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Biden: All Customers Of Two Failed Banks Are Protected; More Heavy Rain Expected For Flooded California Communities. Aired 11- 11:30a ET
Aired March 13, 2023 - 11:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
KATE BOLDUAN, CNN ANCHOR: Hello, everyone. AT THIS HOUR, a collapse and recovery, the White House steps in and after two banks collapse in a matter of 48 hours, is it enough? Plus, California underwater families are being forced from their homes. A levee has been breached and another round of storms is headed their way. And also missing in Mexico, a new case of American citizens who haven't been heard from in two weeks disappeared after crossing the border. This is what we're watching AT THIS HOUR.
Thank you so much for being here. I'm Kate Bolduan, President Biden today trying to reassure the American people and the financial markets and prevent a full blown crisis in the U.S. banking system speaking to the nation this morning after the sudden collapse of Silicon Valley Bank and after the Treasury Department unveiled emergency measures last night, guaranteeing deposits of all SVB customers.
Regulators are also abruptly shut down a second bank based out of New York, Signature Bank, which was also on the verge of collapse rounding out and unsettling to say the least in frantic 48 hours, the President said this.
(BEGIN VIDEO CLIP)
JOE BIDEN, PRESIDENT OF THE UNITED STATES: Look, the bottom line is this, Americans can rest assured that our banking system is safe. Your deposits are safe.
(END VIDEO CLIP)
BOLDUAN: There's much more to this. Let's get straight over to Matt Egan who has been tracking all this. Matt, what's next for these two banks?
MATT EGAN, CNN REPORTER: Well, Kate, this is a shock and awe response from Washington. And it shows U.S. officials are very serious about trying to put this fire out before it spreads elsewhere. So what are they doing? Well, federal government is guaranteeing that the depositors at both Silicon Valley Bank and Signature Bank will be made whole including those above the $250,000 FDIC insurance limit. Now, bondholders and stockholders, they're getting wiped out. But this is a huge relief to the depositors. By guaranteeing the deposits, the federal government is trying to make sure that this bank panic doesn't get repeated elsewhere. Also, this is key the Federal Reserve is launching a new program aimed at preventing the financial problems that got these two lenders in trouble in the first place. Now the question is, will this be enough?
We don't know the answer to that yet. The broader stock market seems to like these moves, markets are not panicking. But regional banks as you can see on your screen, they are down sharply look at that, First Republic Bank, Western Alliance, Bank of Hawaii, Comerica all of them down very significantly. First Republic Bank is down 73 percent, despite the fact that just last night, they announced that they lined up new funding from the Federal Reserve and from JPMorgan. So we need to watch that closely.
Meanwhile, there are new questions about how Silicon Valley Bank was allowed to implode in the first place. And I talked to one current employee at Silicon Valley Bank who expressed shock at the CEOs handling of the situation that management publicly acknowledged the depth of the financial problems before lining up private support. Here's what this anonymous employee told me.
That was absolutely idiotic. They were being very transparent. It's the exact opposite of what you'd normally see in a scandal, but their transparency and forthrightness did them in, and that's because this set the stage for panic. As customers of the bank, they yanked $42 billion on Thursday alone, in what turned out to be a classic run on the bank. Yale professor, Jeff Sonnenfeld, he put it to me this way. He said, quote, someone lit the match, and the bank yelled, fire. Kate?
BOLDUAN: Matt, great reporting. Thank you very much. So in President Biden's remarks today, he outlined how the government is responding to the shock to the banking system, and also how he's going to be pushing for changes to ensure that this doesn't happen again. Phil Mattingly is tracking this and working his sources at the White House. Phil, thanks for coming in. Do your sources believe this will be enough to contain the risk and the fear?
PHIL MATTINGLY, CNN CHIEF WHITE HOUSE CORRESPONDENT: You know, Kate, to Matt's point, I think everybody is watching very closely, not just over the course of this week, but really minute by minute, hour by hour and their biggest questions right now are less necessarily about stock prices and more about liquidity, making sure that these regional banks in particular, but more broadly, the financial system continues to function as they believe it is fully capable of doing.
I think that's an important point here. And Matt alluded to this as well as that perception matters a great deal in these moments while they believe that the banking system is fully capitalized while they believe it is both resilient and strong when people start to panic, you see situations like we saw with Silicon Valley Bank, and by Sunday Signature Bank as well.
