This is the full transcription of podcast 'Hidden Forces'.
What the Bailout of SVB Means for the Fed's Fight Against Inflation Steven Kelly #Podcast #Transcription #ReadAlong #KnowledgeUnlocked
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This is the full transcription of podcast 'Hidden Forces'.
What the Bailout of SVB Means for the Fed's Fight Against Inflation Steven Kelly #Podcast #Transcription #ReadAlong #KnowledgeUnlocked
happens when you eviscerate a sector is they start to run down their deposits and they start to disappear. And when a bank loses deposits, they have to sell assets. And when the Fed is raising interest rates, your assets aren't worth as much as they used to be. So that's sort of the story. SVBs is similar, except they're much, much bigger. Top 20s bank by asset size in the US, they were banking the tech sector, they're banking Silicon Valley, as the name says. And so as venture capitalists have sort of seen their investment sour, cash burn goes up, they're basically forced into an asset sale. And the thing about banking crises is, and part of why they happen so fast is nobody, there's not really an incentive to be that concerned about banks failing most of the time. There's not an incentive to dig deep into their asset book. We don't even know what the asset book looks like most of the time. It's really the burn of deposits that caused us to look at their asset book and go, holy cow, (6/36)
What's up everybody? My name is Demetri Kofinas and you're listening to Hidden Forces, a podcast that inspires investors, entrepreneurs, and everyday citizens to challenge consensus narratives and to learn how to think critically about the systems of power shaping our world. My guest in this episode of Hidden Forces is Stephen Kelly. Stephen is a senior research associate at the Yale program on financial stability whose work focuses on financial crises and how to fight them. And he occasionally releases research notes on his sub-stack at withoutwarning.substack.com. This conversation was recorded on the morning of Monday, March 13th, less than 24 hours after the Federal Reserve, the Treasury Department, and the FDIC came out with a joint statement assuring depositors at Silicon Valley Bank and Signature Bank that all of their deposits would be fully protected irrespective of whether or not they exceeded the FDIC's $250,000 deposit limit. While this stems the immediate fears of a bank (1/36)
run, the manner in which this was done creates further complications for the Fed and raises more questions than it answers about the direction of monetary policy. My goal in today's conversation has been to recap what has happened thus far, why it happened, how it happened, what the government's response has been, and the implications of that response for monetary policy, financial markets, and the economy. You can find related podcasts to this one on this week's episode page at hiddenforces.io, where you can also access our premium content, including transcripts, intelligence reports, and key takeaway videos by joining one of our three content tiers. All subscribers gain access to our premium feed, which you can listen to using your favorite podcast app, just like you're listening to this episode right now. If you want to join in on the conversation and become a member of the Hidden Forces Genius Community, which includes Q&A calls with guests, access to special research and analysis, (2/36)
in-person events, and dinners, you can also do that on our subscriber page. And if you still have questions, feel free to send an email to info at hiddenforces.io, and I or someone from our team will get right back to you. And with that, please enjoy this incredibly timely conversation with my guest, Stephen Kelly. Stephen Kelly, welcome to Hidden Forces. Thanks, great to be here. It's great having you on, man. So before we get into today's conversation, I'd love for you to tell me a little bit about you, your background, and how you got interested in studying issues of bank regulation and financial stability. Yeah, so really cut my teeth on the global financial crisis working afterwards in capital management, and then moved over to the Yale Program on Financial Stability, where I am now inside the Yale School of Management. And we were born in the aftermath of 2008 to really focus on having a modern break the glass playbook to fight financial crises. You know, Tim Geithner was our (3/36)
founder, and he, of all people, knows how much cost there is to wander around in the dark in crisis time, how costly it can be to lose even an hour, let alone a day or a month, trying to figure things out. So we are focused primarily on crisis fighting, whereas a lot of the world is focused on crisis prevention. We sort of have the political freedom to focus on the fighting measures. So COVID obviously took up a lot of our time, and aside from that, we do a lot of historical research and things like that. So yeah, that's my background here, focused on financial crisis fighting, which unfortunately has become newly relevant. Yeah, exactly. We're told that we weren't going to have to worry about this. We had Dodd-Frank, we had Basel III, we went through a whole financial crisis in 2008, so we wouldn't get back here, and yet we're here. So what I would like to do is do a recap at the very top of what's happened thus far, why it happened, how it happened, and what the government response (4/36)
