kline (02:04):
It seems that way. Yes.
Chana Schoenberger (02:07):
Right. Okay. Yeah, that's a little scary. It's been sort of a classic bank run. Kyle, you cover regulators from a regulating perspective. What happened?
Kyle Campbell (02:22):
Yes, thanks, Chana. So from a regulatory perspective, I guess where things really kicked off from what we could see on the outside is on Friday morning, which is unusual, Friday morning, the Federal Deposit Insurance Corporation stepped in and took over Silicon Valley Bank. Now, typically that sort of action is conducted at the end of the day on a Friday. So it's to sort of not spook the markets and sort of handle things quietly over the weekend. But instead they did it at 11:45 AM Eastern time, which is just before the bank opened at what would've been 9:00 AM Pacific took over the bank and they've sent formed a bridge bank to handle the bank's assets. Now, lots of questions, lots of uncertainty arose immediately after that happened. And over the weekend, there was a lot of sort of jitters, you could say, in and around banks that were sort of maybe similarly exposed to types of customers that Silicon Valley relied on, which was a lot of folks in the venture capital and tech life sciences space.
(03:38)
There was just, there's concerns that people were going to the depositors at other banks were going to see what was happening here and try to pull their deposits. So Sunday night, the FDIC, the Federal Reserve, Treasury announced the pair of pretty extreme drastic measures to quell concerns at both at Silicon Valley at another for deposits at another bank that was closed down the weekend, which is signature here in New York. And then more broadly, those actions were twofold. On one side, they said that they would cover all deposits, both those that are insured, which are those that are up to $250,000, and those that are uninsured, which are those that are above that mark at both banks that were failed. So Silicon Valley and Signature. The other action, which was really driven by the Federal Reserve, was the creation of a facility at which banks could take government back, government backed mortgages, sort of MBS and treasuries and those sort of things, take them to the Federal Reserve, use them as collateral, they'd be taken at par, which is a big distinction from the fed's typical sort of emergency lending facility, the discount window, which applies a haircut for market devaluation.
(05:11)
So they were able to take their securities to this facility and have liquidity. So they were going to have access to liquidity if they sort of experienced similar demands for deposits. So again, two actions. One, sort of tell the banks that, hey, you're going to have liquidity to pay out depositors if they feel they have to take their money out. And another two depositors saying, don't worry, the government are going to step in and cover you at the two banks in question, but the implication is that at other banks as well if need be. So that's sort of where we are going into Monday. And since then it's all been trying to unpack what those things mean, and I'm sure we'll get into that a bit more throughout this discussion.
Chana Schoenberger (05:58):
So those were some pretty unusual steps, right? Deposit insurance, everyone knows deposit insurance, $250,000 per depositor, per account type, per institution. If you're above that, that's on you, except apparently now it's on the federal government. So why did they do that? What does that mean?
Kyle Campbell (06:17):
That's a great question. So yeah, they took that step presumably to again, call concern. Well, I guess that's the primary implication is that they want other bank, other depositors to feel like their money is safe because a bank deposit takes a perceived problem and turns it into a real problem. As you sort of mentioned before, people think that the bank is going to have a liquidity issue, they pull their money out. Bank has a liquidity issue. So what that step was trying to intervene at the early step, early stage of that process where taking away the incentive for folks whose deposits are not insured to pull them out saying, Hey, keep your money here. Even if the bank goes down, we're going to take care of you as the federal government. But as far as what does that mean going forward, that's a big open question, right? Because is this going to be a standing offer from the government? Is this going to lead to changes in how deposit insurance works, in how bank regulators examined banks? Those are all sort of big questions that are yet to be answered.
Chana Schoenberger (07:34):
A question that I've also gotten a lot this week is, who's paying for this? Am I, as a taxpayer, paying for this?
