The Breakdown - The Fed's Balance Sheet Jumped $300B Last Week. Is That Inflationary?

Episode Date: March 23, 2023

NLW is joined by Ram Ahluwalia, CEO of Lumida Wealth Management. In this conversation, they discuss: The fall of Credit Suisse The Federal Reserve’s new Bank Term Funding Program and whether it’s inflationary  Why this crisis is currently deflationary  And more.  Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Join the discussion: https://discord.gg/VrKRrfKCz8   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   “The Breakdown” is written, produced and narrated by Nathaniel Whittemore aka NLW, with editing by Michele Musso and research by Scott Hill. Jared Schwartz is our executive producer and our theme music is “Countdown” by Neon Beach. Music behind our sponsor today is “Foothill Blvd” by Sam Barsh. Image credit: Douglas Rissing/Getty Images, modified by CoinDesk.  Join the discussion at discord.gg/VrKRrfKCz8.   Join the most important conversation in crypto and Web3 at Consensus 2023, happening April 26-28 in Austin, Texas. Come and immerse yourself in all that Web3, crypto, blockchain and the metaverse have to offer. Use code BREAKDOWN to get 15% off your pass. Visit consensus.coindesk.com.  

In the wake of one of the most tumultuous years in crypto history, the conversations happening at Consensus 2020 have never been more timely and important. This April, CoinDess is bringing together all sides of the crypto, blockchain, and Web3 community to find solutions to crypto's thornyest challenges, and finally deliver on the technology's transformative potential. Join developers, investors, founders, brands, policymakers, and more in Austin, Texas, April 26th to 28th for Consensus 2020. Listeners of the breakdown can take 15% off registration with code Breakdown. Register now at Consensus.coindex.com and join CoinDesk at Consensus 2023. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the

Big Picture Power Shifts remaking our world. The breakdown is produced and distributed by CoinDes. What's going on, guys? It is Wednesday, March 22nd. And today I am joined by Ram Al-Alawalia to discuss banks, bank failures, crypto, and so much more. A quick note, before we dive in, there are two ways to listen to the breakdown. You can hear us on the Coin Desk Podcast Network, which comes out every afternoon

and features other great CoinDesk shows, or you can listen in the evening on the breakdown-only feed. Wherever you're listening, if you were enjoying the show, I would so appreciate it if you would take the time to leave a rating or a review.

It makes a huge difference in new people discovering the show. All right, friends, welcome back to another breakdown interview, and today, as I mentioned, I am joined by Lumida Wealth, CEO, Ram Al-Awalia. Many of you will recognize Rom from his insurgent Twitter threading, which has brought him a ton of attention and rightly so.

Rom is extremely adept at explaining banking issues, crypto balance sheet issues, and Lord knows we've had many of these things in the last few months. On this show, we dig into the situation with Credit Suisse with First Republic. Look at the implications of the bank term funding program and so much more. It's a great conversation and I know you're going to enjoy it. Rom, welcome to the breakdown, sir. How you doing? I'm doing great. Thank you for having me. I'm a big fan of your podcast, by the way, and I love your summaries on the Coin Desk podcast, too. So it's a real treat to be here. Yeah, no, I appreciate that. I think today is going to be interesting because I think it's going to be a combination of sort of

summary and analysis, but there's so much going on that I actually think having a little bit of a summary of a whole bunch of different things and then trying to kind of weave it together to understand kind of where we are, what the next week or two looks like. It will be really valuable for listeners. So we have a bunch of different things to get to, but where I want to start is sort of a little bit of a catch-up on Credit Suisse. And so maybe first we could talk a little bit about what happened over the last week. We're recording this on Monday. I think that's extremely important for people to know because I think it'll come out on Wednesday and who knows what'll transpire in the next 48 hours between then. But I think it would be really helpful to have sort of a short

primer to help ground us in terms of understanding how much the things going on with Credit Suisse were Credit Suisse-specific versus symptomatic of larger problems. And so maybe if we could kind of just start with, you know, what happened with Credit Suisse, you know, what the resolution was, and then maybe we can try to understand and piece through what the causality was. Sure thing. So let me frame it up. UBS and CS were the two top wealth managers in Switzerland. in CS, sometime around September, October of last year, their share price took a dive as kind of floating around $3 or so. And the main issues there were around Archegos, which was a hedge fund blew up that Credit Suisse had lending exposure to. And then also just a litany of issues around CS and

compliance and open litigation around that. Now, fast forward to call it the last one or two weeks, CS started experiencing runs on the bank. They had deposit flight, and the regulators were trying to broker some kind of transaction with UBS. And CS was also in a parallel path looking to raise equity capital. So their largest shareholder, which is Saudi Arabia, declined to invest more than their 10% ownership interest in CS. They share that news, I believe it was.

Thursday of last week. And the reveal of that news caused further loss of confidence in CS and accelerated withdrawal. So that was the principal event that really accelerated the demise of CS. So what happened? Yesterday, there is an announcement that UBS will be acquiring select parts of CRED Swiss. I shared this on a tour space yesterday. I think UPS got a great deal. UPS's stock prices up 6 to 9% today. So I missed the buy on that one, unfortunately. But let me walk you through what happened. So as I mentioned, CS is experiencing a liquidity issue.

So the Swiss bank, the central bank, is providing a $100 billion credit facility to this entity that UBS has acquired now. So that'll go a long way into addressing liquidity runs and issues. That's one. Second, the Swiss national government is providing a $9 billion protection against losses on certain assets or businesses that UBS acquired. We don't know exactly how that ring fence is defined, but it's probably around the investment bank or their trading business. That's two.

And third, the wealth management business was bought for about $3 billion in change, which is a great deal for 160 plus-year-old institution. institution, $3 billion in change less than the price of SOFI. This is a storied institution. You know, CS had over a trillion in assets. And now UBS is the largest wealth manager globally. They are the leading universal bank in Switzerland. I would argue that they're above G-Sib status. They are now backed by Switzerland. And Switzerland is not going to zero out the shareholders of UBS. Although it's another point I should share as well. Both the bondholders are zeroed out. The equity shareholders were heavily diluted. They were not zeroed out, which creates some interesting questions on the priority protections of bondholders

versus equity holders. Yeah, so a bunch of different pieces that I want to dig into. First, I think just to try to put a real fine point on a couple pieces of it. One, Credit Suisse had troubles distinct to Credit Suisse is part of the point of this, right? They've been embroiled in scandal. They've had, you know, two years of, I think, multiple restructurings. This was not a bank that was doing well going. into, you know, the sort of the broader, you know, economic climate that we're in right now,

correct? 100%. It's a key point to make. This is idiosyncratic to CS, along with the issues around SVB. Look, the tide went out. This is a higher propensity for something to break when that happens. And CS did break. But, you know, you can look at even the stock price of CS versus UBS or the past five years. You can see a nice divergence there. You know, after the great financial crisis, certain banks like UBS and Morgan Stanley elected to, you know, you can't. chart a new path. And that path was wealth management. Wealth matter is an easy business. You charge a management fee. You bring on clients. You're not doing any proprietary trading.