has been and the implications of that government response, because we're recording this on Monday morning, and so the government announced late Sunday evening that it would make depositors whole at both Signature Bank and Silicon Valley Bank. So what happened here, and what are the origins of what is now the second biggest bank failure in U.S. history after the collapse of Washington Mutual in 2008? Yeah, so these banks basically had business models that were focused on sort of bubbly industries, I guess. So as the Fed has moved us away from a world of zero interest rates to fight inflation, certain industries have come under more pressure than others, crypto being the first to go, obviously a very speculative sort of investment environment. So to the extent you can get interest rates in the real world, you sort of get less interested in what's going on in crypto. So Signature and Silvergate were big crypto banks, they sort of bet the house on banking the crypto sector. And what (5/36)
they have a bunch of unrealized losses. And then the run was on. So they lost $42 billion in deposits in one day last week, and then the FDIC shut them down on Friday. One of the things that's really interesting about the liquidity crunch that Silicon Valley experienced is that in some very important ways, it is very different from what we had in 2008, where we had a systemic crisis of confidence in the banking system, driven by illiquidity and what we're called collateralized debt obligations or CDOs made up primarily of risky mortgages that caused a run on investment banks and money market funds and in the case of AIG insurance companies. What we have in the case of Silicon Valley Bank is a situation where they loaded up on the most pristine high quality collateral like US Treasury securities, but they did so when rates were much lower. And because the duration on much of that portfolio was long, the valuation on those securities got crushed over the last year as the Fed embarked on (7/36)
this very steep tightening cycle. I think it would be extremely helpful if you could walk us through your understanding of how the bank got here and the role played not only by their portfolio management and this duration mismatch, but also what we know about how the run happened, which as I understand it, was driven by the bank's need to raise capital and because of the very concentrated deposit base, venture funds in the valley and their companies caught wind of this and they basically had a bank run. Sure. And a lot of this information is still coming out in real time. And that's another thing that made me to note up front is sort of the nature of when a bank fails and it becomes a crisis or the nature of banking crises is you do these ex post investigations and it looks like a lot of fraud, it looks like a lot of mismanagement. And those things are true, it's just worth noting that those things go on every day in the banking sector and they don't cause bank failures because we (8/36)
don't know about them because we're not investigating them. So, just something to keep in mind as the news drip keeps coming that not everything that this bank messed up doing is the reason it failed. There are simpler business model flaws that are the reason it failed, but we're going to find out more about all the management failures and who messed up where. But that being said, go back to the question. Yeah, the SVB had basically a bunch of interest rate risk that they had short term deposits, they have long term assets, it's sort of the core banking risk. They failed to hedge interest rates using derivatives or anything else like that relative to their competitors. And so basically, as the Fed starts raising interest rates, the valuations on those assets of lower interest rates start to go down and SVB had a bunch of unrealized losses, which again, weren't crucial until they started losing funding. And then you can think of the marginal funder of the bank who wants to fund a bank (9/36)
that's sitting on a bunch of losses they have yet to realize. So that's sort of the story there. That's sort of the sequence of events that it really was the liability book that started disappear and then the world kind of woke up to how bad their assets were. So you've raised an interesting point which has to do with hedging interest rate risk. One of the things that's come out is that there's this distinction between hold to maturity securities and available for sale securities. And the bank made a decision, I guess in 2021 to move a significant portion of their US Treasury and MBS positions into the hold to maturity part of the portfolio, which meant that they, from what I understand, were not able to hedge interest rate risk. In other words, the decision that put them in this situation happened a year or two years ago. Can you clarify that for our listeners, what that distinction is and why it's relevant? Yeah. So basically a bank can account for assets in three ways. One is (10/36)