Kyle Campbell (07:43):
No, at least certainly not directly. And anyway, FDIC is, it's an insurance provider. So all banks with deposit insurance pay into what is called the deposit insurance fund. The DIF is the sort of jargon term. If you see that, that's what the DIF is. So banks are going to, first of all, the Bridge Bank, as I mentioned before, is going to try to sell whatever assets it can that remain from these failed banks and use that to pay back depositors. And the difference is going to come out of this fund. That's how it deposit insurance typically works. In this case, it's going to go beyond what it would normally pay out and treasuries backing that up. But again, this is all going to be sort of paid back in some way, shape or form by other banks. There might be an assessment on banks to increase the amount they have to pay into this insurance fund moving forward. And some banks would say, Hey, the more we have to pay into this insurance fund, like the more costs they're going to increase for customers, or the less they're going to have in available funds to create loans. So maybe it has some second-order effects on the average person, but primarily this is going to be a bank funded bailout, and that's how these things operate. Now,
Chana Schoenberger (09:09):
Allissa, do you have any sense of what banks think about this?
Allissa Kline (09:14):
I haven't done too much reporting on that yet, but I can imagine that any increased assessment from the FDIC would not be particularly great news, especially maybe for the smaller banks, they might not appreciate having to pay even more in FDI assessment fees that go into the deposit insurance fund. See, I guess, I think there will be more clarity. I guess things are moving so quickly right now, I feel like there will be some more clarity on how people are feeling and the things that they're thinking, how banks are thinking about all this and coming days and weeks, should things settle down a bit.
Chana Schoenberger (10:10):
Yes. And we're all hoping that they can kind of settle that.
Kyle Campbell (10:12):
Settle that the Washington Fund, sorry, but the community bank, the lobbies on behalf of the community banks, they're sort of raising some concern about this, that, hey, our members, the banks we represent, we're not engaged in this sort of activity and we're going to have to pay into this at a higher rate for risk that we're just not taking. So that's certainly, at least on that front, seem there's some grumblings of discontent.
Chana Schoenberger (10:41):
So there's been a number of questions about the whole moral hazard aspect of this. This is another one I've been getting a lot this week. What does it mean, essentially you tell people that their money is insured no matter what happens to the bank. What does that mean in terms of the bank taking more risk or not being as prudent with its business activities?
Kyle Campbell (11:08):
I mean, I think moral hazard is always a little bit difficult to predict. And if we could, we had a great crystal ball into what leads to a moral hazard, they wouldn't come up, but they do sometimes. Certainly this could lead to an outcome where banks are taking on more deposits than they should, and maybe using that as safe liquidity for things like this. As was the case for Silicon Valley taking unhedged bets. And by that I mean Silicon Valley had, just before the Fed started raising interest rates, bought quite a bit of long dated mortgage backed securities, which seemed like a prudent decision at the time because rates were low, they were paying a nice yield and it was a good source of income for them. But once rates started to rise, those securities were devalued. They had losses on paper, which again would've been fine if they didn't have to sell them.
(12:15)
And they kind of banked on not having to sell them because they had this great funding source and these deposits, assuming that they were not going to sort of run out the door, of course they did run out the door, had to sell these securities, they were not hedged against those risks, and they want themselves up in trouble. Does that create an incentive for banks to do something similar? Arguably, but then again, if there's no risk at losing deposits, then there's no risk for a run. So hard to judge on that front. But ultimately I'd say that the risk for a moral hazard is not readily apparent because at the end of the day, the banks involved, their money is still at risk. The equity of the investors is still, it's going to be wiped out if they do something that ends up failure,
Chana Schoenberger (13:06):
Great. And that's how they get paid of course, is executives get paid in the stock of their company mostly. So I mean, you imagine that the management team at Silicon Valley Bank is probably not getting a lot of calls from recruiters right now. I don't think that they're going to have such an easy time getting their next banking job, and certainly the money that they've been paid over the last few years, if it's still held in the stock, that stock doesn't exist, so
Kyle Campbell (13:30):
Might be an early retirement
Chana Schoenberger (13:34):
And not a particularly happy one.