You're not doing underwriting, which could expose you to holding the bag of an offering that you can't sell into the market. CS did maintain their wealth managed business, but they stayed in the investment banking business and the trading businesses. And those businesses are very pro-cyclical and expose them to more risk. Those issues to your point, Nathaniel, are specific to CS. To your point, the discussions from this lead investor in Saudi Arabia sort of triggered the final or culminating phase of this. But what was causing deposit outflows in advance of that in the immediate term, right? Because again, it's not like CS's issues are new. Yeah, it's a good question. You know, I think fundamentally came down to a loss of confidence and uncertainty about

the future of CS. And would that cause depositors to have, you know, their funds trapped or be impaired in some way. I think that's fundamentally what it's about. And of course, the Saudi is pulling away and choosing not to invest, which is all they said. They didn't say they're divesting. They didn't say they don't believe in the future C.S. They just said they chose not to invest anymore that created further declines and confidence. Yeah, we don't exactly know. I think part of the reason that I'm trying to parse this out is that in the context of the larger discussions around a broader banking crisis, there is a temptation to look at everything as related. And I think that on a meta level, it will almost inevitably be true in the sense that some reasonable portion of market participants are going to hear, you know, impaired bank and connected to other impaired banks.

But I also think it's incredibly important to try to dissect the distinctions that make these institutions different from one another. Another piece that you kind of mentioned has been getting a ton of discussion today that I don't know that we need to get super deep in on. But there was a Bloomberg headline, J.P. Morgan analysis that said the decision to write down Credit Suisse AT, One could lead to contagion for wholesale funding costs across the sector. So if we could just talk for a minute more about the sort of the specific bond holding question, it does seem to be something that markets are heavily paying attention to. I didn't read that article, but it is a good question. I alluded to this briefly.

So shareholders in CS will now have UBS stock. I believe the ratio is like one to 22 is a three, three and a half billion dollar acquisition, which is a steep discount to where CS was even like a week ago, around $8 to $10 billion. So it was a take under. The bondholders are zeroed out. Now, ordinarily, the equity holders are first in line to get wiped out than the bondholders. So this is really unusual. On the one hand, the policymakers are applying their 2008 playbook.

You can explain a lot of what the policymakers are doing by looking at that 2008 playbook. And part of that playbook was to have a subordinated debt serves as a form of bail in capital, meaning that that subordinated debt could take on losses and be used to, you know, re-equitize the bank by converting it to equity. Well, that's what happened. They exercised the playbook. Those bot holders wiped out. Now, the question is, there's a surprise, right?

If you're an investor in bank debt, you say, gee, I didn't expect to get wiped out. CS was solvent. Now I'm zeroed out. So if I'm going to own bank debt, I'm going to require a higher hurdle rate of return. to justify owning the risk of being zeroed out. And that's what's playing out now in the markets. Yeah, interesting. I think it's worth a flag. One of the questions, again, is sort of the flip side of the other piece. I was asking how much these situations have to do with one another, but then the sort of inverse of that or on the other side of whatever happens is how much it influences the next set

of actions because of precedent set? It's a great question. First off, those bank debt holders, they know the bank bail and plan coming out of the 2008 crisis, right? So there's a reason why banks have issued a lot of preferred stock and regulators have encouraged them to it's very efficient as a capital treatment. So, yeah, well, it's something to take a look at in the future. I think this is kind of a temporary issue.

I don't think it's going to, I don't think it's something that's going to be sustained. Yeah. So from something you said that I wanted to hone in on was this idea of UBS as now more than a globally systemically important bank. I've heard some people characterize this as almost like a soft nationalization. What do you think about that? Because it feels like that might be one of the biggest sort of implications or, you know, coming out of this. Well, it looks like there's a soft nationalization of maybe the U.S. banking system when FDIC deposit insurance are implicitly guaranteed. I mean, half serious there. Obviously, these are privately owned companies, but there's some broader questions around the topic that you raised.

UBS is now the leading universal bank in Switzerland. It has a distant number two now. One thing I should point out that UBS is in the wealth management business, though. They do have a retail and commercial bank, but they're not an investment bank in the way they ordinarily think about it. I mean, they're not doing like debt offerings and equity IPOs. They don't have like a trading business. It's a really simple business. It's a conservative business model. Yeah, there's no way that the Swiss, this is my interpretation, how there's no way that Swiss government's going to have a serious of actions that somehow I think leads to the UBS shareholders or bondholders getting wiped out. It's now the crown jewel of the Swiss banking system.

There are two great banking systems in the world. One is the United States banking system. It's a very attractive banking system, including for foreigners, right? Putin's kids have accounts somewhere in the United States, as well as a Swiss banking system. And the pride and joy of the Swiss banking system is UBS. Super interesting. For the sake of keeping the conversation flowing, because there's so much to get to, let's bring it back to America now and kind of talk about some of the updates on the U.S. banking system. So over the weekend, there's been a lot of discussion of the sales of SVB and signature. What did we learn? And in particular, I think, you know, with regard to signature and its crypto business says a lot of last week was spent first with it seeming like the FDIC was going to

require the crypto portfolio, the digital asset portfolio to be dropped. Then they say they weren't, but then we got a sale that looks like it kind of was. So bring us up to speed on that sort of side of things. Right. So New York Community Bank acquired the deposits of signature bank, excluding the $4 billion in crypto deposits. So they did not pick up the crypto deposits or Cigna. That's one. They also bought the loan portfolio of signature bank at a discount. So it looks like customers bank got a solid deal. That's often what happens during these auction processes.