trading. Two is what's sort of this middle ground that we call available for sale and three is held to maturity. And your accountants are going to make you hold assets for what you actually intend to do with them. So if you're running a trading book, you're going to be in and out in a day, your accountants are going to make you classify that as trading. Available for sale is sort of like a yellow light. We have these assets, if the price is right, we'll sell them, but we're not going to be out of them tomorrow just because. And then held to maturity is exactly what it sounds like. We're holding these assets until they pay off at maturity. And they're accounted for in different ways. Trading assets flow right into the income statement. They affect your capital directly. Available for sale securities, they don't have to be reflected in earnings, but you basically sit on unrealized losses. And held to maturity securities, you can value at cost and they sort of, they amortize over time. So (11/36)
the advantage is in theory, you don't have to report changes on your balance sheet to your held to maturity assets. So it sort of reduces volatility and what you report in your financial statements. You don't mark the assets to market. You certainly don't mark them to market and the changes don't affect your capital. They don't affect your earnings. It's like reverse depreciation over time. And if you say you have a bunch of treasuries in held to maturity, the market can see, okay, rates went up 5%. The market has a sense of how to value that. But it does, your accountants are going to limit what you can do. They can still be hedged. All this can be hedged, but it just, in theory, it affects the accounting. I don't know how much that was really at play because you can have unrealized losses in both categories. And the market's going to be aware of it, especially when it's treasuries. And you can sell stuff out of your held to maturity book, but then your accountants are going to make (12/36)
you reclassify it and you're going to have to book that unrealized loss. So I want to ask this question in a different way or a different aspect of the same overall phenomenon that we're dealing with here. Are we underestimating the risk of bank failures because we've defined risk based on liquidity coverage ratios that rely on, or see US treasuries and things like MBS as very safe collateral, but because the Fed has been hiking interest rates so quickly that there is this duration mismatch. And so this might also bring us into a question about what the government has done in its response and whether it resolves this problem. Yeah, I think that's right. We've sort of built up the post 2008 system on this precept that treasuries and MBS are, particularly treasuries, are rock solid, both from a credit and liquidity perspective. And that's sort of unavoidable. I mean, we wrote it into law in particular post 2008, but it was always the de facto case. I mean, it's just how banks manage (13/36)
liquidity is how the government thought about these markets. The Treasury market underwrites the whole global economy. Every interest rate is based off what's going on the Treasury market. There's just no way around it. So yeah, I think that does lead nicely into what we saw from the Federal Reserve response, which is basically to think about the losses on the, to basically underwrite losses in these markets. And this is a theme we see again and again, and started in a big way with quantitative easing in 2008, which is just mass purchases of Treasury securities. These markets are essential and they're all the more essential when you write a system of laws that sort of depends on their continued stability. So yeah, I don't think that we're necessarily overconfident or underconfident. It's the Fed's job to underwrite this system going forward. So what prompted this conversation, Stephen, was that you put out a thread over the weekend throwing cold water on the idea that the government (14/36)
can just bail out SVB, Silicon Valley Bank, without legislation from Congress. You wrote that crisis fighters authorities were curtailed following 2008. The Fed and Treasury almost certainly can't rescue SVB now. Maybe the FDIC can. How did the government justify this bailout? And what was it about the way that they did it that took you so by surprise? I would say not much of it took me by surprise, aside from maybe the fact that they did it. I mean, I was maybe on the edge of that, but that's exactly what happened is the FDIC stepped in and rescued the uninsured depositors. But SVB is still, you know, it's in receivership. It's on the way out. It's, you know, the FDIC is selling the assets. It's going to sell the business. So what I'm getting is that they identified it as a systemic risk. And your tweet thread, you made a point that you thought that they wouldn't do that because it didn't represent a systemic risk. And many other analysts have said the same thing, that it didn't (15/36)