And the efforts over the course of the weekend, as one official told me, it was about speed and scale, moving very quickly and moving in a very big and dramatic way. And that's what the two powers that were put into place, both ensuring that the deposits beyond the $250,000 limit were backed up by the federal government, as well as the Federal Reserve lending facility were put in place to try and stem that panic, to try and stem that contagion. And the President making very clear that that was a critical move, take a listen.
(BEGIN VIDEO CLIP)
BIDEN: All customers who had deposits to these banks can rest assured, I mean rest assured they'll be protected, and they'll have access to their money as of today. That includes small businesses across the country, that bank there and need to make payroll, pay their bills and stay open for business, no losses. And this is an important point, no losses will be borne by the taxpayers.
(END VIDEO CLIP)
MATTINGLY: And Kate, and it's important point because administration officials are also keenly aware of the political dynamics here, they don't want this to be viewed as a bailout. And to be very clear, the FDIC funding will come from an industry assessed fund, the Deposit Insurance Fund, the Federal Reserve lending facility, they believe will be made whole by the time it's all said and done.
But there's no ifs, ands, or buts about it. The full faith and credit of the U.S. government is backing these moves. That's what they feel is necessary. They don't believe taxpayers will be on the hook. But certainly, there's risk here.
BOLDUAN: Sure is. Thank you, Phil. Let's see what happens today. I feel like that's a really loaded statement. I just -- let's see what happens today. Joining me right now is one of the many business owners impacted by SVB's collapse, Stefan Kalb. He's the co-founder and CEO of Shelf Engine, a Seattle based food management startup. Stefan, thank you for coming in. What do you make first and foremost of what you heard from President Biden this morning?
STEFAN KALB, CEO OF SHELF LIFE, SILICON VALLEY BANK CUSTOMER: Well, first of all, thank you for having me on the show, Kate. I am quite relieved from what I heard from President Biden. I think the administration has taken this on exactly the way that I think it should be, which is the depositors of the bank need to be made whole. This is a cornerstone of the U.S. economy, the bank system is set up such that we expect it to be safe. And the administration is stepping up to make sure that we can get access to our capital very quickly.
BOLDUAN: Look back with me for just a second, even though I'm sure you probably don't want to. When did you first become aware of problems with SVB? I mean, what was Thursday and Friday like for you?
KALB: I mean, everything from Thursday afternoon on has been quite stressful. I first got a note from my co-founder, who said, hey, have you seen what's going on with SVB, sent me a link to an article. And then I just started getting a deluge of messages from colleagues from investors saying, hey, you need to pull your money as soon as you possibly can.
So we immediately went open up another account, wired the money. However, on Thursday, our wire was not honored. We are just past when they stopped wiring money. And so we knew that we were kind of stuck from that point forward. I mean it's obviously been a very stressful weekend. I have a lot of contacts anywhere from D.C. to investors, and a lot of mixed messages coming in. And we did not know what was exactly going to come through until Sunday. So it was really quite a relief to see what's going to happen on Sunday.
BOLDUAN: Stefan, what would it have meant for your business if the Biden administration, if treasury didn't step in, and you were left with the, you know, the only the $250,000 insured by the FDIC?
KALB: Yes, you know, so $250,000 would have been nice to have starting today. However, for us, that means that we basically would have to shut down by the end of the week. And the reason that's the case is because we would have to make payroll, and that doesn't even really cover a full payroll for us. Another thing that most people should understand is that as a co-founder and CEO, I'm personally liable for that payroll, which means that if I would have let our team work past Friday, I would have had to somehow cover that personally. And I just couldn't let that happen.
BOLDUAN: Stefan, why did you put all your cash in this bank? What's your lesson from this going forward?
KALB: Yes, it sounds irresponsible, that we put all our money in a single bank, right? However, this is happening for a couple of reasons. The first one is that this is part of the agreement with Silicon Valley Bank. When you borrow from the bank, they say, hey, that's fine. But you need to put all of your assets in our bank. And then the second part, and this is something, you know, just -- it's odd to think about it now but just even a week ago, Silicon Valley Bank was the gold standard.
We are expecting Silicon Valley Bank to be around. We thought it was one of the safest places to put our cash, so we didn't really think twice about it. Obviously, our strategy has changed dramatically in the last few days. But this is why we had all our cash with the bank.
BOLDUAN: Yes, well, it's good to have you on today to talk about it and good luck in the next couple days a little less for us, well, a little more breathing room for you and your employees. Thanks Stefan.
KALB: Thank you Kate.