And the FDIC, they estimate they may lose something like one to two billion dollars of memory serves, although you've got to wait to see how long and the ultimate resolution of this receivership process. And also the FDIC has warrants in customers bank. So warrants give the FDAC upside in customer bank. They're like call options. So the government has a financial interest in customers bank. It goes back to your earlier point around soft nationalization against a one-off bank. On SVB, you know, I spent some time with the weekend taking a closer look.

There's been a lot of discussion around the egregious asset liability mismatch, which I do believe is negligent, especially for the kind of business they're in. But there really was a mess of issues around SVB, you know, to your own. point, this is not systematic. This is idiosyncratic. I have a tweet thread that lays out the eight to nine issues. I'll share one or two very briefly. One is they were aware of the rising rate environment. They talked about it last year at this time around the same month where FedChair Powell and FMFC started raising rates. So they were aware of the rate increases. They had a target duration of three and a half years that they publicly announced last year. They also had hedges. However, they monetize

their hedges. So when rates go up, the hedge value increases, they sold the hedges, they booked it as income, one, and then two, they were moving assets into their AFS portfolio, you know, zooming out. It looks like they're really managing quarterly earnings using their hedges and that available for sale and Holtematurity Book, as opposed to doing proper risk management. So that's just two of the things. And there's other issues that they had, but I think SVB's management is grossly negligent in their conduct. I don't mean to, you know, rub salt at anyone's wounds. But, you know, as you're digging into that, does it actually make you feel better about the question of how systemic versus, you know, specific this particular crisis is? Well, I don't think it's systematic. That's the fundamental question.

Now, this issue around hold to maturity, mark to market insolvency issues is real, right? The Fed alone has a $1.5 trillion mark to market loss from the very same issue of holding mortgage-backed securities and treasuries that have declined in price in rising rates. Now, that's a real issue. However, the issue goes away provided two things are in place. One, you stop bank runs. So if there are no bank runs, then the banks can hold to maturity and eventually those bonds are money good. So the FDIC, together with the OCC and the Federal Reserve, Sunday of the week before last week, seems to have made this kind of implicit protection of deposits across banks. And you've seen that even with First Republic, which will come back to.

The second imperative you have, if you want to protect those banks, is, well, how do you stop the bankrun? You stop the bank runs by providing some kind of guarantees or you have banks deposit, like you said with First Republic. The second thing you do is liquefy the bank's balance sheet. You enable the banks to provide liquidity to depositors that do want to leave without forcing sales of banks illiquid assets. If you can do those two things, then you can address the $600 million mark-to-market issue without any taxpayer funds. And that's a key difference between

now versus 2008. In 2008, you had toxic assets on the bank balance sheets. They had write-downs. So there's impairments to bank capital. You cannot hold a toxic asset to maturity. The whole is there. The whole is not going away. This is very different. You can hold those balance to maturity, what you have to do is safeguard against a bank run and ensure that banks can liquefied the balance sheet. However, the Federal Reserve hasn't pulled out all the stops. There still are risks and questions. For example, in First Republic, they've got a massive jumbo mortgage portfolio, and that is not considered eligible collateral for the Federal Reserve, meaning the Fed can't finance that. So let's get into a little bit more of the details here on the bank term funding program.

So one, I would love just sort of more specifics for people who have haven't been up to speed on what that program is and what it's meant to do. You kind of just articulated it's meant to effectively allow banks to get liquidity for their bond portfolios without actually having to sell them into market to sort of stem the bleeding until those losses don't have to be realized and it can stay an accounting issue. Let's talk about kind of where that is now and perhaps even bring in sort of First Republic here on what it suggests in terms of will that program be enough? Are they going to have to expand eligible collateral? You know, kind of what the market is discussing around that at the moment?

Yeah. As you pointed out, the bank term funding program provides liquidity for mortgage-backed securities as well as treasuries up to 100% of the market value of those bonds. So it creates liquidity and it doesn't force a crystallization of a loss on a bank's balance sheet, as you pointed out. It seems that most banks are taking advantage of the Fed discount window, which has led to the balance sheet expansion of around $300 billion more than the BTFR program. So that's something that point out. The other part around First Republic, two things.

One is J.P. Morgan provided a credit facility to First Republic, which makes a ton of sense because J.P. Morgan is the leading originator, issuer, specialist of mortgages in general. And as your audience may know, most mortgages that originated are sold to Fannie Mae and Freddie Mac, the government sponsored entities. But to originate and sell mortgage to those institutions, the mortgages have to specify, had to meet certain criteria in terms of underwriting, FICO score, even the size of the mortgage. First Republic built their business by originating what are called jumbo mortgages. These are mortgages that exceed the loan size for Fannie Mae and Freddie Mac. But they're very high quality mortgages. You know, First Republic has a very low default rate. And First Republic

built a great business originating these mortgages. The problem is that because Fannie Mae and Freddie Mac won't buy them, those mortgages are illiquid. So they've got to find a fine. them with either deposits or the capital markets via securitization. And guess which investment bank is the number one issuer of these types of securitization? Well, J.P. Morgan, right? J.P. Morgan pioneered the Biden-rent asset class. They created the shelf for Blackstone's invitation homes. They're the best in the business at this. So they provided a credit facility to First Republic to liquefy that portion of the balance sheet, which if memory serves as like $100 billion plus, So it's a massive amount of these jumbo mortgages that now JPMorgan has offered a credit facility to.

We don't know the terms of that. It's not going to be 100%. By the way, the other part to point out is those mortgages, and you can see this in the 10-2, they have a yield of around 2%. Yields now are much higher. So the fair value of those mortgages have dropped in value. That means there's also this hold to maturity issue around those mortgages First Republic. But First Reportbook really wants to hold those to maturity.

And those are long duration mortgages. So it's a long time they have to wait. And the funding costs at JP Morgan will charge will be higher than the 2% plus that First Republic is earning on those mortgages. So bottom line, First Republic is underwater through these liquidity programs, both at the Federal Reserve and at JP Morgan. they're not making money on that liquidity. It is really a form of emergency liquidity to get them through this bank run. So do you think then that the stock going out is down like 22% I think at the time of recording just reflects the reality of the impairment of the business,

even if these credit lines have solved sort of the most urgent risk in the short term? I haven't focused on the stock price or the value. I'd love to do that next weekend. I'm very interested in that question, actually. myself. I think what equity market investors are looking at is, is this a takeover or a take under or an independent scenario? Right. Takeover processes, you have a competitive auction between, say, JPMorgan, Morgan Stanley, maybe Wells Fargo and Bank America Merrill Lynch, right? So that's the takeover scenario and the underwrite there is, if you mark to market the assets, what's the value of

this business? The take under scenario is it's acquired a edit. a low price because if you deduct the impairment from the book value of the business, then First Republic may be worthless than the market cap. I haven't done the analysis about it. Then the stay independent scenario, which my interpretation of what Treasury Secretary of Yale seems to be pushing for is they provide liquidity to First Republic. By they, I mean the Federal Reserve, JPMorgan, and now the banks themselves, kind of unprecedented. We saw $30 billion dollars deposited by the top 10 banks of the United States, including J.P. Morgan, into First Republic.