represent a systemic risk, but they labeled it a systemic risk nonetheless. And what I'm actually interested in, well, there are a lot of things I'm interested in, but one of them is I want to understand how do they justify this? Because one of the things that I learned in the 2008 financial crisis was that when push comes to shove, the government can do anything. And one of the things that I've learned to try to understand is how do they justify the things that they do? So I'm curious to understand legally, how do they justify this? How did this fall within their regulatory purview? Yeah. And the first thing I'll say is maybe to push back on some of the critique that the Fed will bend its laws as necessary in a crisis. They do take this very seriously. And, you know, so I was thinking in advance of this, okay, if the Fed is willing to call this systemic, because the Fed has to sign off on the FDIC's use of the systemic risk exception. And so if the Fed signs off on that, then they (16/36)
really see this as systemic. And part of this decision, I think, is justified from a risk management perspective. As I noted, you know, Dodd-Frank took away a lot of crisis fighting and responsibilities. The crisis response, while largely successful in 2008, was really unpopular. And Dodd-Frank and Tarp, for that matter, took away a lot of crisis fighting authorities. And so authorities today are left with very few powers to intervene outside of banks that are already in receivership. So in 2008, we did mass bank debt guarantees. We did these huge interventions for Citigroup, for Bank of America, open bank assistance. And most of that is no longer legal. So for the Fed, the FDIC, the Treasury, to take over SVB and put in the systemic risk exception, write a new program, you know, for the Fed to backstop liquidity writ large, it's a smart risk management play to say, look, this thing isn't systemic. But once something is systemic, we no longer have the tools. It'll be too late. We no (17/36)
longer have the tools to stop this. We're not going to wait until the next bank, whether it's called US Bank, called PNC, some bigger bank, some more systemic bank is already in receivership. So what are the important details of the government's rescue that are relevant here, that we should focus on and try to understand? So the biggest thing is the FDIC is standing behind uninsured depositors in SVB and in signature, both banks that it took over. So it used to have authorities to stand behind to basically write such a program for the whole system. It's since lost that authority in the law. But it's taken over these two banks, it's standing behind the uninsured depositors. So that's a big piece. And I think that was the biggest concern. And that was probably their biggest motivation. Shareholders will be wiped out. Management has been removed from these banks. Unsecured bondholders will get some sort of share of their investment, but that remains to be seen in liquidation. So that's (18/36)
the big piece for the FDIC and the banks they took over. The Fed has also backstopped the banking system writ large with a new term lending program. So they're lending for up to a year against basically the face value of treasury securities and MBS. So they're sort of saying, okay, we know we've done a lot of interest rate increases, which have destroyed the value of treasury. I mean, anything, basically all financial assets are priced off interest rates, but we're going to at least stand behind agency debt, which is de facto guaranteed by the US government and treasuries. And we're going to value them at par, at face value, and we'll lend to you against those. So they've sort of underwritten this interest rate risk. They haven't underwritten what started at Silicon Valley Bank, which was problems in the tech sector and that kind of run. But they've said, look, if problems migrate to the asset book, we will stand behind it. That seems like, if not a big story, the big story here. (19/36)
Absolutely. Absolutely. I mean, not only a rebuke of, mark to market accounting or market value accounting, but also of just risk. I mean, this is risky, you know, on its face for the Fed. Like these securities are going to pay off. There's not credit risk to these securities that the Fed might take. But to have 0% haircuts on long-term assets to do a one-year program and basically ignore even the market value of these assets and lend against par, I mean, you could have a 30-year treasury trading at 80 cents on the dollar and get 100 cents from the Fed for it. That's new. That's different. I mean, that's a watershed. You know, in moments like this, I feel the impulse to say an unhedged, very non-nuance statement like the system is insolvent. You know, obviously the system is not insolvent, if you want to take that to the limit. But what we just seem to be doing is moving closer, more and more towards the government and the central banks taking more and more control of the financial (20/36)