Kyle Campbell (13:35):
I know what banks are saying about that though. I mean that's sort of the regulatory sort of Washington view sort of esoteric moral hazard, but is that a conversation that banks are having
Allissa Kline (13:46):
On the insurance, on what's insurance and what's not?
Kyle Campbell (13:51):
Yeah,
Allissa Kline (13:53):
Yeah, I'm sure they are. A lot of, I mean, from what I'm hearing, there's just so much ambiguity right now in terms of whether or not what has happened this weekend, this past weekend has set some sort of precedent on what's insured and what's not insured is everything insured now are all deposits now. And so I think, I don't know where the clarity comes from in terms of sorting that out for the banks, but I am hearing that it feels like it's up in the air at this point anyway, in terms of what will be insured will that $250,000 threshold still valid going forward?
Chana Schoenberger (14:43):
So we've had bank runs before. Obviously it's the reason we have deposit insurance and have for almost a hundred years. What is different about this specific situation?
Allissa Kline (14:59):
I would say something that there's probably a few things that are different, but one of the things that I keep reading about and hearing about that that is different is the role of social media on this particular bank run and how quickly that combined with our real-time payments system, you know, can pull your money out very quickly these days. You don't have to necessarily go stand in a line at a teller window to withdraw your money. And that I think stands out combined with this aspect of social media where there are all of these, there's all of this communication on social media about what's happening, what's actually happening or what is feared to happen. And it kind of stirs everybody up into a panic, which is perhaps what we saw last week. And then from there, things move very fast. So that's what, I mean, to me that seems like something a little bit different than what we've seen in the past on bank runs.
Chana Schoenberger (16:11):
Yeah, I'm pretty sure the role of social media is huge here too. Yeah, I was just going to say, I remember in the 2008 global financial crisis, there was no real social media at all. And so people had to do things in a much more analog way. Certainly the role of the traditional media was much more as a mediator of news. And now I can go on Twitter and say something and everyone sees it immediately.
Kyle Campbell (16:38):
I've heard it described as the perfect transmission of imperfect information. And that's the issue, is that it, you have it. And this idea that fake news could sp spread faster than real news, what concern noise is hard to, makes it hard to pick up the signal. And I think that on the supervisory front, that's going to really change the way that bank regulators adjust both regulatory and supervisory frameworks or should when it comes to these uninsured deposits. Because historically, whether your money was insured or not, it wasn't treated as that much more of a flight risk than a traditional deposit. From what I understand, most models tended to treat uninsured deposits as about 90 to 95% as sticky as an insured deposit because deposit holders still had to go through the same process of withdrawal, and it was right, historically, a much slower process. Now, regulators might have to really think about changing that and saying, well, we have to sort of treat this as hot now, or do we adjust getting back to the question of do we adjust the insured threshold to offset that a little bit? So it's definitely something that's going to have that regulators are going to have to absorb and adjust to accordingly.
Chana Schoenberger (18:07):
Yeah, I mean, is all money hot money?
Kyle Campbell (18:10):
Right? That's the question though.
Chana Schoenberger (18:13):
Yeah. We've also heard some calls for banking as a public utility and you know, always have this idea of the postal bank, which they have in countries like Japan, where there's a bank that's run by the government basically, which provides services to the underbanked and really anybody who wants it and then they don't have to worry about this sort of thing because they are backed by the full faith and credit of the United States government. So that that's been something that it is sort of a political football. I don't know if it would ever happen, but it certainly might address some of these issues if it were run well.
Kyle Campbell (18:52):
Yeah, it's not something I've heard talked about yet specific to this case, but I'm sure it's something that is going to factor into the conversation at some point.
Chana Schoenberger (19:06):
So are there other banks, and Allissa, maybe this is one for you, that have either similar problems to what Silicon Valley Bank had or analogous problems that might cause issues. What are we hearing about this?
