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CNN Live Event/Special
Swiss Banking Giant Credit Suisse Admits "Weakness" As Fears Grow; Ex-Treasury Secretary: Concerning If Fed Stops Raising Rates; Ex-Treasury Secretary: America's Money Is Safe. Aired 9-10p ET
Aired March 15, 2023 - 21:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[21:00:00]
ANDERSON COOPER, CNN HOST: Supernovas, as you may know, are the hottest, brightest objects, in the night sky.
The stars, surrounded by a cooler glowing halo of gas and dust, a lot of it, equivalent to the mass of 10 of our Suns. The mass comes from the star itself, which now is a near shadow, of its former self. It now only weighs the same as about 30 Suns. My mind is blown!
The news continues. Want to hand it over to Poppy Harlow, and "BANK BUST: WHAT'S NEXT FOR AMERICA'S MONEY."
Poppy?
(BEGIN VIDEOTAPE)
UNIDENTIFIED MALE: Tonight, a banking crisis leaves more questions than answers.
GARY COHN, FORMER TRUMP NATIONAL ECONOMIC COUNCIL DIRECTOR, VICE CHAIRMAN, IBM, FORMER PRESIDENT & COO, GOLDMAN SACHS: We had an old- fashioned bank run.
UNIDENTIFIED MALE: Did the government step in at just the right time?
JOE BIDEN, PRESIDENT, UNITED STATES OF AMERICA: The banking system is safe.
UNIDENTIFIED MALE: Or overstep with what critics say is another bank bailout?
REP. KATIE PORTER (D-CA): It's not free. It comes with costs.
UNIDENTIFIED MALE: Plus, are more banks in danger of collapse?
UNIDENTIFIED MALE: There's just panic.
UNIDENTIFIED MALE: Concerns spread to bigger institutions.
UNIDENTIFIED MALE: Credit Suisse, under pressure.
UNIDENTIFIED MALE: As bank stocks take a roller-coaster ride and regulators faced with a dilemma.
UNIDENTIFIED MALE: How did that happen? Were they asking all the right questions? Were they keeping an eye out for this?
UNIDENTIFIED MALE: Fight high inflation with rising interest rates?
LARRY SUMMERS, TREASURY SECRETARY UNDER PRESIDENT CLINTON, NATIONAL ECONOMIC COUNCIL DIRECTOR UNDER PRESIDENT OBAMA: The Fed needs to stay focused on the inflation challenge.
UNIDENTIFIED MALE: Or back off, to calm down the troubled banking industry?
UNIDENTIFIED MALE: You cannot be rescuing banks, and then hiking interest rates.
UNIDENTIFIED MALE: BANK BUST: WHAT'S NEXT FOR AMERICA'S MONEY on CNN PRIMETIME.
(END VIDEOTAPE)
POPPY HARLOW, CNN HOST, CNN PRIMETIME: Good evening, everyone. I'm Poppy Harlow.
Just one week ago, America's 16th largest bank was up and running. Everything seemed fine. Tonight, it is collapsed, and in government hands.
And fears over the broader banking industry are now global. Credit Suisse, the Swiss banking giant, acknowledging material weakness, in its institution. That sent shares plunging to record lows and markets tumbling around the world. Investors very worried about what shoe could drop next.
Here, in the United States, tonight, rating giants, S&P, and Fitch, now cutting the credit rating, of First Republic Bank, a regional bank, out of San Francisco, serious concerns there, about the level of its uninsured deposits.
So, the real question tonight, what does this all actually mean for you, for your money, your mortgage, your job, your 401(k), in this economy.
Our top Business team, here, tonight, to help you understand it all. In fact, what does it mean? We have personal finance coach, to answer your questions.
Also, the former Treasury Secretary, Larry Summers, is here, along with small business owners directly impacted by the collapse of Silicon Valley Bank.
So, let's get to it. You have heard so much financial jargon, terms thrown around, all week. We've brought in our very own White House Chief Correspondent, Phil Mattingly, to help us simplify it all in two minutes.
Phil?
PHIL MATTINGLY, CNN CHIEF WHITE HOUSE CORRESPONDENT: Hey, Poppy.
Now, it's fair to say, there are quite a few questions, as to how the banking system seemed to be sitting at the edge of collapse. Questions like, "What in the hell just happened?"
Now, I'm sure you'd like the short answer. So, I'll give the short one. Industry, one bank, the WhatsApp group chat, viral tweets, because of course?
Still confused? All right, here's the long answer. This is Silicon Valley Bank. Over 40 years, it rode deep ties, to the tech sector, to become the nation's 16th largest bank. More money flowed in, than the bank really knew what to do with, the same moment, as historically low interest rates. In other words, those deposits, all that money wasn't profitable.
So, the banks executives decided to essentially chase yield. Oh, you want to know the non-finance nerd version of that? They wanted to make money. So, they shifted more and more cash, into long-term fixed rate bonds. This isn't 2008. That is the very definition of vanilla- banking, at least until that low interest rate environment gets blown apart, by the Federal Reserve, desperately trying to tame four-decade high inflation.
Now, SVB was sitting on significant losses, like lots of banks. So, what made this bank different? Tech and startup founders, and companies, pulling deposits, to survive. They burned through them rapidly, and then they pulled more.
Now, if you're SVB, you have a problem, a mismatch between all that customer coinage, and all your other assets. And while they weren't fully aware of it yet, the government also had problems. These deposits supported tens of thousands of jobs, payrolls. And almost all of it? Above the FDIC insurance cap.