BOLDUAN: Thank you. Joining me now for much more on this anchor of Early Start chief business correspondent, Christine Romans, and also with us, Robert Hockett, professor at Cornell Law School, who's also worked for the Federal Reserve Bank of New York and also the IMF. Thanks, guys for being here. So Christine, it was interesting hearing from a co-founder and CEO of that's been completely impacted by this with all his assets in this bank. Do you think -- what do you think of what you -- what we heard from President Biden, what do you think of the moves that are being made? Is it enough now?
CHRISTINE ROMANS, CNN BUSINESS CHIEF BUSINESS CORRESPONDENT: So the White House is trying to stem the panic. And the panic was palpable, really, from Thursday to Friday, over the weekend, it was very concerning. They're trying to stem that panic, and they're trying to make those depositors whole, not the shareholders, not the big investors who own stock in the bank, they're not going to bail out, quote, unquote, those folks like it was 2008. This is about making the depositors whole.
And I think on that front, this shock and awe campaign from the White House and the Fed was successful. Will it stem other bankruptcies in the industry? You know, I've been talking to a lot of people today who say that just the sheer magnitude of the interest rate hikes, there are little corners of the universe that are going to crack and will continue to crack. And there could be more trouble ahead. But at least for now, what the White House has done, and what the Fed has done is said, we are going to prevent this from becoming some kind of systemic problem.
BOLDUAN: Robert, if this is not a 2008-style bank bailout, what is it? What do you see?
PROF. ROBERT HOCKETT, CORNELL LAW SCHOOL: It's altogether different, in fact, for a number of reasons, right? The first is that all of the money is coming out of the Deposit Insurance Fund. That is to say, it's a fund that is fully funded by banks themselves, who pay premiums into it. And all of the money that's coming out comes out of that funds, just like in any insurance company case, right? So there's no sort of taxpayer on the hook this year.
And with the fund itself were to be depleted. But that, of course feeds into a sort of a second piece of all this, as you guys know, I've been proposing for the last couple of days fairly urgently, an updating of the Federal Deposit Insurance Scheme, we really awe at this point, right to sort of essentially ensure all deposits in full provided that we risk price to premiums.
So I think that's one difference, right? That -- there's a somewhat different story last time. Another sense in which it's very different this time is last time remember, it was the loans that were the problem, right? There were underperforming loans, there were defaulting loans, there are loans that were going delinquent. In this case SVB, all of the loans appeared to have been perfectly prudently lent, there was no suggestion that any of them were in any way troubled, or that any of them were underperforming or going delinquent.
The entirety of the risk that they had admittedly bone heavily, not hedged against was interest rate risk. But that's essentially the same risk that the Fed itself is facing is, in essence, the portfolio that Bibi held, was the Fed portfolio apart from the loans, of course, which again, all we're doing well. So the difference, of course, is that the Fed can deal with, of course, a temporarily diminished portfolio, because it's not a business. But private sector businesses can't deal with that.
And so in this case, what we're doing essentially is preventing a self-fulfilling prophecy from eventuating. And otherwise, keeping totally, you know, entirely sold in banks in business.
BOLDUAN: I'm also then wondering, though, if Christine, if this isn't too big to fail, does this mean, you can be too small to fail? I'm trying to figure this out.
ROMANS: I know. And at what point will the government just walk away and say, look, this is capitalism, right? This is -- this bank needs to fail. This doesn't seem on its surface to be a kind of bank that is a systemic risk. It's in this bank. It was a lender and a banker to venture capital into startups. But that is still a really important part of the economy. And we're in this weird time with these interest rates have gone up so far so quickly, that no one really knew exactly what kind of problem might be out there that we don't know about yet, and how that panic might spread.
So I think that I don't think the government's going to always bail out everything. But there is a big discussion right now about are you essentially nationalizing the banks here, if you know, if the federal government says, you know, we're going to always protect depositors. So it is a debate, and I think we're in the early innings of what's going to happen next. And you look at banking stocks today, all those regional banks are down pretty sharply here.
There's kind of a reckoning happening in the banking sector right now because of those of those treasury securities and the securities on their books.
BOLDUAN: It feels a little bit out of the woods, but definitely not out of the woods. Robert, you know, the Republican Chair of the House Financial Services Committee, said something that I wanted to reach you and get your take on. He's -- McHenry said this was the first Twitter fueled bank run. At this time, it's important to remain level headed and look at the facts, not speculation when assessing the right path forward, you know, people are talking.
So there's so much rightfully to discuss here about kind of this -- kind of word contagion or social contagion and the fear associated with it, and how does it take hold if it does, how real is that?