So while the commercial depositors and high net worth clients are withdrawing their deposits, at the same time, does new deposit inflow from other banks? We haven't seen this in history. It's really quite amazing. So you see that pattern if there's an attempt to enable First Republic to live and fight another day and remain independent and forest all legitimate concerns. around, let's say, J.P. Morgan having a dominant franchise and limits on their competition, right? So those are really the three scenarios to take a look at. I hope they remain independent. It's a

great franchise. Yeah, do you have any sense of what explains or possible explanations for that sort of seeing the influx of deposits from other larger banks? My guess is that the Treasury Secretary nudged slash cojoled the banks to do this. there was reporting the meeting between Jamie U. Diamond and Treasury Secretary Yellen last week. That's my best interpretation. There will be a great investigative journalism coming out in the next few weeks. We saw this in 2008, right? So Treasury Secretary Tim Geithner played a role of investment banker or matchmaker, right?

And so over the weekend where Lehman was about to announce, there was fast and furious speed dating between Lachovia and WAMU and Wells Fargo. and Merrill Lynch and Bank of America and different dating partners within two days. And it was really extraordinary to see that happen. And I expect that that was the case here. And maybe Secretary Yellen said, if First Republic fails, then you're going to have a much higher G-Sib surcharge fee that we're going to assess against you, something like that.

Interesting. We'll leave it there just because, you know, we don't want to wander too far into the the realm of speculation. But I do think it's an interesting thing to keep an eye on. Join CoinDesk's Consensus 20203, the most important conversation in crypto and Web3, happening April 26 through 28th in Austin, Texas. Consensus is the industry's only event bringing together all sides of crypto, Web3, and the Metaverse. Immerse yourself in all that blockchain technology has to offer creators, builders, founders,

founders, entrepreneurs, and more. Use code Breakdown to get 15% off your paths. Visit Consensus.com. or check the link in the show notes. So let's zoom out. Let's talk. Let's go back to that $300 billion number. This kind of divided as we were talking about before the show a little bit between folks, you know, many of them from the Bitcoin and crypto community who saw this sort of $300 billion, you know, Fed balance sheet expansion and immediately kind of went to this must be inflationary.

It's sort of, you know, money printer go burr, all kind of the old memes. And then folks who were on the, uh, the FinTwit side who, unfortunately, I think just from a pure discourse and learning standpoint, spent a lot of time being angry on Twitter at people for not getting it rather than explaining what they should be getting. But I'd love your interpretation of what this sort of, I guess it was $298 billion, I think, specifically, what that balance sheet expansion reflected and what it tells us about the bank scenario right now. And to the extent it makes sense, dig into this in question of whether it's inflationary or represents something potentially quite opposite.

There are direct and indirect effects. And look, I deal in nuance and try to explain it like it is. There's no quick headline around the effects around inflation. So there's nuance here. I'm happy to unpack it. What's happened here is that the Federal Reserve has grown their balance sheet by providing liquidity to Treasuries and Mortgage-backed securities. What they haven't done is debt monetization,

which means an outright purchase of an asset, such as Treasuries and Mortgage-backed securities, which played a role in Gaines and to the mess where, now, right? So when the Federal Reserve bought $9 trillion in Treasurer's mortgagebacked securities that had a direct consequence of lowering interest rates through their open market purchases and lowering tightening credit spreads. This is different because it's not an asset purchase, it's financing. So let's use an example of like the housing market to make it simple. So let's say you've got a house. The Federal Reserve has

helicopter drops money to buy your house. That's going to be inflationary. They printed money to go buy your house. They took an asset off the market. There's this new demand source in the market and the supply of houses is fixed. Is that inflationary? Absolutely yes. It's asset purchases, monetization.

Now, suppose instead they create a mortgage market. So, Nathan, you can finance your house purchase through a mortgage instead of having to put 100% down in cash. Does that lead to asset price inflation? In some sense, yes, but it's not the same thing as helicopter drop debt monetization. Here's why. If there was no mortgage market, would housing prices be at the current levels? No. Why? Because many people would be crowded out of being able to buy a house because they wouldn't have access to credit. If without a mortgage market, you buy a house by the economic decision is how much cash will have my bank account versus the cost of the house. and maybe the opportunity cost of the cash in the bank account.

But at a minimum, you can't buy that house unless you got X dollars in the bank account. But when you have a mortgage finance market, the economic decision changes. Instead, it says, what's my monthly payment? How do I compare that monthly payment to my income? If I can afford the payment, I buy the house. Now, does the existence of mortgage finance market cause asset price inflation houses? Yes. Look at the 2006-2008 crisis.

No doc loans, 100% down, cheap interest, Yes, it can lead to asset price inflation. So that's the nuance of this. It's not a direct debt monetization, number one, from a primary perspective. Is there an indirect effect, sure. But now let's bring it to a practical, practically what's actually going to happen,

which is where the rubber meets the road. Here's what's actually happening. So these banks are experiencing tremendous liquidity drains, right? Liquidity stress. They don't want to sell these bonds, So they pledged that to the Federal Reserve. The Federal Reserve takes those bonds and they swap that for cash. That cash goes to the bank.

What's the bank doing with that cash? That cash goes right at the door to the depositor who's doing the bank run. What's the point, though? What it means is that the banks aren't creating new loans. That's the key thing. And that's why it's actually not going to be inflationary. credit creation is ultimately what drives asset price inflation. There's not going to be much credit creation, at least in the near term here.