Now, on March 8th, the Bank announced it was selling off holdings at a loss, that's on stock. And WhatsApp chats and, on Twitter, founders and investors spun each other up, and appear to have inadvertently socialized the idea of a bank run. By the end of March 9th, investors had attempted to withdraw an astounding $42 billion. Regulators seized the bank, the very next day.
Now, and as you know, the U.S. officials now had a much, much bigger problem. Panic. Panic was seeping over the entire banking system. And that's what drove a dramatic emergency response, backstopping deposits for banks providing new access to lines of credit.
[21:05:00]
But you probably feel like all of this came out of nowhere. Take some solace in that feeling.
(GRAPHIC IS SHOWN OF JEROME POWELL, MARTIN GRUENBERG, & JANET YELLEN)
MATTINGLY: Before the end of last week, these folks didn't know one was coming either.
(GRAPHIC IS SHOWN OF PRESIDENT JOE BIDEN)
MATTINGLY: Neither did he.
But this isn't over. And the question is now that they know, have they done enough?
HARLOW: Phil joins me now, along with some of our best business minds, who cover this morning, noon, night and overnight.
CNN Business Correspondent, and Anchor, Christine Romans, along with Rahel Solomon, Julia Chatterley.
Guys, thank you very much, for being up late, on all of this.
CHRISTINE ROMANS, CNN BUSINESS CHIEF BUSINESS CORRESPONDENT: Sure.
HARLOW: Because this is really extraordinary. People are really scared. And I think it's more in to lay out what this is, and that it's different than 2008.
So, Christine, let me begin with you. Are people's -- are people safe? Is their money safe?
ROMANS: If you have money in your bank?
HARLOW: Yes.
ROMANS: You will be able to go to your ATM, and get it out. You will be able to pay your bills with your digital app. Your money is there.
And I think what the White House, what the FDIC, and what the Fed did, this weekend, is try to assure everyone that your -- "Depositors, we're going to protect you. Shareholders? Not so much."
They're not going to bail out Management of banks that have made mistakes. They're not going to bail out shareholders of banks. But they have really telegraphed that if you have money in your bank, you should feel like it is safe, right now.
RAHEL SOLOMON, CNN BUSINESS CORRESPONDENT: And I would just say part of the reason why we saw the government step up, as quickly as they did, which was quite swift, right, is because they tried to prevent further contagion, right? They tried to prevent further panic, so we don't see this with other institutions.
JULIA CHATTERLEY, CNN CORRESPONDENT: And what you didn't hear there--
HARLOW: Yes.
CHATTERLEY: --there was what happens if your deposits are bigger than $250,000--
HARLOW: That's right.
CHATTERLEY: --which is the big question here. And they of course, were ring-fenced, in this case, and that was the decision that was made.
And the big question now is if you have more than $250,000, in a bank account, and remember, half the employment, in this country, is in small businesses, are you safe? It's not explicit. It's implied by what we saw, this weekend. And that's also crucial, for ensuring confidence too.
MATTINGLY: Yes. And I also think--
HARLOW: Yes.
MATTINGLY: --this is a really great point. Because if you think about the Administration strategy, you think about just how dramatic the efforts were, over the course of the weekend that they landed on, on Sunday, depositors, in keeping depositor confidence, in keeping deposits safe, is really kind of the driving force, of the entire strategy, right?
ROMANS: Yes.
MATTINGLY: And, to Julia's point, they haven't actually said that if another bank fails, and you have a deposits level of return of $50,000, that we're going to ring-fence you.
There's a reason for that. In some level, what's supposed to happen is the FDIC is supposed to seize the bank and then sell it to someone else. The new bank opens, on Monday. That didn't happen with SVB.
HARLOW: They tried. They tried to sell this weekend (ph).
(CROSSTALK)
MATTINGLY: That's what they wanted to do the entire weekend.
HARLOW: Yes.
MATTINGLY: They weren't able to do it. They needed a response. This is what they came up with.
HARLOW: But--
MATTINGLY: But I think the keeping in mind that depositors, and keeping them safe, regardless of the limit?
HARLOW: Yes.
MATTINGLY: Has been the sole focus, driving focus of everything that they've been doing, that's probably not going to change.
ROMANS: But if you have a small business with a million dollars, right? You have it all in one bank right now? No, I think that's why you're seeing so many of these banks see deposit outflows, because people are trying to make sure that--
HARLOW: And they're going to the big guys.
ROMANS: They're going to the big guys, which is a little bit ironic. After--
MATTINGLY: A little bit?
ROMANS: --after 2008--
(CROSSTALK)
ROMANS: After 2008, when we said these banks were too big, they were too big to--
HARLOW: Now, they're really too big--
ROMANS: Now, they're even bigger. They're even bigger.
MATTINGLY: Yes.
HARLOW: They're too ginormous to fail.
ROMANS: Right.
HARLOW: Now, but Julia, Credit Suisse, OK, because what's happening to Credit Suisse, and the Swiss banking regulator, saying, "We'll step in here, if we need to," a record low for shares, is not what is happening, in the U.S., to SVB and these others. But it's sort of this vortex, if you will, and everyone's panicking.
Explain why Credit Suisse is different.
CHATTERLEY: We're trying to discuss a technical term, and I think we decided "Hot mess," with Credit Suisse.
HARLOW: Yes.
CHATTERLEY: And if you're in a hot mess--
(CROSSTALK)
ROMANS: A really (ph) hot mess, right?
CHATTERLEY: Yes. Train wreck, actually.
ROMANS: Train wreck, hot mess, right.
CHATTERLEY: And primarily self-inflicted.
HARLOW: Yes.
CHATTERLEY: It's separate from what we saw in the United States.