ROMANS: I think that was very wisely put by the chair of the committee. And I think that Representative Ro Khanna has said something similar over the last couple of days. He's saying that you know all of the news sort of moves at the speed of Twitter and that presents us with a different environment, runs can happen much more quickly which is all the more reason I think this sort of modernize and update the Federal Deposit Insurance System.
[11:15:11] A related point here, I think worth noting, if we don't want the Jamie Dimon style, one size fits all banks to take over everything, which is the alternative that we're talking about here. Now that we're in embarked on this great project of reindustrialization of the country now that we're trying to move back into making things in the productive sectors rather than the speculative markets, it's going to be important that we have sector specific banks that we have these niche banks that are essentially sector specific, in this case, a tech specific bank.
But there are also agriculture specific banks. There are mortgage specific banks in the like. And it's helpful to have these. They are effectively de facto credit unions within particular sectors. And all that is necessary in order for them to be viable and to provide very good services to their depositors into their clientele is that they managed prudently.
And for the most part SVB was, again, you know, it bears noting right that Treasury securities essentially get a zero risk weighting when we talk about capital regulation. And that's what SBV was invested in. Literally the only mistake that they made was not to hedge against interest rate risk. But as you guys noted a moment ago, we haven't had a 450 basis point rise in interest rates within less than a year for nearly 50 years.
The last time we saw this was Paul Volcker's period. And we remember or at least we read that there was, of course, desperately going across the industries and across financial sectors at that time, so it's kind of actually, you know, good news I think that this storm is comparatively contained, you know, in comparison to what we saw during the Volcker period.
BOLDUAN: So interesting, Robert, thank you. Christine, thank you so much for walking us through. Really appreciate it.
Coming up for us, with storms that just won't quit, severe flooding is now forcing evacuations, more evacuations in California, a new round of rain is on its way a live report ahead.
BOLDUAN: An already desperate situation is about to become even more dangerous on the west coast. More than 18 million people are under flood watches across California and Nevada. Another atmospheric river is bearing down on them today meaning even more rain for areas that have already been facing true flooding disaster. CNN's Mike Valerio is in Pajaro, California with much more on this. Mike, the levee breach there has been a big part of the problem. What are you seeing now?
MIKE VALERIO, CNN NATIONAL CORRESPONDENT: Well, Kate, good morning. You know, this broken levee is the whole reason why we have all of this water surrounding us in the heart of Pajaro. But before Kate, we give you a tour of the neighborhood, we want to take you up and give you an aerial perspective of drone video that we shot just before sunset yesterday.
So it shows you from above where we are standing here again in the heart of this community and also the video transitions to this levee which failed midnight into the early hours of Saturday just to imagine a 120-foot stretch of this levee broken, Kate, we have the 10th atmospheric river of the system, bringing more and more water in. That's what everybody is dealing with right now.
So back here to our location, again, at the heart of the community, thankfully though, the water has started to recede yesterday, the water was up here to the top of this bumper. Now it's all the way down here about six inches and so much is at stake, Kate, because when you see in our backdrop, we have all of these homes, homes populated mostly by migrants.
You know, we have Pebble Beach, Silicon Valley, so close to us Halcyon Coastline. But people work incredibly hard here. There are Berry Farms down the road further in our backdrop, so much is at stake, Kate, if this levee isn't fixed with the plan to put more and more boulders into that gap between now and 11:00 p.m. We're going to see if it works. That is the best fix that engineers have. Again, trying to put more and more boulders into that gap, Kate?
BOLDUAN: Absolutely. I mean lives and livelihoods at stake here. Thank you, Mike for putting a finer point on that. I appreciate that. Much of Monterey County, which Pajaro was part of in California is facing this threat today. For more on this, let me bring in the mayor of Monterey, California, Tyler Williamson. Mayor, thank you for coming back in. Look, you and I talked what two months ago and you're already dealing with it. You were dealing with other weather. I mean, it is just a one, two, three punch that you guys just go are having to face down. Talk to me first about what's happening in Monterey right now.
MAYOR TYLLER WILLIAMSON, MONTEREY, CALIFORNIA: Yes, so as has been discussed already, we're dealing with this tropical Pacific atmospheric river, which we call the Pineapple Express, and it's caused significant amount of rain and wind gusts that have gone up to 55 miles per hour. And with the ground already being saturated from previous rainfalls, and then this one hitting us hard, you know, our team has been prepared as possible, but we weren't expecting it to be as bad as we're seeing it.
And so we've found hundreds of trees down on Peninsula cities that have knocked down, you know, wireless, I'm sorry, telephone lines and power lines. And so, wide parts of our communities have been without power for several days. Most of that has been restored at this point, but there are still pockets throughout our region that are without power.