Allissa Kline (19:21):
Well, we're seeing, so the answer I think is yes, there are some banks that are maybe in a slightly similar situation, not as tech-heavy tech focused as Silicon Valley. That's really, I think they were just such an outlier in terms of how they're deeply, they're embedded in the tech industry, but there certainly are other banks that have a lot of deposits that are related to the tech sector. And I think we are seeing some pressure on those banks. You've seen some stocks take a tumble last Friday and Monday morning, and maybe even a little bit, maybe there's some more happening today with certain banks that are viewed at in the same light as, or similar light as Silicon Valley, and it kind of remains to be seen. I think what ultimately happens with those banks, some of the credit ratings agencies have downgraded specific banks because there is greater concern now than there was two weeks ago over their liquidity position. And it will be interesting to see what ultimately happens with banks that are viewed in this same light or similar light as Silicon Valley.
Chana Schoenberger (20:52):
Are there banks that are poised to mop up all this tech sector funding? If somebody's got to bank those companies, certainly somebody has to bank the venture capital funds.
Allissa Kline (21:07):
Yeah, I think that also remains to be seen. We did a story earlier this week on where the deposits are moving to, and there's different reports out there that a lot of the big banks are scooping up the deposits from Silicon Valley from Signature, and also maybe deposits from companies and individuals who are just feeling jittery about wherever they're banking currently and feel like they need to move somewhere bigger. And I think the two big to fail banks are considered largely considered safe havens because they're considered too big to fail. So a lot of that money possibly is moving into those institutions.
(21:58)
It'll be really interesting to see what's reported with first quarter earnings in four weeks, starting in four weeks and look at quarter by quarter de deposit increases and the commentary that might come from executives on how that has changed given what's happened in the last week here, how that's helping them, I guess in terms of the deposit, the chase for deposits. I also think that it will be really interesting to see if there are more banks that decide to pay more for their deposits to pay higher interest rates. Several of them have rolled out special offerings. It'll be interesting to see if that becomes much more widespread to encourage more depositors to sit tight and stay where they are and not take all their deposits out and move somewhere bigger or somewhere even out of the banking system. We'll see
Chana Schoenberger (23:08):
Out of the banking system. They could move to a FinTech provider maybe,
Allissa Kline (23:13):
Or put their money into government bonds. I guess the US treasury bonds, I've heard as an option for corporations, maybe even in, I don't know a ton about how that works, but maybe even individuals are able to do that, not entirely sure on that, but just individuals
Chana Schoenberger (23:38):
Can do that.
Allissa Kline (23:38):
Yeah. So anyway, I think it'll be interesting to see where all of the moves to. And then on top of that, then the next question is, does it stay where it's being moved to in such a rush in such a panic now? And I talked to somebody earlier this week who his point was, it's moving really quickly now. People are super emotional about moving this money out. Now when things settle down, presuming things settle down and they've had more time to think and consider, do they move it again or do they move more money into this new institution, new to them institution? We'll see what happens.
Chana Schoenberger (24:22):
Yeah, yeah. No, that's going to be interesting. There've been a number of stories and interviews published with CEOs who had their money at Silicon Valley Bank, and even now that they don't have to worry about anything happened to their money because it's still there in the Bridge Bank, a lot of them were saying that this is a part of the tech ecosystem that was very important to them because Silicon Valley Bank would often lend to venture backed companies that had no revenue or certainly no profits. And it's going to be very hard for those companies to get bank loans, which is sort of the point. If it's risky, then a bank will typically not want to lend to a company like that. But it's been a lot of questions about what this will mean for innovation in this country if you can't get a startup off the ground because you can't get funding for it. A question that I also had about this is, and this is a question for Kyle, does the government seem to have a plan to prevent the crisis from repeating itself or from spreading?
Kyle Campbell (25:29):
Well, it has certainly the first steps of a plan by rolling out both the guarantee and the facility, I'll call it sort of the super discount window. Cause the discount window is the last resort for banks that get liquidity. This is sort of, it's
Chana Schoenberger (25:52):
Like the discount window, but with a cape.