But it is a major, considered a major European bank. And what you want to do when you've got shockingly bad news, like they had this week, is bury it, quite frankly. What they did was blurt out some terrible news, when all anybody was watching, at this moment, was the banking sector. So, we have this global ripple effect.
But I do think it's important to separate out these two things. But all eyes are on all banks now, globally.
SOLOMON: Yes.
CHATTERLEY: What are their holdings?
I think the important point is this is not yet at least 2008, because we have a better sense of what's on balance sheets. We didn't, in 2008.
HARLOW: We do. And I think that raises such an important question, Phil, which is the fact that regulators knew, over this entire year and a half span that we've started raising interest rates, dramatically.
MATTINGLY: Yes.
HARLOW: And that puts real pressure on these long-term treasuries, at the low interest rates, that SVB was holding them -- that makes them less attractive to the market.
Where were the regulators, in all of this? And what happens now with banks, like First Republic that just got downgraded, today, because they have a lot of people with money over the $250,000 cap?
MATTINGLY: The second question first, which is, I think, First Republic is what everybody's looking at, right now.
HARLOW: Yes.
MATTINGLY: Certainly, that's viewed as the likely next domino to fall, if one is to fall. But it was also viewed as kind of when you're looking at a deposit base that has a significant positive return to $50,000, and you're looking at a need for liquidity, exactly, because you have that mismatch. I'm sorry, I'm getting jargony.
HARLOW: And it says it does have liquidity, by the way.
MATTINGLY: And it does. But it's important--
ROMANS: I agree with JPMorgan, and with the $70 billion
HARLOW: Right.
[21:10:00]
CHATTERLEY: And that we can't underestimate the importance of one of those decisions that was taken this weekend, to allow these banks, then, they don't have losses. They're sitting on what's called pay per losses.
MATTINGLY: Yes.
CHATTERLEY: They can now, whatever the value of those bonds, those government debt pieces that they have on their balance sheet, they can now say, "Look, I think it's worth 100 percent of what we want it to be in the end." HARLOW: And get that from the Fed lending flexibility.
CHATTERLEY: Go get some money. That underpinning--
HARLOW: That's to lose (ph).
MATTINGLY: The collaterals to and the ability to do that--
CHATTERLEY: --so important.
MATTINGLY: People aren't paying as much attention to the Fed lending window. And I think if I talk about it more?
CHATTERLEY: We need to weigh in more.
MATTINGLY: Poppy is going to side me in the feet (ph).
CHATTERLEY: And we'll fall asleep.
HARLOW: No, it is really important though.
MATTINGLY: But it's the--
(CROSSTALK)
MATTINGLY: --but that is a huge piece. The deposits are the central focus. Liquidity is how these banks live.
HARLOW: So, explain--
CHATTERLEY: Got it.
HARLOW: Explain in layman's terms, the other part of what the government did, this weekend, with this lending facility.
MATTINGLY: Right. So, everybody focuses on the deposits, for good reason. Deposit outflows were driving the huge problems, not just for all of these regional banks, right? That's what they needed to stop.
HARLOW: Yes.
MATTINGLY: In the midst of that these banks needed to be able to take these securities, long-term treasuries, 30-year mortgages, that were very underwater, and be able to say to the client -- to the Federal Reserve, "This is collateral."--
HARLOW: Yes.
MATTINGLY: -- "We would like a loan. You have one year. We're going to pay you at par, not mark-to-market."
HARLOW: Yes.
MATTINGLY: And mark-to-market is not the layman's term. I apologize for that. But the idea is basically they have open lines of credit. And the most fascinating thing is the day after the Fed window-- HARLOW: Yes.
MATTINGLY: --was put into place, JPMorgan said that they had a line of credit available--
HARLOW: Yes, that's right.
MATTINGLY: --for First Republic--
ROMANS: Yes.
HARLOW: And it--
MATTINGLY: --which was a huge sign.
ROMANS: Yes, yes.
MATTINGLY: And the next day, all of a sudden, the regional banks stocks started to come back, like it's?
ROMANS: Yes.
HARLOW: And they were how -- essentially like saying, "OK, here, right now, if you had to sell this to the open market, here is all you'd get for it. But we, the government are going to give you it whole for a year."
ROMANS: Oh, yes.
HARLOW: "And we're going to give you a chance"--
ROMANS: Yes.
HARLOW: --"to remain whole."
SOLOMON: That's exactly what it's like. But one thing that's really interesting to me that a banking expert told me, earlier, is that some banks may actually think twice, before doing that, especially because piggybacking off of what Julia said, everything is so sensitive, right now.
ROMANS: Yes.
SOLOMON: If in fact, you need to tap that line of credit, it almost signifies -- I mean his word--
HARLOW: But don't talk about it--
SOLOMON: --his word, not mine--
CHATTERLEY: We--
SOLOMON: --it almost signifies a level of desperation, so.
CHATTERLEY: We learned that.
(CROSSTALK)
MATTINGLY: Right, totally.
CHATTERLEY: We learned that during the financial crisis, that people were afraid to use these facilities because there was some perception--
HARLOW: And that stigma still exists.
CHATTERLEY: No, it doesn't. It's just they're going to talk--
ROMANS: Didn't the Treasury Secretary tell all the banks "You have to do it."
CHATTERLEY: They're going to talk to the big banks.
MATTINGLY: Yes.
SOLOMON: Yes, and that's what they're doing now.
HARLOW: Yes.
CHATTERLEY: JPMorgan, Bank of America, and they're going to say, "Guys, everyone's going to do this."