We've had 10 homes just here in the city of Monterey that have been hit by trees. And then of course you talk about the significant power outages across the peninsula. So we've had upwards of 40,000 customers without power at the peak, and then you talk about the rivers so the Pajaro River in the levee breach that was just discussed that's a significant issue.
And it was 120 feet when the levee initially broken. Now it's expanded to 300 feet. And then we also have the Salinas River, which is the longest river in Monterey County about 175 miles long. And that river is looking at breaching one of the major highways that folks use to get to the peninsula. And so, we're just concerned regards to the highway 68, and potential for highway one to lock in the Monterey Peninsula here.
BOLDUAN: Mayor, I was going to ask you about that, if the kind of fears are realized, with this next round of rain coming in, I mean, two additional inches and parts, which could be just plenty enough to kind of cut off those Peninsula communities. What do you do?
WILLIAMSON: Yes, well, fortunately, our team is ready to go. We have provisions that can last us three or four days, we don't think it'll be that bad, I think -- we think it will peak at a certain point, it will last for a short period of time, and then it will subside enough for us to be able to reopen the roads and allow people to get in and out. So fortunately, we're ready for this. But it hasn't happened in a long time. And so it does cause a little bit of concern for folks. And we just ask everybody as much as possible to try not to travel too much to stay home, keep off the road so that we can make those spaces available for our public safety officials to respond to the greatest needs and urgencies around the area.
BOLDUAN: Absolutely. And Mayor, I mean in so many ways you and your city have been on one of the front lines of the climate crisis really for months now. I mean, you were dealing with historic drought. And then you've just been slammed with storm after storm, which is, you know, what you and I were originally talking about back in, I believe it was January when we first spoke. What's your message to people in other parts of the country about what these weather extremes really mean right now.
WILLIAMSON: I mean, we're all feeling it, it doesn't matter what part of the country you're in. You're experiencing the impacts to climate change. And we're just happened to -- happening to experience that through droughts, we have years where we don't get much rain at all. And that's deeply impactful to us because our water supply is limited to our region. We're not connected to the major water supply systems that exist throughout the state of California.
So we have to figure out how we mitigate that. And then we have these years where we're getting all the rain coming down at one time. And it's just so much that we're not able to capture it all. So it's great because we need it. But it's dangerous, it causes mudslides, it causes roads to go out. And that's another major thing that I would share with folks is you have to be careful when these roads start flooding, because if you try to drive through them, you don't know what's going on beneath them.
So I just urge people not to drive through those. But folks across the country are seeing it and, you know, my mom lives in upstate New York, and they're dealing with the nor'easter. And so, you know, we're all experiencing in our own ways, depending on what parts of the region that we live in. There's major parts of the country that are seeing expanded tornadoes happening across the country. So we're all feeling it. And there's little that we can do. I just urge everybody to use caution and be mindful of the impacts that we have on our environment.
BOLDUAN: Yes, absolutely. Mayor, thank you so much. Good luck over these next couple days. Thank you.
WILLIAMSON: Thank you Kate. Appreciate it.
BOLDUAN: Of course. So how much rain is coming? What do they need to be looking at CNN meteorologist Chad Myers, he's tracking this he's joining us now. Chad, what do you seeing, what do you think what we heard from Mayor?
CHAD MYERS, CNN METEOROLOGIST: No, probably another five to seven inches for there. Monterey right here and then all the way down the Central Coast Big Sur. You know there are going to be roads that are washed out for a long time. This is still to come. This isn't what has already fallen. Some spots have already picked up a foot of rain.
Rain on top of snow, snow that is melting and then getting back into the river system and all that water that we saw from our reporter there really coming from Gilroy, an area that's always looks dry, but that's where the water was coming down that river and into these areas.
Let me show you what's going on here. It's going to be wave after wave of weather for starting tonight and into tomorrow morning. Very heavy rainfall by daylight tomorrow, 6:00 a.m. heavy rain all up and down the coast, heavy snow above 5 or 7,000 feet. We will see more snow on top of the mountains but significant rainfall to come.
Reading to the north today, farther to the south for tomorrow right in that zone where that Mayor was living. Here's where the wind is. But here's the next storm that will be a wind maker for the Northeast. The mayor actually even talked about his mom upstate New York with the nor'easter coming in. There will be snow, New England, upstate New York in the interior, some spots more than a foot. Kate?
BOLDUAN: Chad, thank you for being on top of it all.
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