Bloomberg: Bank Tremors

Brian Moynihan, Bank of America CEO dives into the lasting effects we’ve seen after the failure of Silicon Valley Bank. And Darrin Williams, Southern Bancorp CEO explains how the most recent bank failures have affected regional banks’ deposits.
——–
Follow Bloomberg for business news & analysis, up-to-the-minute market data, features, profiles and more: http://www.bloomberg.com
Connect with us on…
Twitter: https://twitter.com/business
Facebook: https://www.facebook.com/bloombergbusiness
Instagram: https://www.instagram.com/bloombergbusiness/

Transcript

The failure Silicon Valley Bank sent shivers through the entire banking industry, particularly when it comes to the trust depositors place in their own banks. We spoke with Brian Moynihan, chair and CEO of Bank America, about the lasting effects of what we’ve seen.

I think at the end of day, a crisis is too strong a word. And words like that get used a lot. And the there was a fair amount of disruption for a few weeks there. Well, certain business models were sorted through. But on the other hand, you could see and

We could see the stability in the other business models, which would have worked your way. Banking is down very granular business and stuff. And so the good news is you’re seeing the earnings by the broad industry come out this week.

You’re seeing if things have have sort of played out that way, which is very specific business models, because the unique circumstances of the last 24 months of 36 months of massive amount of cash put in the system and then rates changing court people and those had to

Be sorted out. The good news is the basic industry is reporting good earnings across the board. Deposits have come down, but that’s intended by the Fed taking money out of a system that’s got to come out of somewhere. Banking system is what they want to do to frankly make credit tighter and help

Slow down the economy. So that’s gone on. But look at the capital. Liquidity and earnings power of all these companies have been tremendous. And that’s that’s reassuring to people. And that’s good news, because in the end today, the banking system reflects economy in American economies around the world.

And and you hope it’s in good shape. And it is. There’s no question. Could you. Our banks an inherent disadvantage on their business model. In this sense, you’re funding by demand deposits that people by definition can pull whatever they want. You’re putting in long term assets that

Are long term as opposed to some of the private credit outfits. You get locked up capital for a long period of time that they can match the assets. Do you have an inherent mismatch in the deposits versus the asset or can we manage that? That’s why we have a management team of

People and that’s managed to maintain a balance and that sensitivity. So 100 basis points, we make three billion dollars more in an eye down when we make three billion less on a base of your fifty five billion dollars a year.

So it’s a little bit of movement of money, but that’s how you balance it. Because the entire balance sheet moves and every looks at certain parts of it in this book. So it’s it’s the way you manage money. It’s our consumer customers. Eighty percent of ballots have been here

For customers for 10 years plus, you know, even our commercial side, same thing. But all of a balance of people been relationships for a long time as customers run around for decades, you know, decades and decades in some cases. And so they’re very stable.

It’s just a matter of the ebbs and flows of the rate environment will change the profitability. But you say as a business model flight, there’s only four companies have made more than 15 billion dollars in America in the last eight years in a row to a more banks.

And so I don’t think the business model is flawed. As the head of Bank of America, here is almost unique insight into the American economy and specifically the consumer. I know you said that march over March, consumer spending is up. Same time you’re taking more provisions

Against possible losses on some. What does that say about what’s around the corner? Are you seeing the end of the spurt in consumer spending? So three, three different topics. One is consumer spending in March was up 9 percent over last March across all different forms in April. That slowed down a little bit.