We'll have to see if those, if depositors come flooding back into those banks, and now the banks have excess liquidity, meaning the Federal Reserve has an unravel program, and those banks start creating loans, then that's inflationary. Do I think it's going to happen? No, it's not going to happen. Here's another fact, too, is, and it's important not to get over. theoretical about markets. You have to be really proud to look at what's actually happening with credit creation. And of course, you can see this on the St. Louis Federal Reserve site, Fed Home Loan Officer surveys are tightening. Credit creation is slowing. But here's another thing. In the capital

markets, I think to few friends that do commercial lending at the big banks, you're not seeing debt securitizations anymore. You're not seeing big commercial lending. The collapse of SVB is something like a 25 to 50-b's rate hike. So, the big banks have pulled back from credit extension. So that is a tightening effect. You know, you've heard this term before, the concept of like pushing out a string, right? If I give you liquidity,

but you don't create new loans with it as a bank, it's not going to create asset price inflation, the same way that I can take a horse to water, but the water, the horses and drink, then it's not going to create asset price inflation. So I think to try to sum this up hugely reductively, but for the sake of this conversation, I think is valuable. The transmission mechanism for this sort of balance sheet expansion to become inflation

would be these banks who are getting this money, getting this sort of cash for their collateral, to then go put it back into the system in the form of loans. And that is, in your estimation, and what we're seeing, that is not what's happening. What's happening is that this money is being used to cover liquidity shortfalls where those deposits are leaving. and at the same time, the new loan creation process, that credit creation process is actually getting tighter. And so that suggests that it's unlikely for that to switch in any short order. 100% beautiful summary. The transmission mechanism is exactly the right idea. That's exactly what you want to focus on. So, okay, this I think tracks, for anyone who's read, for example,

Arthur Hayes' most recent piece on this, a lot of his argument, his argument is not actually contradictory to what you just said. His argument, argument is that this type of facility never last for the one year with the limited collateral that it suggests that it's going to. It always turns into something larger. His argument is much more that this actually solves a problem for the Fed in such a way that it seems unlikely to him that it just sort of stops once this sort of deposit crunch is done. And that's the point at which it becomes hugely inflationary in money and printer go burr. And again, to your point, there's a huge amount of nuance here, but I think it's worth noting just because a lot of folks have, you know,

been reading that sort of Arthur piece and have their perspective on this shaped by it. Yeah, no, it was quite the read. I skimmed it, but correct. And I think the other point you raised earlier on Nathaniel's around eligible collateral. That's the key thing to focus on. The Federal Reserve has not pulled out all the stops. So pulling out all the stops is when the Federal Reserve permits additional collateral to be pledged to the Federal Reserve, including things like jumbo mortgages or commercial real estate, which is what most community banks have on the balance sheet. Awesome. So the one other macro thing, I want to use the back half of this conversation to catch up on a few crypto situations. I just want to flag the new swap lines that were announced

yesterday as well. If you could just give a quick summary of what those are and how people might want to think about them, even just as a way for people to kind of keep an eye on it, would be great. Well, sure. Let me define them. So a swap line is when a central bank offers a dollar liquidity to another central bank so they can then disperse that to any member banks that need dollar liquidity. What we don't know is how much has been drawn around that. It looks like they're primarily testing it. These programs were rolled out in 2008. It's worth pointing out. A lot of debt globally is denominating U.S. dollars. And when there's demand for U.S. dollars and demand for treasuries, it's harder to source U.S. dollars, and it can make the likelihood of something going bump in the night

higher than it otherwise would be. So that's what they're attempting to do here with these dollar swap lines. They use these during just after COVID as well, right? In COVID, I don't recall that. In COVID, what the Federal Reserve did is they provide liquidity on investment-grade corporates, and they announced that they might take further action. They don't really do anything. Just announced a credit facility. ultimately untapped, the mere announcement of the facility led to a record-breaking move in IG corporate, so they rallied 30%. Bonds aren't supposed to rally 30%. Bonds are supposed to make 4 to 6% a year. Biggest move in my lifetime. So I don't recall any, you may be right. I don't

recall that, is what I'm saying. Yeah, yeah, all good. Okay, so let's shift over to the crypto side of the conversation. Maybe just to connect it to the bank discussion. I want to come back to signature for just a moment. Again, lots of political debates last week around the extent to which signature was a political assassination. You had folks who sort of, you know, you had Barney Frank basically accusing or suggesting that they were singled out because of their crypto portfolio. Then you had folks from the New York Department of Financial Services say that, no, that wasn't it. It was about sort of our fundamental lack of confidence in the, you know, signatures management, which is a very he said, she said kind of, you know, tete-a-tete, given the context for it. But then when the push came to

shove, the crypto portfolio, the crypto business was not included in the sale, which obviously sort of, you know, puts a pretty fine point on the argument of those who thought that it at least seemed, if not outright politically motivated, certainly a convenient sort of side casualty. I guess where do you think this leaves kind of crypto banking now after sort of the most recent announcement? How big a deal is the loss of, you know, CigNet, especially after CEN? You know, what's your take on kind of the crypto banking landscape coming out of this process? Phenomenal topics. So first off, look, the primary actor here that put Cigntainment into receivership was the New York State DFS, not the FDIC. The receivership of Cigure Bank was a surprise.

prize to everyone, including the short sellers. No one expected that. Shorts were pre-positioning around this and a new kind of FUD campaign, similar to some like a Silvergate. They never really had a chance to ramp that up. And the New York State DFS has had a number of issues with signature, including around KYC and AML, but also other deficiencies in audit and control, as well as management. There are a whole mess of issues around signature bank that's coming to light. I'm not saying the receivership was justified. But I do want to point out that this was New York State DFS driven. And then they assigned the receivership to the FDIC. It's not FDIC driven. That distinction matters, right? That New York State DFS, I do believe, is far more hostile to crypto than the federal

regulators, right? Even the Federal Reserve put out two weeks ago, maybe three weeks ago, statement saying that they're neither encouraging nor discouraging crypto banking. And we can come back to that later. There's what happens publicly than what happens privately. So I think that's a key point, the non-Barnie Frank. Of course, Barney Frank, co-author, Senator Bonnie Frank, core author, dot Frank, and he's on the board of signature. My interpretation is that he's a board of director. He's deflecting scrutiny on his own role as a board director who's liable for ensuring proper governance and managerial content and compliance, right? This is the guy that co-author dot Frank I think what he's saying is, hey, guys, don't look at me. It's crypto.

And the question for Barney Frank is, was his comment made with knowledge? I don't think they were. It was put into receivership quickly. It was unexpected. I don't believe that the board was informed or given a heads up around this. Management was also surprised. Management's first to know. And then the board of directors, you know, caucus with management later. So I don't think, I don't think, I think Barney Frank is just making a guess. I don't put too much stock in his assessment. The third around the federal regulators and what does the need for Cigna and crypto banking more generally?