Kyle Campbell (25:55):
Yes, exactly. Exactly. There's definitely a cape, definitely some spandex, and it's it, I mean it's a longer duration facility, and I think that that is going to do a lot to address the liquidity concerns that are a lot of banks are facing because I mean, yeah, there is something to the tune of $600 billion of paper losses I believe, in the banking sector because I mean, that's just the way that bonds and these securities work when they were issued, when rates were low and now rates rise, they're going to be less attractive if banks have to sell them. So I think that is, that's going to go a long way towards preventing these sort of liquidity concerns that other banks are having or should be having from creating problems, at least for the time being. I've certainly spoken to a lot of people who say this is just sort of pushing the problem off, pushing it down the road a bit. And that might be the case too, but we'll see. I think it does come down largely to what the Fed decides to do with interest rates. If interest rates start coming down within the next year meaningfully, that could resolve all the issues with these underwater securities. Also, if banks are able to hold them to maturity, then there's no issue there as well.
(27:30)
But where things really get tricky is if the Fed does, as it says, and it keeps interest rates higher for an extended period, and this sort of strain remains in place on these securities, that's going to be the point where perhaps more intervention is needed. But for now, I think that that's sort of the main game plan is provide liquidity in case banks need it and just sort of hope for the best. Of course, the president has said that it will do whatever it takes to prevent this from becoming a systemic issue. So we don't know what that looks like, but we could use our imaginations, I'm sure.
Chana Schoenberger (28:14):
Yeah, well, there's an argument to be made, and I actually have heard a bunch of people make this argument this week that raising the interest rates is actually the reason for this whole thing, and that inflation would get even worse if it happens that the government has to just print more money to cover the various losses. Yeah, because the mismatch on the books was not really a problem until it became a problem. The securities that the bank was holding were completely safe government securities, and nobody suggested that there's going to be a problem disposing of those. It was just everything is liquidity. It was just an liquidity issue.
Kyle Campbell (28:56):
Absolutely. I mean, this was a sound bank by all measures. In 2021, they actually got a thumbs up from regulators in the form of an approval to buy the Boston Private wealth management platform in which the Fed said that it's a well-managed bank, and that's because it had a lot of its funding was at the time seemed very secure, mostly deposits, and it had these assets that were the types of assets that regulators want banks to have, which are sort of government securities. But then as you said, all it takes is some quick tightening by the Fed and that all flips upside down. So yes, whether the fed's monetary policy ends up being at odds with financial stability and it has to do two things at once, raise rates and perhaps grow its balance sheet by conducting these sort of bailout measures that could happen. We saw that happen in the UK with the Guild crisis, and so it's possible you can sort of walk and chew dumb at the same time, but might not be the most effective way to get the results that they want.
Chana Schoenberger (30:19):
A question we're getting from the audience is what are the effects for credit unions? So then credit unions, we actually cover these pretty heavily here at American Banker, and there's a lot of tension between credit union executives and bank executives. Credit unions have been buying smaller banks, and it's caused a lot of grief for banks because as banks note, credit unions are don't pay taxes. So the question is unfair for them to do this, but credit unions also in our research have much better reputations among their customers. Customers feel that they're more personal, that their credit union really cares about them more. And part of this may be because it's a union of members as opposed to a bank, which is a company that serves you. It's one of the reasons people might feel more warm and fuzzy about banking with a credit union, but basically the functions that they perform for you are essentially the same. So will this have an effect on unions? Are they going to get more customers? Are they going to see these sorts of vulnerability problems?
Allissa Kline (31:28):
I think it would make sense that they did pick up some customers. I think we're, the message from what I'm hearing from some of the lobbying groups and for credit unions is that we're safe. You can come to us and trust that we're going to do right by your money. And so it would make sense that they pick up more business, more deposits specifically.