system, because there's so much debt in the system and it's so levered that it cannot function in the way that our frameworks have tell us that it does. Because this isn't 1980 or 1970 or 1960 or 1990. It's 2023 and a lot of stuff is broken in the interim. And the Fed has come up with a lot of patchwork solutions in the process. And here we had, Dodd-Frank, we had years of re-regulation of the banking system post-2008 expressly for the purpose of avoiding this kind of ad hoc solution. And I'm curious, is it a kind of fool's errand to even wonder whether or not this crisis is going to lead to some kind of more formalized regulation? Or is this just an affirmation of the fact that we're in this, this is the world that we're going to live in until there's some kind of larger reset to the system? So I'm going to back up your unhedged statement and say, the banking system is always conditionally insolvent, which is that balance sheets are sort of like a bicycle and that they have to keep (21/36)
functioning, they have to, you have to keep peddling to keep them moving forward, they're going to tip over. And the minute that machine stops, we have these conversations over, oh, let's look and see if they're solvent or not. That doesn't matter. Whether a bank is balance sheet solvent, whether their assets are more their liabilities, is irrelevant if nobody's going to transact with them. That bank is over if it can't go to market and get funding and be there for its customers to do loans. So the system's always conditionally insolvent and that's why we have financial crises and it's why you can regulate these things to death and it's always going to be too much or never enough. Right? I mean, so we have way better regulation. We have stability at the core of the system versus 2008. But the pre-2008 banking model of let's leverage the system, to all hell, like let's run these things as lean as we can, is probably the right thing most of the time. Bank capital, bank equity is a scarce (22/36)
resource and what we want out of the banking system is deposits and loans. So there's an incentive to run the system as lean as possible with as little capital, little liquidity set aside as possible. That being said, you can increase the requirements and I'm sure that's the direction that Congress is going to go, whether that's the right lesson here or not. They're going to tighten the screws on capital and liquidity, particularly amongst big and big-ish banks. That's the last time though. Right. That's exactly the point, is you can turn the screws all the way up until you get to 100% and then you've just told banks they can't be banks anymore. I mean, you can be a place that takes dollar bills and puts them in a cookie jar and you have perfect liquidity and you don't need any capital, but you're no longer a bank. I mean, where are those dollars coming from? You're not creating the money, you're not creating deposits that run the economy. So I'm curious to know where we go from here. (23/36)
One, what are the implications of the Fed's response, not just for the banking system, but also for other parts of the economy? For example, mortgage rates, how are those affected? Silicon Valley Bank has, I think, an MBS portfolio of like $55 billion in the whole to maturity bucket. Do they unwind that? What happens when they do? That's just one example. I mean, I know commercial real estate and real estate in general is so upside down because of these massive rate hikes. The math doesn't work for a lot of these properties. Either rents need to go up or prices on properties need to go down. So I'm curious, again, one, what are the implications of the response? Two, what areas of the economy are most vulnerable that we might be keeping an eye out for? And three, what does this mean or portend for monetary policy? Does this actually enable the Fed to take rates even higher or maintain credit conditions as tight as they are for longer because they're putting one hand on the banking (24/36)
system and maintaining stability or trying to maintain stability while also using rates to contract economic growth and bring down inflation? Is that the strategy here? I think that's exactly right. And I'm going to answer the questions in reverse. I think this has implications for monetary policy to the extent this can effectively put a lid on financial instability. And that remains to be seen. The Fed gets a lot more room on monetary policy. So the Fed's strategy has explicitly been to tighten financial conditions. It wants to use its interest rates to tighten financial conditions, make credit scarcer, take some of the froth out of the system. That's Bennett's explicit goal. The Fed is in a unique position in that it's also responsible for the safety of the banking system. It's a bank supervisor. It's focused on financial stability. So it's in this weird position where it wants to tighten financial conditions and not hurt the safety of banks, basically the core of our financial (25/36)