Look, it's a big, it's incredibly disappointing. It's a big loss. We've seen the loss of Silvergate, Send Network, and Cignaet. Crypto is a 24-7 market. It needs a 24-7 instant settlement network to correspond to that. so you can mitigate settlement risk. Avoiding settlement risk matters because you can get margin calls that can force liquidation of a party, one party can't pay another party simply because of like the checks in the mail

risk. This is no way to think about settlement risk. Right. Your money good to pay off a loan, but you know, the bank's not going to deliver the cash to when the bank opens, which is Monday 9 a.m., but you got margin called over the weekend. So the other thing is that, you know, crypto needs a toll hold in the banking market. Not many banks bank crypto. So long as you have like one bank offering a bank or service, you can then petition to the regulator.

You meaning another bank can petition for the regulator. I did this at Cross River. I was the executive crosshift of both of crypto business. I said, look, here are all these banks offering crypto services. We need a level playing field. You've got to encourage competition. And if those banks can lawfully offer those services, then so can I. And if you lose those service providers in the market, you are taking a step back.

You've got to renew your argument. You've got to find a legal basis. And so it's an unfortunate loss. Now, we'll have to see. You know, there's still this $4 billion deposit portfolio. Maybe another actor steps in to acquire it. Now, my take, Nathaniel, on ChoPoint 2.0. I think I'm the Chope Point 1.5 or 1.7 camp.

I think the regulators are mixed. You know, Fed Chair Powell, it's reported by the Financial Times, approved DM. Now, DM is not the same as Ethereum decentralized blockchain, but it's a step in the right direction, right? Meaning, if we had gone in a world where Powell approved DM and Secretary Yellen, it turns out, it's reported, did not approve it. That changed the course of crypto history. If it was approved, you would have big tech companies, including, you know, Facebook and Amazon and also others like Lyft and Uber, enabling wallets to move money, using a stable coin issued by Silvergate. Silvergate would be making money hand over fist.

They'd still be around today. And hundreds of millions of consumers in the United States and globally would be using crypto to settle like TCPIP. That world we don't live in now because regulars have different, different views on how to approach crypto regulation. So I had a conversation this weekend with Austin Campbell and we were talking about this set of issues. And I think that one of the pernicious.

things about that regulatory mix is that basically it defaults to bad when that interacts with an inherently conservative system like banks. And what I mean by that is you don't need unanimous government and regulator consensus that crypto is bad and you shouldn't be able to do it for the handful of folks who do feel that way and are allowed to make it such a high political cost and a potentially high compliance cost that functionally it doesn't matter. if there's a whole bunch of allies as well, because it's sort of the loud squawk anti-crypto voices dictate how risky it is, not the people who are sort of pro-it, right? Because it's all sort of a cost-benefit analysis. I agree. I agree with that assessment. You know, a few years

ago, the CYA move was to be skeptical of crypto. You could lose your job to embrace crypto. And then 2021, the CYA move was to embrace crypto, otherwise you're getting disrupted, right? Nike, artifact, the big investment banks. And now that COA pendulum is back to, hey, you can lose your job. The number one principle on the masthead of the bank regulators is safety and soundness. You can hear that term over and over again. You heard it by Janet Yellen testifying to Congress. You hear it any time there's a press release from the bank regulators is preserving the public's confidence in the banking system. And yeah, it's very easy for regulators to put their boot on the neck of crypto. At the same time, however, you know, we are subject to rule of law and private markets and free markets.

So if there's a legal basis for a bank to offer services such as custody, and there are, there are legal bases that you can cite, and it can be administered in a safe and sound way. Those are the two tests. The first test you can cite, you can point to law. I've done that. I've paid lawyers money. They give me legal opinions. The second question, though, is, is subject to regulator interpretation?

And Austin and I had a great discussion on this last week. I love Austin, by the right. It's great. The interpretations in the Federal Register that suggest that bank regulators don't view banks interacting with the blockchain as consistent with safety and soundness. That doesn't mean that that can't change. It doesn't mean that the interpretations off. Might there be ways to interact with the blockchain as safe and sound way? Yes, we have to be specific about that is.

And new technology, new control systems, things like. decentralized MPC, other mechanisms might be possible that could allow us to do it. So the door isn't closed, but now the burden of proof is on banks who would want to venture into the system. And it's not clear that many banks want to do that now because it's not even just about the commercial viability of a crypto business, which is very attractive, right? You're paying out 0% to depositors like Silvergate. You turn around and lend on a longer term liquid asset, pretty attractive, with 10 turns

leverage as a bank is with tier one capital of 10%. You know, it's a, you know, you become a target, right? And there's this broader issue of, you know, short sellers can defame a bank and undermine public confidence. Crypto Twitter doesn't quite understand securities laws. You know, a lot of that is because of the SEC failing to issue interpretive guidance. Much less bank regulatory. Silvergate honored every single withdrawal.

I could see in the liquidity coverage ratio. You could see, unlike SVB, they had high-quality liquid assets and they honored every single depositor. However, now they have no customers, and so they're gone. So if it's easy to be a target as a publicly traded institution and cause a bank loan using social media, fear, uncertainty, and doubt, why would you jeopardize your core business? Why would you venture into this new business? You're going to stay on the sidelines. Now, it helps if you're private. And it turns out there is a private bank.

There's a privately held bank called Cross River, of course, that's a private. taking on the FiatRamp business, had it before, it really grew the business from Coinbase and also now from Circle. But we need more institutions. You need diversification. You need multiple sources of Fiat ramps in the category. It's a heavy burden for one bank to service the category. Something that you just mentioned that I think is worth unpacking a little bit and maybe broadening it out is the social media context that's shaping so much of what we're seeing. So you use the example of short sellers and they're very antagonistic campaigns against this against certain crypto banks. Certainly we saw, you know, speaking of transitions mechanism,

social media is an amplification mechanism for anti-cryptopoliticians who kind of release their screeds into the wild and get the anticipated elevation of messages. But then also we saw a pretty dramatic example of this around the SVV bank run. which was just, I mean, if you parse it out, like, let's hold aside for the sake of this discussion, any malintent on the part of Peter Thiel, which, you know, people argue or whatever, he's sort of an accelerationist to society collapse. There's a lot of specifics around him in particular. Let's just take that aside and just talk about what might have happened in the olden days with no social media. Startups would have still talked to each other. And if they sort of had, you know, felt there was a

