Panel, a lot of attention to what's going on, thanks, particularly regional
banks. What's happened here?
What are the obvious effects and what made this town the more subtle ones we
may be missing? Well, great question.
And obvious fact is you're seeing deposits moved from smaller and regional
banks into money center banks. You're seeing a lot of questioning of
the financial health of many regional banks and a lot of concerns about where
the line is drawn and deposit show. We're sort of at the worst spot now
where we don't know what to expanded the why is it going back to where it was?
To me, there is some less obvious but bigger issues having to do with a credit
crunch. You know, a lot of commercial real
estate lending, a lot of commercial and industrial loans certainly in the
heartland of the country are made by small and regional banks.
And so even if depositors are safe, the credit crunch may provide quite an
impact on the economy and the Fed's job. What could the possible effects be on
the real economy, if I can call it that? We all care about brand banks, regional
banks. We don't want to wish them ill, but
could be broader ramifications for the economy overall.
Well, of course, if banks are tightening lending because they really don't see
good things which lend, that's certainly fine.
But if banks are very worried now about the loss of deposits, no one wants to be
the next Silicon Valley bank, where fears of needing more capital and then
constrict loans and real estate projects can't happen.
Small and mid-sized businesses can't get loans.
That becomes a quite large effect on the economy from the Fed's perspective.
That's like thinking you're some extra rate hikes happening in addition to the
ones that the Fed is doing. And so there's the credit crunch may
well crimp activity going forward, although it will help the Fed bring down
inflation. So so let's go back to your question
about deposit insurance and where we are on that, because we have some people
like Bob Diamond, for example, from the Barclays, saying we should at least
insure up to a million dollars of deposits, maybe unlimited.
If you were back in your old job advising the president, I'd stage what's
the right answer for the banking system and therefore for the economy overall.
What would you advise and what do we really need for our banks?
I would say let's start with what it can't be right.
The current law was right. The limit was too small to deal with a
modern economy. And the Treasury or the Fed would try to
move to increase it whenever we get into trouble.
That's not good. Unlimited.
I don't think there's a very good idea that takes away any incentive for
depositors. Even a very large sized monitor.
The bank and where to draw the line is hard because what you would want in
principle is the payrolls of small and mid-sized businesses.
Individuals, transactions, accounts to be OK, but those could be large numbers.
Here's the concern. The higher we take that limit, the more
we push for more regulation of banks. It's not going to be the case.
The taxpayers insure all deposits in the country without changing what banks do.
And going to our earlier conversation is the moment to go.
Banks are very important in lending in some activities.
So I think we need a more fundamental conversation about what do we want banks
to do? And how are small and mid-sized
businesses and real estate NIKKEI. So when one of the things that maybe
goes unsaid largely is sort of a desire to preserve regional and specialist
banks across the country, we have something like forty five hundred I
think right now, banks across the country.
Is that too many? Can I ask that blunt question?
Well, I think we we've always had too many banks in the United States,
certainly relative to any of our peers. That said, while I don't know that we
have a policy objective of preserving a particular community or regional banks,
we do want to preserve the lending activities there.
So I don't think it's the case that if all deposits in the United States
suddenly moved to the four largest banks, that we'd have the same mix of
lending. That's what I meant by we really need to
step back. We thinking of the Fed or even the
Congress as to what we want banks to do, run an unhealthy path now playing with
deposit insurance without thinking about the future.
Let's talk about some of the things that could really affect Bent and the economy
more generally, and that is the debt ceiling.
A lot of talk about that. Now we're going to have the speaker of
the House come to New York Stock Exchange next week to address the
question as part of a discussion of the overall economy.
Where are we in the debt ceiling and where are we in this discussion back and
forth between raising the debt ceiling and curtailing spending?
Well, it's a great question. I mean, certainly we shouldn't default
on the debt. So no conversation should endear or even
get close to their bonds. The debt ceiling discussion is a source
of rare leverage in Washington to at least talk about spending.
The administration and the Congress do both need to put their cards on the
table, both about near-term spending, like getting unspent coded funds back or
addressing the growth in discretionary fiscal policy in recent years and have a
serious conversation about long term spending.
If it takes the debt ceiling to have it, so be it.
Also, it strikes me that you've spent more time on watch than I have, Glenn.
It takes some political courage to talk about cutting spending.
It's fine in the abstract to say we've got to curtail spending.
But when you get down to brass taxes, they weren't cut that program.
Somebody whose ox is being gored, who has the political courage to do that,
Democrats or Republicans? Well, neither, apparently.
But I do think there's a different way to frame it.
One is to say, look, unspent Covid funds, they need to go back to the
church. We've had a big growth in spending in
the past several years. Do we really believe that's necessary
going forward? That should be not a lot of courage to
say those things. As to the bigger problems in Social
Security and Medicare, I think the real issue is being honest that we want to
preserve these programs and to preserve these programs.
We have to address their structure. That probably starts with a commission
or some sort of discussion going forward.
But it shouldn't take that much courage to at least get that on the table in
this budget negotiations. That would be nice if it doesn't take
much courage. How much time does it take?
Because we have these trust funds that I think are running hard out.
Are they not? They are.
The Medicare Trust Fund will be out in just a few years, Social Security by
about 2033. Economists would say that doesn't really
matter. These programs are in bad shape.
Yesterday, it's day tomorrow, but it may be an action forcing event in
Washington. We shouldn't wait that long.
The longer we wait for either Medicare or Social Security, the harder the
solution is on benefits and taxes. There's no time like the present.
But I'm not sensing a lot of support for that idea of wash.
Well, what is the idea fleshed out? Is there a think tank or is there part
of some party or some leadership in Washington who are coming up with plans
that you're looking at, say, you know what, that's a smart way to do it?
Well, you know, both parties have over the years, if you turn back the clock to
the previous budget brouhaha whores in the early 2010s, the debt ceiling
battle, it was also Bowles Simpson commission that had interesting ideas
from both political parties. Over time, people have had this
discussion. We need to have it again and we need to
have it now. Yeah.
Bowles, Simpson, whatever happened, that commission, whatever that report, I
don't remember anything happening other than getting published.
Absolutely nothing happened. But I think here we've got the action
forcing events of the trust fund issues and the public knowing that something is
wrong, that spending has accelerated a lot during the pandemic with no break.