We’ll see how it ends up. But that slowed down. It was slower in January, very pick back up in March. That that means that the consumer is still doing things. They’re traveling. It’s a lot more on travel outside the home experiences, so-called theaters, etc. Concert tickets, sporting events, everything is going

Strong there. When you look at April, you’ve seen a slowdown. But the debate’s going to be is that due to some attacks, timing and stuff? Because that’s changed as you see it play out. But the consumer is in good shape. They have more money in accounts than they did by panic, by multiples,

Especially the lower stratas. The ones that don’t have it are there. The wealthiest consumers aren’t platform because they put the money into the into the first in the market, now into the in the money funds saved money, the credit quality, our charge, our freight. This quarter

Was a number of which is about a third under where it was 19. To give you a sense saying. But that’s a fifty three year low. Nineteen. So the credit quality is unbelievable. And so that’s good news. Are we putting up provisions yet because

We keep planning on this recession seems to always be out there that we haven’t gotten to yet. And then the third thing is the consumers have capacity borrow. So the usage of our lines of credit on the consumer side. Home equity loans are down by 30 billion

And outstandings 20 billion outstanding during a pandemic. The card lines are down from probably one hundred and some billion, down about 90 billion. They were down as a lot of 78 come back up. So there’s plenty of borrowing capacity for consumers. That means the consumer is going to be

There and employ, which means the job of the Fed is tougher. And that’s why the Fed has to be more resilient because of consumer drives, the U.S. economy and the consumer is still in the game that consumers don’t, Floyd. And we’re paying our colleagues and teammates more than every other room.

And then they have money in accounts and are spending. And that’s not true for every single human being in America. But it’s the average is true. And that was Brian Moynihan, chair and CEO of Bank of America. To get the full picture.

We also talked with the leader of a distinctly local bank, Deron Williams, the CEO of Southern Bancorp. That’s a community development financial institution serving those living and working in the Arkansas Delta. The failure of a Silicon Valley bank and other banks, it’s failure of banking

When I wanted to managing assets and liabilities, right. And so we don’t have more than 90 percent of our deposits held to maturity. We don’t have more than 90 percent of our debt. Our investors held to maturity. Our deposits that are above the FDIC insurance limits.

And so we know our customers, we not to protect them and we’re doing a solid job and it’s cause unnecessary angst. But we’re trying to relieve those fears. A lot of concerns, as you suggest, about withdrawal of deposits. And we’ve seen deposits go down and a lot of banks.

Did you lose deposits because of this? Yeah, fortunate we did it again because we know our customers and we are on the phone, we call them and we let them know that their deposits were safe. And one thing we’re actually seeing, we

Actually are seeing people who care where their money spends a night. They want to bank with institution that is mission focused, that’s focused on serving the real economy. And so we’re actually gaining some deposits. And so I know that’s not true across the board. And little concerned about some of

Deposits running from your region and community banks. But that’s not what we faced. There are some rogue posing that we really increase the level of insurance well above 20000 to a million dollars or even beyond that. What do you think of that?

That may be a smart idea, right? In an effort to relieve the fears and calm the fears so wouldn’t be more run of the banks, what the federal government did in saying we’re to protect all the depositors. I’ll take another bank. Oh, smart.

But what it did, it actually created this idea that some banks are safer than others. Right. Some banks are too big to fail. I think community banks were too important to fail because we’re banking Main Street. And if we don’t have the deposit base, then we can’t lend to the small

Businesses that we lend to who actually create the jobs in America. Darren, do you have any concern at all that the government starts guaranteeing all deposits matter, how limited, how big they are, that they’ll start getting into your business more? Because typically when the government

Gives you something, they ask for something back, right? Right. Well, clearly, that’s a concern. And we’d rather we rather not had that. But we want to ensure that our customers feel safe because it is important that the community banks have those deposits,

Because that’s the base of which we used to lend to small businesses who create the jobs in America. And so we’re pretty excited about these opportunities that we see coming from this. We want to believe our customers fear. But at the heart, America’s economy

Needs a diversity of institutions. Not not every community has a large money center banks. So in several markets we serve. We’re the only bank in town in six or one of only two sets, 13 markets where there you know, there’s not much, much choice in the banking space is

Consolidated. So 15 years ago, there were, what, 15000 banks in America today? Forty five hundred. Yes. So we’re serving people who often are not served well by large banks because they’re just not present.

source