(CROSSTALK)
HARLOW: Let me--
MATTINGLY: Interesting--
HARLOW: Yes.
MATTINGLY: --really quick is these assets are actually good. Like these are not exotic--
HARLOW: That's the huge favored asset isn't that credit to falsify (ph)--
(CROSSTALK)
MATTINGLY: -- like these are not exotic derivatives, with tranches that are cut.
ROMANS: Of course they're dangerous.
MATTINGLY: Like these are long-term treasuries that are essentially safe.
HARLOW: The safest, right.
MATTINGLY: They just -- their maturity is often the distance, and they're underwater, right now.
ROMANS: But they hope it's the management problem.
HARLOW: So, guys, let me just--
ROMANS: That was they didn't manage their interest rate risk, right?
MATTINGLY: Yes. They got caught with their pants down.
ROMANS: So, like people are talking about--
MATTINGLY: It's wild--
ROMANS: Right, it's--
MATTINGLY: --that a bank could do that--
CHATTERLEY: Well I--
MATTINGLY: --in an interest rate environment, like this.
CHATTERLEY: I think the point for our viewers to understand this is how unique this situation was, at Silicon Valley Bank.
MATTINGLY: Yes.
CHATTERLEY: And that they had this exposure to the tech sector. And we've seen the value of all these companies, the big ones that we know, Amazon, Apple, tumble, over recent months.
Plus, you have this situation, where they had bought all these so- called safe assets that then lost value, because the Fed raised interest rates. And when people started pulling the deposits out, they were like, "Oh, we have to raise money." So, they sold a load of those, crystallized their loss, and then have to go to the market and say, "Look, guys, we need a bit of money here."
HARLOW: Yes. But then at Signature Bank--
CHATTERLEY: And then the panic is huge.
HARLOW: Then at Signature, here in New York, with a lot of crypto exposure. And now, we're talking about First Republic, so.
CHATTERLEY: But this is the point, I'm making. So, they were in a situation, where they had to sell and crystallize the loss. And they also had to go to market, and say, "Look, guys, we've got a problem." Now, what would happen for these, the rest of these banks--
HARLOW: People have said--
MATTINGLY: And--
CHATTERLEY: --that facilitate this--
HARLOW: Yes.
CHATTERLEY: --and they will go to the Federal Reserve--
SOLOMON: Can we get-- CHATTERLEY: --and say, "Help me." So, that should, what they've done this weekend--
HARLOW: Right.
CHATTERLEY: --underpin everything.
HARLOW: I want to get to a viewer question. This comes from Aaron Hardrick. He's in Fenton, Missouri. Here's what he asked. Let's listen.
(BEGIN VIDEO CLIP)
AARON HARDRICK, FENTON, MISSOURI: Have banks positioned themselves, in a similar position, as they were in 2008?
(END VIDEO CLIP)
ROMANS: Well they're not allowed to. And they're not allowed to anymore. They haven't -- and, to your point, they don't have all that garbage, that junk, on their balance sheets anymore, because they're not allowed to. They have to have better capital, capital set aside. And the big banks have to undergo stress tests.
This is where the verdict is out on the controversy about whether some of these smaller banks were allowed to not partake in all of the Dodd- Frank -- Dodd-Frank regulations, and maybe that left them more exposed, certainly more exposed than European banks, would still have the very stringent restrictions.
SOLOMON: And another thing I would say that's different than 2008 is that we're not talking about bad loans here, right? We're not talking about credit risk, in the more traditional sense that we saw in 2008. We're talking about duration risk, right? We're talking about interest rate risk.
HARLOW: Yes.
SOLOMON: That perhaps SVB, in hindsight 20/20 did not manage well. But it's a very different type of risk.
MATTINGLY: Perhaps--
(CROSSTALK)
CHATTERLEY: And--
MATTINGLY: --perhaps they didn't manage well.
CHATTERLEY: We don't know what we don't know.
ROMANS: But there's also a fear--
MATTINGLY: Yes. No, it's a good point.
ROMANS: There's a fear factor here that I think is so interesting, Julia and I were talking about it.
[21:15:00]
Yesterday was about fundamentals, you saw stability in the banking sector. And then today was about fear, because Credit Suisse blew across the Atlantic, and reminded us that we have banks that are in a higher interest rate environment, and some banks, they have mismanagement problems that have other problems as well. It's just spooky.
HARLOW: So, we have a lot ahead.
CHATTERLEY: And not just--
(CROSSTALK)
HARLOW: And we have a lot ahead.
MATTINGLY: There will be no breaks.
HARLOW: We're going to talk about that.
MATTINGLY: We are going to keep talking.
HARLOW: We're going to talk about--
ROMANS: Oh, no!
HARLOW: We still have to fund these programs.
MATTINGLY: All right.
HARLOW: So, let's get a quick break in here.
And we'll talk also about the fear, what's ahead, for the markets, tomorrow. Everyone, stay with us.
Remember, the bank run, in the movie, "It's a Wonderful Life?" We will look at how contagion actually works.
Plus, more insight on all of this, from former Treasury Secretary, Larry Summers. Does he think that government has handled things well, so far? What does he think the Fed should do next week? He's with us.
(COMMERCIAL BREAK)
(BEGIN VIDEOTAPE)
ERNIE BISHOP, FICTIONAL CHARACTER PLAYED BY FRANK FAYLEN, "IT'S A WONDERFUL LIFE": Don't look now, but there's something funny going on over there at the bank, George. I've never really seen one, but that's got all the earmarks of being a run.
ROMANS: The classic scene, from "It's A Wonderful Life," dramatizes the panic involved, in a run on the bank. It happens when there's a loss of confidence in the bank, and that leads to large withdrawals. The bank can't pay everyone, who wants their money all at once, and it fails.