system. So this really does put kind of a hand on both sides of the scale and is elegant from the Fed's perspective. In that sense, in that this gives them more room, they've underwritten the banking system, they can continue to tighten financial conditions surrounding the banking system. And that goes back to your question about where the vulnerabilities lie. To some extent, those vulnerabilities are what the Fed is trying to wash out of the system. It was trying to wash out the froth in tech. It was trying to wash out crypto. So thinking about where the weaknesses lie, part of this is a policy goal. Part of this is exactly what the Fed's trying to do when you see a bankruptcy at a thinly capitalized mortgage lender. That's not a policy failure from the Fed's view. But once you start talking about a bank failure, this gets a little dicey here and the Fed has sort of a mixed set of responsibilities. So I would encourage listeners to go back and listen to episode 243 with Russell Napier (26/36)
because I think Russell has nailed what I think is actually the path here. And this confirms that, which is to say that there's going to be credit rationing because there's just kind of no way around it. And that's what we're seeing here, because raising rates on the one hand and creating lending facilities on the other is a way of making choices about where money goes, at what price, who gets it, how. And like you said, the official mandates of the Fed are inflation fighting and maintaining, balancing inflation and employment. But there's also financial stability and actually financial stability, the unstated one is actually, I would say the priority. The second is inflation. The third is employment. And once we get down the stack to employment, now I'm opining here, but I'm curious to hear what you have to say. I think that we eventually get to a place where the government begins to enact fiscal transfers or fiscal subsidies, whether it's to particular parts of the economy, to labor, (27/36)
et cetera. And then we get into a really discombobulated place where the Fed is trying to run monetary policy at the same time maintaining credit facilities to prevent financial stability. And then you have the government, which is motivated, or the fiscal side of the government, which is motivated by stronger political pressures, trying to maintain political stability. Everything's kind of at each other at cross directions here. Yeah, no. And that's certainly a risk. And we sort of saw this where, especially when inflation started roaring, some countries were sending out checks to citizens to help them bear the cost of inflation. And you can imagine how that immediately would make inflation worse. So these things are always at crossroads. And this is sort of an evergreen problem, especially between the fiscal and monetary authority. I mean, there are other examples too, where the Fed goes out and buys long-term treasuries because it's engaging in QE, not currently, but that's a common (28/36)
recession response. And how does the treasury respond? It goes, oh, hey, look, why don't we issue a whole bunch of long-term debt because now we have a new buyer at that end of the curve. And our responsibility is to minimize interest rate costs. And so you sort of have the Fed and treasury, the fiscal authority, the monetary authority working at cross purposes. And we could see that. I mean, right now we're seeing the Fed battle with itself between financial stability and price stability, which is not without historical precedent. They've done this sort of thing before, maybe not as newsworthy of fashion, but these tensions come up and the Fed's financial stability tools are there for hawkish times too, not just dovish recession times. So we don't remember this as well because the playbook has been the same since 2008, cut rates by trillions of dollars of assets and then do these credit facilities. We did that in 2008. We did it in 2020. But we can do these things when rates are high (29/36)
too. I mean, we can think about inflation as very much akin to the Fed has hit the zero lower bound on interest rates. That's where we were in 2008 and 2020. The Fed couldn't cut rates. Now we're sort of in a world where the Fed won't cut rates. And so as stuff starts to break, the Fed needs to intervene and sort of target specific markets that it wants to maintain. In this case, it's the banking system. So we'll see these tensions go forward. I'm not as worried that we'll start to get fiscal transfers, but I'm not a political T. U. Lee Freider and that's certainly possible. They got to figure out the debt ceiling first, I guess, but after that. So I'm going to kind of further enunciate what I was talking about before and I'm curious to get your take on it. I feel like the government has two major problems right now. One is inflation, which falls within the Fed's mandate. And the other is this wealth gap problem, this long-term disequilibrium in society that's leaking into our politics (30/36)
