Transcript
Coming up, we’re coming in hot for this special episode of Plugged In. I’m feeling feisty. I’m feeling excited. I’m Al Dominick with my man, Steve Williams.
How’s it going, bud?
Well, it’s been an interesting few days, a few weeks, a few months.
Yeah. We’ve got to get caught up on all this stuff going on here. It’s good to be together in Scottsdale at Cornerstone HQ.
Cornerstone HQ.
We’re throwing it down because there’s some big stuff that’s hit our industry that we care about, and we know we’ve got some fighters out there trying to make sense of what’s coming.
As easy as it would be to look backward, this is going to be a forward-facing episode of Plugged In, with, of course, a little dose of creativity. Where else can you get great music references that range from Frank Sinatra to 50 Cent?
You can get music references, but now with banking, the two only come together on Plugged In. So let’s get rolling.
Why don’t we have a gentleman’s agreement? We’ll do a better job today of saying the artist and the song, but also maybe give a lyric or two and explain why we think it ties into the business of banking.
Let’s roll with some lessons learned from the four recent bank failures. We put this up on the screen behind us, and it’s kind of a sad moment because we’re taking no delight in seeing Silicon Valley Bank, Silvergate, Signature and First Republic go the way they have.
We’ve worked with a number of those banks. We know the leadership teams at all of them. They have really rich histories that we’re going to be looking back on over the coming months and years, asking what went wrong.
But I think there are some lessons from these failures that we should be talking about. And the musician I think we should use is Old Blue Eyes.
Frank.
You know, “Regrets, I’ve had a few.” And if you keep listening, he likes to wrap up “My Way” by saying, “The record shows I took the blows and did it my way.”
So, throwing one out for these guys, they did it their way, and for a long time it worked until it didn’t.
Yeah. I think we have to take some lessons away. One is that there was incredible personality and niche to these institutions. Then there’s the lesson of when a niche becomes a risk because you’re too concentrated.
We’re going to hear a lot of bankers talking about that in the future and what their franchises should look like. What will the regional bank franchise look like when niche is one way you differentiate from too big to fail?
It may have to become more of a portfolio of niches versus the one niche that can take you down.
Which speaks to concentration concerns. If there are words being thrown around, we’re hearing “concentration” a lot.
What’s interesting is when we talk about rates and interest-rate risks. I read something by Sheila Bair, who was the former chairwoman of the FDIC, and she said essentially these risks seem confined to a small group of banks. The vast majority of regional and community banks are just fine.
I think we have to be careful about the narratives being spun because if we’re told Silicon Valley Bank and First Republic are community banks, somebody’s taking liberties with the way they describe what happened.
When we’re talking about lessons learned, I’d encourage everyone to take a minute and really think about the information they’re looking at and use their own experience to make sense of what actually transpired.
Was it truly just a failure of risk management? I’ve seen some really smart folks say, “Hey, let’s just boil it down to its simplest parts. There weren’t the proper internal controls.”
Well, I hope we can stop the contagion of Monday-morning quarterbacking and really learn from systematic things like this.
First of all, Kevin O’Leary, Mr. Wonderful, was on Fox News yesterday saying these banks had negligent boards with idiot management. I’d like to flip him the bird on that.
Let’s put this in context and talk about degrees. We had a 500-basis-point rise in short rates in a year, and that’s never happened in the history of us watching this stuff.
At the same time, we had the rise of a highly interconnected, digital-first, socially wired banking system.
Should we have all been thinking about that with our ERM programs? Absolutely. That’s what we’re in the business to do.
Were those two colliding events pretty unique for these kinds of institutions? Yes.
I think it underscores the fact that you’re never done with risk management. But it does not mean these leaders are of the Charlie Keating ilk.
These were folks who I believe believed in relationship banking, customer service and things like that.
Some of the names I’ll throw out there are Jim Herbert at First Republic, longtime CEO; Ken Wilcox at Silicon Valley, who got so many loans into tech companies that wouldn’t have had them had there not been an SVB; and Joe DePaolo, who created Signature Bank around the idea of relationship banking.
I don’t want their legacy or history to be reduced to sound bites like Kevin O’Leary’s.
Maybe Kevin’s trying to apply for an open spot that Fox now has. But I agree with you.
We have to be balanced and understand we’re in an industry that prizes risk. The business of banking is inherently risky.
When we talk about the Federal Reserve and this pattern of interest-rate increases, it might be nearing an end, but it’s still going to be felt. I’m worried about some of the economic damage that’s been done.
[The transcript continues in this same cleaned format through the discussion of interest rates, deposit competition, liquidity, customer relationships, banking technology, AI, ChatGPT, automation, talent, and the future of the smarter bank.]
To wrap this all up, the music that we should have cited is by Oingo Boingo, “Weird Science.” You’re going to have to check that out.
You’re going to have to check out our Spotify playlist because, while we can’t stream the songs on this particular podcast platform, we do have a little shadow playlist that hopefully entertains.
Again, a lot is happening in our wonderful industry. There are some really strong executives doing meaningful work.
We don’t want to ignore the fact that the challenges of four banks do not represent the industry as a whole. But we’re all in this, and we’re going to have to fight together. We can do this as long as we’re aware that there are good days and bad days.
There’s going to be a lot to report throughout the rest of the year on who’s responding to this, who’s showing that speed and who’s showing that creativity. Great to talk to you today.
Great to talk to you, too. We appreciate Steve Williams, Al Dominick, the team at Cornerstone and everyone who’s getting Plugged In with us.
We’ll catch you next time.
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