During the Great Depression, thousands of banks failed, 9,000, to be exact, taking $7 billion worth of customers' assets with them. That's why the New Deal included laws to insure deposits, and boost confidence, in financial institutions.
[21:20:00]
The Federal Deposit Insurance Corporation, the FDIC, was created, in 1933, and today, covers up to $250,000 per depositor, at FDIC-insured banks.
Actual bank failures still happen. There were a lot, during the Great Financial Crisis, in 2008. But, in recent years, just a handful, every year, and none in 2021 and 2022. The danger with a bank run is that panic can spread, to other banks. It's called contagion.
ALAN KRUMWIEDE, FICTIONAL CHARACTER PLAYED BY JUDE LAW, "CONTAGION": Day one, there were two people, and then, four, and then, 16. In three months, it's a billion. That's where we're headed.
ROMANS: So, what starts as a problem, at a single bank, can quickly turn into a crisis, for the entire system. That's what happened, during the Great Financial Crisis, in 2008. And it's why the collapse of Silicon Valley Bank, the second largest U.S. bank failure of all time, has Wall Street on edge.
(END VIDEOTAPE)
HARLOW: Christine, there, with a look at how this all actually works, when you have a run on a bank, like we're seeing.
How do you prevent future bank failures? Is the government doing too much, too little to restore confidence in the system?
We should note we also invited the White House, to join us, tonight, on the program, to help answer American questions. They declined that invitation.
But let's bring in former Treasury Secretary, Larry Summers, for his insights.
Secretary Summers, thank you very much for being with us tonight.
And I just want to begin with your level of concern. I mean, we have more banks, tonight, on the brink. What should the American people be preparing for?
SUMMERS: I don't think this is a time for panic or alarm. This is not 2008, where people needed to be worried about whether they could get their money, from the ATM machine. It absolutely is not that.
There may well be concerns that certain banks, and there may even be more bank closures. But the government's made it clear that it is determined to ensure that all depositors will be able to get their money promptly, and in full. That's what it signaled with its actions, at SVB, the Silicon Valley Bank, and Signature Bank, and with the support that it provided, to the banking system, more broadly.
It's not just people with insured deposits, under $250,000, who will be able to get their money back. It's people with money over $250,000.
HARLOW: Right.
SUMMERS: So, there are real issues here. There's major failures of financial regulation. But this should not be something that causes panic or consternation or fear among your viewers.
HARLOW: It is so significant though, Roger Altman, who worked in Treasury, during the Clinton administration, Deputy, while you were there, he called it, to us, this week, breathtaking, what the government has done, here, stepping in, in this way.
And now, the question becomes, Secretary, what does the Fed do? What does the Fed do, next week, on interest rates, given their dual mandate is maximum employment, and price stability, but they know whatever they do, if they raise rates will really impact bank stability, right now?
SUMMERS: Look, I think the Fed has no choice, but to remain focused, on the inflation issue. If inflation goes up, and inflation is not controlled, we're going to have higher interest rates. And higher interest rates are going to make these problems more serious.
The judgment the Fed's going to have to make is that because of what's happened, there's surely going to be some reductions, in the supply of credit. And so, in a sense, without the Fed raising interest rates, monetary conditions have tightened.
And the question the Fed is going to have to ask itself is have monetary conditions tightened, sufficiently, that we are responding to the inflation threat, without any further rate increases, or without a further rate increase this month? And I don't think we can know the answer to that question with confidence.
And every day, we're getting new information, as we see what happens, to banks, as we see how businesses, are responding, to these developments. Certainly, the 50 basis points that I and others thought was a viable option, before all of this financial difficulty? That has to be off the table.
But I would be concerned if the Fed were to stop altogether, raising interest rates, that it would be sending a signal that it was quite alarmed, about the economy, and people would feel that if the Fed was alarmed--
HARLOW: And that--
[21:25:00]
SUMMERS: --they should be alarmed. And it could be counterproductive.
So, I don't have a clear view, right now. My instinct is that if they can find a way, to safely raise rates by 25 basis points, that's probably the better thing to be looking for. But that's not a judgment that one can confidently make, right now.
HARLOW: That's a great point. I mean, they sort of have to get it right, like the Goldilocks decision here.
Sheila Bair, Christine Romans, as you know, the former head of the FDIC said, the Fed should pause completely, on raising rates. What Secretary Summers is saying, "No, you're going to spook the markets." You have a question for him?
ROMANS: And she's not the only one, who said they should pause altogether.
HARLOW: Yes.
ROMANS: But I'm wondering, a week ago, inflation was still issue number one, for the typical American family.
Tonight, issue number one, for the typical American family, if you look at Google search trends is, "Is my money safe? Should I move my money?" A lot has changed in the past week.
Talk to us, Secretary Summers, about the inflation fight, and how that should still be in the forefront, of what the Fed is trying to do, in your view.
SUMMERS: Look, Americans' money is safe. Americans money will be safe, if they don't raise rates at all. Americans money will be safe, if they do raise rates by 25 basis points, because the government has indicated that it's standing behind bank deposits.
And as that message is repeated, and becomes clear, as people see that those who've deposited money even in the banks that failed, and even the people who were not insured, are getting their money back in full.
But we are still also seeing very substantial rates of inflation. And if those substantial rates of inflation continue, they will erode people's purchasing power, and their ability to spend. They will be incorporated in yet higher interest rates, which will mean further financial strains.
So, I think the Fed has to tiptoe very carefully, through what is certainly a minefield, at this point. But again, inflation is a real threat.