Kyle Campbell (31:58):
And on the regulatory front, whatever adjustments are made in terms of the FDIC'S insurance policy in terms of how much they're willing to ensure for individual banks, the NCUA, the National Credit Union Administration, we're going to have to do the same thing. They're kind of a tit for tat with those organizations. So yeah, be interesting. I mean, I'm assuming that the change would be initiated at the FDIC because they're experiencing the issue now, but it's likely that the NCUA will have to follow up in.
Chana Schoenberger (32:39):
Yeah, credit unions are always an interesting animal because if you look at them and their marketing, you'd think that more customers would be swayed by that and would want to become clients of credit unions. And yet the numbers are, they're growing, but they're still very small. And these aren't new institutions either, mostly yet most people seem to feel that the biggest banks, what's the percentage of assets held by the biggest banks? It's something like it's way north of 50%, right?
Allissa Kline (33:08):
I think so, yeah. Substantial.
Chana Schoenberger (33:11):
Yeah. So most people, the majority of Americans are clients of the biggest banks when they don't have to be. They generally have a local community bank or a credit union in their community that they could bank with and just choose not to.
Kyle Campbell (33:25):
Yeah, it's a great question about psychology, which is always top of mind when you think about bank runs, sort of psychology of the masses.
Chana Schoenberger (33:38):
Yeah, no, exactly. And psychology and marketing are so closely tied. So many of our readers are of course, bank executives. So if I were a bank executive, what can I do to prevent this from happening to me? Because I don't want to be on the cover of American Banker talking about my bank run next week.
Allissa Kline (34:01):
I think, I'm not sure what they, I think being super transparent helps setting aside any strategy talk of their business. I mean, if it would feel like being transparent with your customers, it's helpful in easing any concerns or fears about your particular institution being in trouble.
Chana Schoenberger (34:33):
But that's a paradox, right? Because when a bank starts to talk about how it's not in trouble, that's when you think it's in trouble. If you get an email from the CEO of the place where you bank saying, everyone chill, it's fine. There are no problems here, nothing to see here. That's when you get worried as a depositor. So you should communicate, but you can't over communicate, right?
Kyle Campbell (34:56):
Sure. Yeah. Yes. I mean that's sort of the thing with any sort of action that banks, executives, or banks as a whole could take right now. I mean, would it be prudent to if you have a lot of exposure to interest rate risk to raise more capital, but that could also be a signal to the market that, hey, this bank needs, it's in need of something for some reason. Why is that? So yeah, it's definitely a careful consideration, but certainly supervisors are going to be saying, make sure you're hedging risks as best you can. And I think there's some that are not in the supervisory space, but are certainly well informed about it, sort of academics and policy experts who say, might be time to reconsider the makeup of your deposit base and how many are uninsured, and perhaps trying to convince some depositors to move to CDs or other types of more secure funding, and that that's going to mean paying a premium for that. So again, it's all sort of a delicate balance and it's not a position that I'm envious of right now.
Allissa Kline (36:15):
I do think that's a good point about rethinking, taking a good look at your insured versus not insured deposits, uninsured deposits, and I'm sure those discussions are happening be, I would love to hear some more commentary on that actually from the banks in terms of how they're looking at that strategy at this point and just in the wake of all of this.
Chana Schoenberger (36:47):
And how do you shift that mix? Is it a matter of raising the interest you're paying on one type of deposit, so all the clients will shift to that one or marketing or firing certain clients?
Allissa Kline (37:03):
Those would seem to be options. Yeah,
Kyle Campbell (37:07):
All the above probably. Yeah, some mix. I think it's interesting. I mean, obviously deposits are way up since Covid or they went way up and now you're going to have to have a return to normal. So even banks that aren't have concentration risks or that are exposed to certain troubled sectors, I mean, I think all banks are probably going to deal with some sort of dwindling or at least a leveling off of deposits and growth. So I think it's just something that everyone needs to be thinking about. What does that mix look like and how are you going to deal with that shift?