meaningful risk of SBB going down, they would have tried to get their money out. But it just happened on absolute warp speed, amplified by social media in a huge way. And then there's sort of another dimension of this, which is something that Demetri Kofinas from Hidden Forces has been talking a lot about recently, which is sort of the breakdown in consensus narratives and whether it actually just totally undermines the Fed's ability to use forward guidance as a tool and bringing this around to a question. How much of these chaoticness of these spasms we're experiencing right now as it relates to this crisis as compared to previous crises are, due to the fact that there is a fundamental new communications infrastructure that, one,

amplifies the speed and loudness of everything, and two, breaks down the ability for anyone to keep control of any sort of single consensus narrative. Phenomenal questions, you know, really are kneeling in the head. You know, I would say this. This is the rise of the gradual to sudden breakdowns in the system. And this is something I highlighted over the weekend of threat. I haven't seen anyone talk about this. important to talk about. SVB had a 50% decline in the demand deposits. That was last year. Before the

bank run started, signature bank had a 20% year-over-year declining deposits last year, just all of 2022. And then as you pointed out, social media accelerates that and the rise of digital banking, the ease of being able to do wire transfer for CFO and the convenience of their home. And the other related factor, of course, is the rise of competing sources of yield. You can access money markets, the convenience of your SIPC insured brokerage account. And there's no way bank can compete with that. So there's a structural incentive for a corporate treasurer to move their assets. So I don't know if I answered your questions directly, Nathaniel, but you let me know where you want to go from there. I mean, I guess maybe one thing to flag in, and you don't have to have a full

answer to this is I sometimes think about, you know, we've had this intense discussion about whether the Fed's actions and sort of the U.S. government's actions more broadly of retroactively insuring all these deposits effectively just make it, you know, further incentivize everyone to get their money out of regional banks and into sort of globally systematic institutions or systemic important banks. Is it worth at least discussing how much of this is just sort of a natural process of times changing and different institutions being a better or worse? fit for the things that people need. And even if something, you know, whenever things change, things are lost, no matter what, but is it sort of a priori bad, I think is worth discussing

of, you know, certain types of deposits moving into different types of banks, you know, again, I'm not advocating that position. It's just, it's sort of like, there is a little bit of an assumption underlying all these things that the existing distribution of deposits across regional versus big banks is the optimal distribution, and it's maybe worth pushing on that point, at least a little bit. Yeah, that's a great. It's a policy, kind of normative policy question. So first off, you're right. There's a structural bias for deposits to flow towards larger banks during periods of stress. By the way, the top five banks have a majority of deposits in the United States. Think about that. The top five banks, there's 4,000 plus banks. And those top five

banks are clustered around the coasts, East Coast and the West Coast. Now, let's zoom out and think about the population that's been left behind over the last 15 years, the rise of asset price of the rise of technology, the tremendous amount of wealth creation, who's been left behind? And I think that is a legitimate normative policy question. Who serves that population? It's the regional banks and the community banks. community banks are in Bozeman, Montana. I don't know if JP Morgan is. So it's a legitimate policy

question. My view is, yes, there's a strong public interest in having a diverse, robust, competitive banking system, which includes regional banks and community banks, and also includes technology firms. There are two pieces to this. On the first one, there are banks that are highly specialized in doing one very narrow thing, like very few other things. For example, if you're a doctor or dentist and you want an equipment financing loan, you go to three banks. They specialize that. One of those banks is Live Oak Bank, for instance. If you want a SVA loan, you go to Live Oak Bank.

And similarly, for other kinds of loans, you go to a different kind of bank. And those banks specialize in knowing the customer. They go to the veterinarian conferences. They know how to underwrite that. They can underwrite it better than a JP Morgan can for all these, the texture of the knowledge an insight that they have to underwrite the borrower. The school they went to, the market they're operating in, they have a big loan book. They can look at performance. And they're also on the ground. You know, there's a reason why fintech lending loans underperform, I mean, digital online originated

loans, underperform loans originated by a bank branch or even a non-bank branch, like one main financial, because people in the community know the character of the individual. They can say, oh, that guy was a Boy Scout. He's a good credit. There's more trust. And there are things that you just can't capture, even with AI, even with technology online. Here's the other side of this, though.

It is not permitted for Bezos Bank to exist. It's not permitted for Amazon to buy SUV. Google cannot. And leave aside our tech overloads for a second. VCs can't pass the hat around and acquire controlling interest in a bank. It makes no sense. Or private equity firms.

There are limitations on control for non-bank actors. If you own a controlling interest in a bank, you are subject to Federal Reserve supervision, you're subject to the Volker Act, and only permitted to banking activities. And it dates back to antiquated law. And that needs to change. It needs to change because why.

First off, the market for private capital is enormous. Private equity capital is enormous. Technology capital is enormous. It's a war chest of cash at Amazon and Apple. and Google and Berkshire Hathaway is enormous. It's not permitted to enter the banking system. And so now imagine you've got a bank run. You desperately need capital.

And by the way, you want technology to stay relevant. And you're not allowed. SVB was not permitted to say anything publicly. They're in a quiet period. They're doing a raise. And now you're a target. And that set of facts around policy law needs to change. We need more vibrant banking systems.

I like the fact that Amazon bought Whole Foods. we're going to finally add some innovation to grocery shopping. Fantastic. We need to invite that entrepreneurial, that innovation, technology, and capital to shake up the banking sector as well. Yeah, it's super interesting. I mean, listen, part of the reason that I bring this up as relates to regional banks is that I think that there's going to be a national conversation to some extent, even if it's restricted to policymaker circles, about, you know, to what extent they matter. And I think that if they're going to matter and if there's going to be political advocacy for them, it needs to be intentional, right? I, you know, from my standpoint, I never even consider large banks when it comes to things like mortgages and things like that for all the reasons you just articulated.

But if that matters, right, if the sort of decentralization of the banking system matters to people, they're going to have to advocate for it because the trend lines point the other direction. You're running on the mark. The large banks are cookie cutter standardized. They don't give you great service. And by the way, the community banks, where they have primarily retail depositors, that's sticking money. This bank run that we've seen is from corporate treasurers. It's a commercial-driven bank. It's a CFO that's sophisticated and looking at the integrity of their bank and also looking at money market funds.