HARLOW: Yes.
SUMMERS: Not being able to get your money, out of the bank, is a fear. But it is not a realistic possibility--
HARLOW: That's a great point.
SUMMERS: --or a realistic threat that Americans are facing.
HARLOW: Phil?
MATTINGLY: I think, one of the things that I've been trying to figure out, through the course, this week, speaking personally, was stunned by the scale, and the speed, by which the government reacted, and coalesced, around the systemic risk exception, and using 13(3), for the Fed facility.
What else do they have, in the chamber, to use a bad analogy? When you're thinking about what might happen next, if something happens next, what else can they do that should give people confidence that there's more left?
SUMMERS: Look, they have a huge -- they have done a huge thing.
It is a major source -- if somebody was prepared, to loan money, against a $300,000 house, they were prepared to loan $400,000? That would be a major source of support. And that's in effect what the government has done, by saying it's going to lend against all these bonds at par, not against their current market value.
So, what the government is going to -- the main thing the government is going to do is show that it is money good behind its words. And I think that will be reassuring, on the question of deposits.
Ultimately, one could imagine, extending in FDIC guarantee, in a formal way, to all deposits, as a matter of logic, I would be very surprised, if that was necessary, at this point.
I don't think the real concerns here are about deposits. They'll get paid.
The real concerns here are that the banking industry is under considerable stress that they were too bold, that they're going to be regulated more heavily that -- and how we do that without precipitating a credit crunch that generates a recession? That is the very serious concern that we have here.
[21:30:00]
And so, I am much more concerned about a continuing strong flow of credit, in the United States, and around the world, than I am the health of depositors.
HARLOW: Secretary Summers, thank you so much, for helping everyone understand, the risks ahead, but also what is safe, tonight. We appreciate your time very, very much.
So what is it like, right, to run a business, have all your money held in one bank, and then it collapses? You can't access that money. How are you going to pay your folks? How are you going to keep the business alive?
That happened to so many people this weekend. We're joined by one of those business owners ahead.
(COMMERCIAL BREAK)
HARLOW: Welcome back to our CNN PRIMETIME special. The sudden collapse of Silicon Valley Bank threatened the entire
future of small business owners like my next guest, Vanessa Pham. She's the CEO and co-founder of a cooking sauce company called Omsom. And when SVB just collapsed on Friday, she couldn't access her company's money, any of it. She pleaded for help in a now viral LinkedIn post.
Did she keep her business afloat?
She joins me now.
You're smiling, so the answer is thank goodness, yes?
VANESSA PHAM, CO-FOUNDER, OMSOM & SILICON VALLEY BANK, CLIENT: Yes. Yes.
HARLOW: But this really felt like, in your words, an existential threat. I wonder what it was like to live through it.
PHAM: A true rollercoaster. Tons of uncertainty, trying to make clear-headed decisions in the face of a lot of lack of clarity and a lot of fear.
[21:35:01]
Candidly, I feel like -- I felt that the beginning, I could really see the business, and what we needed to do to get through it. And it felt like there were a lot of challenges.
We had to run payroll. We had to manufacture products. We had to operate the business, and fundamentally those funds were, you know, the lifeline of the business.
So it was very challenging.
HARLOW: A number of start-up founders I've talked to over the last 6 days have told me the deal was if you wanted to get to a line of credit from SVB, you had to hold all your cash there. So, all their money was tied up there.
Is that the experience you had? I don't know if you had a line of credit from them.
PHAM: We did not. But I have seen that, that can be true. And some of the deals I've heard of, but I don't know if that was true across the board.
HARLOW: So, how did you tell your nine employees, I don't know if I can make payroll?
PHAM: Well, luckily, I didn't do that because I was very committed to ensuring that we were going to take care of our team.
HARLOW: Even if you couldn't access these funds.
PHAM: Yes. I was going to find a way to do that, and, of course, with the 250K that was insured by the FDIC, that was going to be the first order of business. And so, I communicated that to my team on Friday.
But beyond that, I didn't really know much else. So we started actively planning around the worst-case scenario just to be, you know, as prudent as possible.
HARLOW: Has this changed how you run your business now in terms of where you keep your money? Do you split it up among various banks?
PHAM: Yes. As a first-time founder, it's been an incredible learning journey.
HARLOW: Of course.
PHAM: And this was probably the biggest one of them all.
I think absolutely going forward, we're going to be thoughtful about how we're storing our funds. So, diversifying across other banks.
HARLOW: So, you were thoughtful. I mean, this is the last thing you think could happen, right?
PHAM: I mean, I would have never even imagined this would be something I would worry about. When I deposited our funds into SVB, I didn't blink an eye. And it was, you know, the recommendation of so many investors and other founders in the space, too.
HARLOW: Makes you think about things so differently, right?
PHAM: Absolutely.
HARLOW: I'm glad you guys made it and you're okay. I can just imagine the stress all weekend.
PHAM: Yeah.
HARLOW: So thank you for sharing the story with us. Thanks very much.
PHAM: Yeah, thank you for having me.
HARLOW: All right. We're going to turn things over to you, the viewer. More of your questions next. This time, a money coach is here to answer them, also, a former JPM Morgan trader. What we all need to know in these uncertain times.
We'll be right back.
(COMMERCIAL BREAK)
[21:41:25]
HARLOW: All right. Welcome back.
So, we've heard from so many of you today with questions about what all of this bank chaos means for your money, for your family. Let's get you some answers. I'm joined now by Lynnette Khalfani-Cox, she's the CEO of
askthemoneycoach.com; Vivian Tu, a former Wall Street trader and financial expert, with more than 2 million followers on TikTok.