Chana Schoenberger (37:53):
Yeah, we had the regulatory attorney, Rodgin Cohen, on the other day on our Leaders Forum, and he was talking about, this is really the full employment act for compliance lawyers, because if you don't have a strong compliance department, you're going to get in trouble with the regulators, and also you want to make sure you're doing it right because the headline risk is really just too high. So now is a great time for all those law students to think about their specialty and head into financial compliance.
Kyle Campbell (38:28):
Yeah, absolutely. And I think the rules are going to be changing, whether it's how much it's influenced by this episode, so remains to be seen, but certainly on the fed's front, they're looking at their capital rules, they're looking at things like resolution planning requirements for those mid-tier banks. So these are all live issues, and they became a little bit more urgent given the recent issues. So it's going to be very important to stay up to speed on all those.
Chana Schoenberger (39:04):
Is there a way that if regulators wanted to regulate social media, they could actually do so?
Kyle Campbell (39:14):
In terms of you talking about bank regulators or actually FCC?
Chana Schoenberger (39:19):
Well, I'm not sure. I mean, there is no social media regulators, so there's no agency that's actually charge of them. But if it's determined that social media played a exacerbating role in these bank runs, then I wonder if that brings 'em under the purview of something like maybe the CFPB, assuming that it's still constitutional by the end of the year,
Chana Schoenberger (39:39):
Because that's another question. I mean, I wonder, I don't even know how you would stop people from tweeting other than shutting down Twitter, and then they would just come up with something else.
Kyle Campbell (39:50):
I mean they, you'd have to make Twitter liable for things that are done on its platform. And I don't know the exact code, but I know that there's some law on the books that makes website hosts largely exempt from liability on the content they produce, which is how social media was able to come about. Obviously if we say something that is libelous, we can be sued, not the same for yes, Twitter. So that's one way, one area. But there is an interesting question around CFPB and whether it can sort of step in, and certainly if it has funding by the year's end, I wouldn't be surprised. I wouldn't put it past them to sort of explore that area, but I don't have any insight to say that they are actively considering that at this time.
Chana Schoenberger (40:47):
Okay. Just as a last thought, because we're almost out of time here, are there any bright spots that the two of you see in this last week? Have we learned anything that will be useful to the banking sector? What can executives take away from all this?
Allissa Kline (41:09):
Okay, diversify, if you haven't already. Good idea. Make sure your deposits are diversified. Make sure if you haven't already moved in the direction that so many other banks have moved, which is diversifying your business lines, maybe that's something worth considering. We did, I think it was over the summer, late summer, there was, we ran our top banks list. So we do this every year where we highlight the top banks and it's based, they're ranked on return on average equity, if I'm recalling that correctly. That's how they're ranked. And I wrote the story on the banks above $50 billion of assets, and they were praised for the banks that made the top five or so. Were praised for having niche businesses, and I wonder if that will get not looked at so highly, I guess going forward, being so carved into one sector. So I would think there would be some discussions on diversifying if that's not already underway.
Chana Schoenberger (42:26):
Right. So you'd bank the tech sector, but also farmers and manufacturers and other folks? That's interesting.
Kyle Campbell (42:36):
Yeah, I, along a similar line, I think it is just, you can't overlook the sort of basics. I mean, diversification, management of interest rate, risks, liquidity, making sure that you have, that your funding sources are as stable as maybe you initially, or maybe as stable as they are or as they were when you first made them. Obviously deposits placed in 2020 and 2021 are probably behaving differently now, so just don't overlook those sort of basic principles is sort of the big takeaway. And I think there's going to be a lot more to learn as we unpack the specifics of where the key failures at these banks actually hit their sort of inflection points.
Chana Schoenberger (43:31):
Great. Wonderful. Well, thank you so much for joining me, both of you, and I'm looking forward to what you're going to write in the coming days about this crisis.
Kyle Campbell (43:41):
Great. Thank you. Thanks Chana.