It's not our neighbors. It's not mom and dad or Joe Sixpack. So the community banks, remarkably, are safer from bankrun. some of these larger regional banks. And they'll deliver better service to you. They know who you are when you walk into the bank branch and they'll take care of you. And people forget that.

And I recommend opening an account at your local community bank and considering the kind of experience that you might have there versus being an anonymous account at a large mega bank where you're going to be ignored, or more likely to be ignored unless you're a massive account there. Totally. Well, listen, I had wanted to dig into some crypto stuff, I think we're short of running short on time. Maybe instead of sort of going deep in it,

we obviously had a lot of pending crypto discussions, the Voyager Binance acquisition and the judge rulings in that, the DCG bankruptcy, the ripple case, the New York Attorney General's case against Ku-coin, which alleges that Ethereum is a security. You know, rather than going too deep on any of these, I'd love to know just which of them you think are most important to continue paying attention to which you're going to sort of rise to the surface as significant in the short term, you know, outside and around these larger, you know, macro machinations, which are shaping everything right now. That's a great question.

I haven't had a chance to reflect deeply on which cases to focus on the most. Probably lower it to the better take than I would. But the ETH as security, that's, I would, I want to take a look at, I'd want to take a look at that case, you know, if ETH is deemed security, that they would have negative consequences for ETH on a number of other tokens. I think it might explain why. Eth is lagging, you know, Bitcoin, and that would be very unfortunate for the ecosystem. So, you know, that would be, you know, a case to focus on.

GBT case is one to focus on from just the sheer economic impact. If the SEC loses that case against Gravescale, excuse me, then, you know, that's a, it's a victory for introducing crypto into our capital markets, meaning you can have more ETS, you get more institutions, you got black rocketing in the category. You can have Goldman Sachs gang in the category. that means more capital flowing in. It means it's increasingly institutionalized. And I think that's very healthy. You know, there has been this pattern of, it seems like, regulatory overreach,

over extension, right? The FTC similarly with contesting certain deals on an antitrust basis. So I would look at that case as well. And of course, if the SEC loses that, then there's a path to potentially the discount closing, although the instruction of the judge will matter very careful, very much. the judge might simply instruct the SEC to revisit their approach and demand consistency. It's not clear that they might say, hey, go permit an ETF to be listed.

Yeah, there's a lot there that we could dig into. But maybe let's try to actually kind of wrap this up in terms of a nice little bow, because we do have a major event that has taken on new meeting in the context of this week, which is the FOMC meeting. I think that markets are treating this as the next big sort of waypoint in understanding how the Fed is interpreting the last couple of weeks and what's happened. What is your sense of that? How significant do you think this particular meeting is in terms of either the rate hike

decision or whatever they say? And what's your guess if you're sort of forced to guess on what's going to come out of that? This is the first FOMC meeting that's probably harder to call versus any other meeting, the Federal Reserve has guided markets around their rate-high campaign last year and this year. And if you pay attention to their transcripts, their prepared remarks, and look at what they say, they have been doing what they have said they intend to do. This is the first time that you've got this countervailing pressure from the banking system. The Federal Reserve will use every piece of data between now and then. The principal piece of data

will be, are there bank runs, are there risks of banks going under, and what's the performance of capital markets from the S&P 500? So given what I see today, I believe they will continue with a 25-bips rate hike. These issues around the banks have not elevated to the level of systematic risk, which is the point you raised Nathaniel earlier. That's the right lens to look at. These are sector risks around tech forward and crypto banks and banks that got overextended. in terms of loan to deposit ratios, a high concentration of uninsured depositors, right? And there are a few other banks that are in the watch list,

maybe three to five, but it's not systematic. I think the Fed, and they're talking to, of course, Treasury Secretary Yehound around this too. This is what I think happens. I think they're gonna say, stay the course on raising rates and then create liquidity for the banks. It's gonna be a two-pronged approach.

They'll maintain the campaign against inflation, And they'll do everything in their power legally, which is an important question, because there's limitations in the FDIC that Congress and Congress is divided, right? Everything can legally to follow two imperatives. One is to stop bank runs. And two is to liquefy bank balance sheets through these kinds of programs, two-pronged approach. So you think you basically are in the camp of part of the BTFP program is to buy them space to continue to fight inflation with rate hikes?

Correct. And they likely will need some additional programs because if you look at the balance sheet of First Republic, they got a credit facility from JP Morgan, so First Republic is solved. But what about Western Alliance Bank, you know, Trashwab Bank, et cetera, et cetera, you know, those, you know, they need to find a framework that can address multiple banks, right? First Republic, the nature of those interventions are one-off, right? There was a coordination of $30 billion in departments. across 10 banks. What's a framework that you can use to protect other banks?

Now, we've seen a recipe, and recipes can be applied to other banks, right? They can say, hey, guys, we're going to do the first public playbook on these other banks. And I think the regulators are acting fairly swiftly, by the way. Like, they are, I think on crypto, I'd give them an F. Yeah, the lack of clarity is appalling. I would say in terms of interventions on the banks, I'd give them an A-minus, in terms of the speed, swiftness, and decisiveness. But I don't think you're going to see many banks where you have the equity wiped out,

or you may see banks put into receivership, but I don't think you're going to see an interruption in the services that customers can expect of their banks. I don't think you're going to see depositors taking losses, even if they're uninsured. Those are my two North Stars as we navigate the weeks and months ahead. Well, listen, Rob, this is an awesome conversation. Appreciate you taking the time to share your insights. I'm sure it will have been useful for lots of folks. Right back at you, Nathan. I'm a big fan.

Phenomenal questions. I enjoy your podcast very much. Thank you for the service you provided our community as well. Thank you. Cheers. All right, guys, back to NLW for a quick wrap up. There was obviously a great discussion with Rahm and I in there about whether the BTFP program is inflationary or what would make an inflationary. And the thing I keep coming back to thinking about is that the part of the conversation we just keep

missing is not what it's like in the immediate term, but what the like outcomes of these programs are. Now, of course, for the Fed, they're really only thinking right now in terms of solving the short-term problem. However, other folks are zooming out and asking whether there's really any chance that once these programs are established, they won't just become a normalized part of the banking infrastructure. Obviously, that risks huge new types of moral hazard, but then again, when has that stopped us? These issues are immense and fast-moving, and so I appreciate having folks like Rom who can come on the show and help explain them. Until tomorrow, be safe and take care of each other.

Thank you.