Ladies, thank you very much.
I think people are freaked out and they need to know if they should be freaked out about what and why or if all will be okay.
So, let me get to your first question. Lynnette, this ones for you. This comes from Eric Krahn. He's a computer systems engineer from Iowa. Let's listen.
(BEGIN VIDEO CLIP)
ERIC KRAHN, COMPUTER SYSTEMS ENGINEER: Why does this bank and account holders get special treatment to be made fully whole when the rules are the accounts are only insured for $250,000? How does this inspire confidence in our system where if a smaller bank fails in the future, will they be given the same special treatment?
(END VIDEO CLIP)
HARLOW: Lynette?
LYNNETTE KHALFANI-COX, CEO, ASKTHEMONEYCOACH.COM: Well, Poppy, Eric raises a great question. It's one I raised as well on social media.
I do think there's a little bit of moral hazard here. The short answer in terms of why this bank or these two banks actually, Silicon Valley and Signature, get, quote- unquote, special treatment is that federal regulators deemed them to be in the category of systemic risk. So they granted an exemption, a special set of circumstances, for these institutions because they thought they didn't really want to have a domino effect. They were trying to avoid so- called financial contagion and this spreading. So, that's the short answer.
But I frankly agree with Eric's, you know, question in terms of the theory behind it. Like why these particular special banks? You know, we could debate and argue about the extent to which they really are sort of systemic, but that's the sort answer in terms of why.
HARLOW: It's so fascinating because the way these small and medium- sized banks got those financial regulations rolled back in that 2018 bill is because they lobbied to be deemed not systemically important.
KHALFANI-COX: Not systemic.
HARLOW: But okay, they are obviously still.
Vivian, I want you to answer this question. This comes from Matt Vogel (ph), a business strategy consultant from Philadelphia.
(BEGIN VIDEO CLIP)
MATT VOGEL, BUSINESS STRATEGY CONSULTANT: My wife and are looking to purchase our first home. Do you foresee mortgage rates increasing or decreasing as a result of the fallout from SVB?
(END VIDEO CLIP)
HARLOW: What do you think, Vivian?
VIVIAN TU, FORMER JP MORGAN TRADER: Matt asks a really wonderful question, and I think realistically from what we've heard from the Fed, interest rates likely will continue to rise. On top of that, I think a lot of folks are feeling very concerned about hey, if I'm saving up for a down payment, is a bank a safe place to put that money? And similarly to how there has been a general consensus saying we should diversify our investment portfolios, people are starting to think about diversifying their checking and savings accounts as well.
So they're not keeping the current FDIC limit in any one place. So buying a home right now, I can certainly understand why he's concerned.
HARLOW: This question comes from Jonathan Durham, a student at American University from Drexel Hill, Pennsylvania. He did previously intern for the Biden campaign. Let's listen to his question.
(BEGIN VIDEO CLIP)
JONATHAN DURHAM, STUDENT AT AMERICAN UNIVERSITY: As someone who was a child during the 2008 recession and now a college student about to enter the work force, how can you ensure my generation will have the economic stability it truly needs to thrive?
(END VIDEO CLIP)
HARLOW: A question so many people have, Lynette.
KHALFANI-COX: Sure. We know that there's just skyrocketing costs of college.
[21:45:04]
And frankly, you know, Gen Z is very much worried about the future financially. I think there's a lot up in the air, and I don't think that anybody can guarantee that this current generation is going to have the same level of financial success or economic prosperity that, perhaps, previous generations had.
That's why you see, unfortunately, we've had a sharp decline in the college going rate in America over the last several years. At first we thought it was a pandemic blip, but more recent data has shown more people are opting out of higher education saying it's just not worth it.
HARLOW: I also wonder if this whole situation with SVB just freaks out people that want to be entrepreneurs and want to take that risk already. Just adds another layer to that.
So, Vivian, next question comes from Matthew Howard from San Francisco. Here's what he asks. (BEGIN VIDEO CLIP)
MATTHEW HOWARD, STUDENT AT AMERICAN UNIVERSITY: With interest rates trending the way they are, do you expect to see any new trends in the market?
(END VIDEO CLIP)
HARLOW: Do you think this changes broader markets?
TU: I think, of course, any sort of interest rate trend is going to change how people are spending, and that will eventually change how the markets react and flux. Obviously, with interest rates getting higher and higher, the hope is that inflation comes down. However, I'm sure, as you probably noticed at the grocery store, things still feel quite expensive. And on top of that, we're also starting to see this slew of layoffs.
So broader market trends, I would say there's going to be a continued focus on more staples versus discretionary brands and those that provide those services.
HARLOW: Ladies, thank you so much. Such helpful insight. Thank you for joining us on our special tonight.
We cannot predict what's going to happen next, but we are going to talk about what may happen at the open of the markets tomorrow. More with our experts, coming up.
(COMMERCIAL BREAK)
[21:50:52]
HARLOW: All right. A live look. Take a look there. Dow futures a little higher. Obviously, it's just before 10:00 p.m. Eastern Time. But we'll see how they open this morning.
This comes after another rocky day in the markets.
Phil, Christine, Rahel and Julia back with me.
We're seeing Asia is open.
CHRISTINE ROMANS, CNN CHIEF BUSINESS CORRESPONDENT: Down a little bit, but I mean, anything could change. Everything will change. Futures are up. We'll watch that. But anything could change overnight.
HARLOW: What are you looking for tomorrow?
JULIA CHATTERLEY, CNN CORRESPONDENT: The only thing we can promise at this stage is more volatility.