and creating a lot of political instability. And I've always felt that one way or the other, the government's going to have to find a way to address that. And ironically, if you want to talk about cross purposes, the pandemic response began to address that, but it caused inflation. And so the Fed is responding to that inflation with higher rates, which causes higher levels of unemployment and instability. Now they're trying to get their hands on the instability portion, but that still doesn't solve the problem of employment. And that's where I feel like once employment gets out of control, assuming that it does, assuming that it's an assumption, but there's a good reason to make it, that these credit conditions are going to have a really serious effect on the economy and the long and variable lags aspect of monetary policy is going to show up at some point, maybe later this year. At that point, do you see, I mean, maybe I kind of asked this, but I'm trying to enunciate it more clearly, (31/36)
do you see that this is eventually where we go and how does that work from a policy perspective? I mean, have you considered that? I know it falls kind of, I don't think it's a conspiracy, I don't think it falls within the conspiracy bucket, but it does fall within the kind of creative, maybe you don't want to say this if you're like a professional working in academia type question. Well, that's the beauty of academia is, I can say the sky is green and get a promotion. But I mean, I just want to hedge this, you know, my work is financial stability, and this is a little bit of a long-term structural growth question. But yeah, I think one thing that maybe the Fed would be more comfortable with, and we sort of learned this lesson in 2008, is that if we really hit an employment rough patch and a financial stability rough patch down the line and inflation has not yet fallen, I think that would test the Fed to resolve. And the Fed, you know, I'm less confident that we would be stuck in a (32/36)
world where the financial system was breaking or fragile, unemployment was high, and inflation was continuing. I mean, that's certainly not impossible, but I think the Fed would see itself as sort of, you know, having gone too far, you can call it long and variable legs. And maybe just to go back to the genesis of this conversation, I think SVB is probably at the margin making the Fed think harder about the long and variable legs and sort of where things are breaking. You know, the Fed has had a sense, especially in recent weeks and months, that it's not as far along in the hiking processes as it thought it was. And to me, the Silicon Valley Bank situation says the opposite, that maybe the Fed is actually a little further along, and things are a little more fragile than they realize. So, you know, we're seeing some great resets in the market already, and the Fed has a meeting, we're recording this on the 13th, the Fed has a meeting in eight days, they'll make a decision in nine days. (33/36)
And so, you know, we'll see what comes from that. People were talking 50 basis points, and now a lot of banks are moving towards zero. So, again, we may already see. What do you think? I don't know, I don't think the Fed wants to ease off. 25 seems reasonable to me, but, you know, we'll get a sense of where the Fed is thinking about how financial stability is impacting employment and inflation longer term, even though we haven't seen it. And so, maybe these tensions will start to play slash ease out already next week. Yeah, maybe we should get Nick Timmerios back on the podcast, and he can spill the beans for us. So, major takeaways are deposits are safe at regional banks. I mean, I think that's a fair assumption out of May going forward, people have their deposits. That doesn't mean keep your deposits there, this is not financial advice. I'm just saying that's kind of the takeaway. And we're not out of the woods yet. And all eyes on the Fed to see how they respond to this and what the (34/36)
priorities are in terms of monetary policy. Stephen, thank you so much. This was wonderful. If people want to follow you, follow your work, how can they do that? Best thing would be to follow me on Twitter, Stephen Kelly 49. I have a sub stack called Without Warning, free research notes. And then follow the Yale Program on Financial Stability. We have a weekly newsletter. Fantastic. Thank you for this update, Stephen. I really appreciate it. Thanks. Great to be here. If you want to listen in on the rest of today's conversation, head over to hiddenforces.io slash subscribe and join our premium feed. If you want to join in on the conversation and become a member of the Hidden Forces Genius Community, you can also do that through our subscriber page. Today's episode was produced by me and edited by Stylianos Nicolaou. For more episodes, you can check out our website at hiddenforces.io. You can follow me on Twitter at cofinas, and you can email me at info at hiddenforces.io. As always, (35/36)
thanks for listening. We'll see you next time. (36/36)