ROMANS: Yeah.
CHATTERLEY: I think that's the only --
HARLOW: The VIX.
CHATTERLEY: The volatility in there. That Phil starts --
(CROSSTALK)
MATTINGLY: No, no. Put them in the jar.
CHATTERLEY: I -- what we saw is the Swiss National Bank coming out and giving a whole load of money to Credit Suisse. I think we can argue that's probably a defense, which I think will help sentiment and actually that helps in some of the Asian stocks bounce.
It is a case of wait and see, I think. We just -- it is literally hour by hour, day by day. And I think if we can see the deposit movements we're seeing settle down, some of the fears come out of this, people recognize that, look, we're going to start getting the data tomorrow of the Federal Reserve lending window. We start to see banks using that, I think banks will settle down. And I think that's the important point for now.
I'm not -- I'm not -- all bets are off. We've got, what, five days?
HARLOW: At 9:51 p.m.
CHATTERLEY: Yes, exactly, the night is young.
RAHEL SOLOMON, CNN BUSINESS CORRESPONDENT: A lot could happen between now and tomorrow morning's open.
CHATTERLEY: We've got five days and anything can happen between then and now.
SOLOMON: Yeah, I think it's early days for sure. I think we could say, you know, look at what the Fed did and what the Treasury Department did, sort of clean this up, and tidy this up. But I think it's early days.
Certainly hope that things are contained. But I think moving forward, we're probably going to be in for some really rough swings because even just think about the type of volatility we have seen this week. I mean, we saw some wild swings up. We saw some wild swings down.
So, we could be sort of seeing more of that especially until we hear from Chair Powell next Wednesday. And Secretary Summers sort of touch on this, right, like, if they don't do anything with interest rates, if they keep them where they are, that could further spook the market.
So, I think what they do and I think even may be importantly what they say would be really important.
ROMANS: I think there's two prisms there to look through. One is the prism of policymakers and bankers. And they're looking for uncertainty and contagion.
And if you're looking through the prism of a real person, here's what you should know -- I mean, maybe you could go to another bank and get a higher interest on your money that's sitting in the bank. Banks might have to raise what their -- the money.
And that's not good for investors. That's not good for investors in banks, but that's good for customers and banks. So, for customers, for depositors, I think you're okay. Investors are the ones who are really -- we talk about the stock market right now. Investors are the ones who are worried about what's happening in the banking world. But I think that customers of banks are in fine shape.
HARLOW: What do you think happens in Washington? I mean, this is -- this is your beat. And the Biden White House does not want anyone using the B-word, bailout.
MATTINGLY: Yeah.
HARLOW: There's a lot of argument over that. The question is, do you believe that Congress will act in a bipartisan way?
MATTINGLY: No. I don't even know what you're asking.
(CROSSTALK)
MATTINGLY: The answer is no.
HARLOW: To reenact some of the financial reforms that were rolled back in 2008?
MATTINGLY: I'm pleased to tell you my previous answer is still my answer.
Look, I think there's a couple of things here.
HARLOW: Even some Democrats have said that wouldn't have resolved this.
ROMANS: Yes.
MATTINGLY: We've had a lot of discussion about this. It's -- the word I have been using is it's not clean in the sense of if that would have been in place, SVB definitely wouldn't have been able to build a book they built or been put in that position. It is not that black and white.
HARLOW: We don't know that. Yeah, yeah, yeah.
MATTINGLY: Now, would there have been more supervisors there? Would they have had more regular stress tests? Would there been a general sense on the regulatory side of things that they just truly -- from a buying perspective, we have been saying that a lot, I feel very in touch with the youths, but that regulators were paying close attention to things. Perhaps they pulled their feet off the gas when they realized all possible.
When it comes to actually new bank regulations, it's not just that there's divided government, to your point. I don't think you get every Democrat there, small banks are extraordinarily powerful in the town. Regional banks have a lot of power, too. HARLOW: Seventeen Democrats voted to roll that back and they're standing by their position now.
MATTINGLY: If you talk to them or if Manu Raju, our colleague, is chasing them the hallway, the vast majority of them are not saying, I have huge regrets because it was bigger than just this.
[21:55:05]
However --
HARLOW: That was a tiny -- I read the whole bill. That was a tiny part of the whole thing, section 401.
MATTINGLY: You really got the section? I love that --
(CROSSTALK)
MATTINGLY: I was being serious.
CHATTERLEY: I read this week that on Friday there was an 81,000 percent increase of mentions on social media of Silicon Valley Bank. And I think the base probably was really small. So, never mind congressmen and women. How about we talk to the social media companies and they flag when they see, I don't know, Christine, 15 percent increase, not 81,000 percent increase in mentions, and they call the regulators and go --
HARLOW: The head of the Financials Services --
CHATTERLEY: That is 20 percent to technology, innovation, data --
(CROSSTALK)
HARLOW: Calling it the first Twitter run, Twitter-fueled --
MATTINGLY: And he's right. He's not being hyperbolic. He's right.
CHATTERLEY: Absolutely.
MATTINGLY: Kaitlan will talk to Patrick McHenry tomorrow morning on "CNN THIS MORNING". I need to go to sleep now because I need to be on that show in a few minutes, few hours.
Thank you all for tonight very, very much. Phil, Christine, Rahel, Julia, we appreciate it.
Thanks to you for your questions, for being with us. We'll continue to bring you the facts even in the volatile.
We'll see you early tomorrow morning on "CNN THIS MORNING", 6:00 a.m. Eastern, with Don and Kaitlan.
Laura Coates and "CNN TONIGHT" starts after this.
