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At This Hour

Investors Watchful After Two Bank Collapses; U.S. Federal Reserve To Discuss Interest Rates Next Week; Interview With Rep. Josh Gottheimer (D-NJ); California Flood Watches For 30 Million. Aired 11- 11:30a ET

Aired March 14, 2023 - 11:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

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KATE BOLDUAN, CNN ANCHOR (voice-over): Hello, everyone. AT THIS HOUR, a new gut check on inflation and what led to the collapse of SVB.

Both coasts getting slammed, torrential rain continuing out West.

And now, Rite Aid is being accused of fueling the opioid epidemic.

This is what we are watching AT THIS HOUR.

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BOLDUAN: Thank you for being here, I'm Kate Bolduan.

And we are beginning with the turmoil, the fallout and the wild ride that has already been this week since the abrupt collapse of Silicon Valley Bank. The Federal Reserve is investigating the oversight of the bank to figure out what went wrong and who missed what.

The nation's regional banks are bouncing back after confidence in the institutions was shaken yesterday. This is how the stocks are performing right now. That is not all that is shaking up the economic picture this morning.

We got the latest read on inflation. The government reporting that inflation, while still elevated, fell for the eighth straight month in February. Matt Egan and Rahel Solomon joining me.

Matt Egan to you, what are we seeing?

MATT EGAN, CNN BUSINESS SENIOR WRITER: We are seeing that the pressure is easing here. And the fact that regional bank shares collapsed yesterday, First Republic Bank shares were down 62 percent alone. But they're bouncing back in a big way.

And perhaps more important than what the stock prices were doing, we are seeing what the people are doing with their deposits. A senior Treasury official told our colleague, Phil Mattingly, that people taking money out of the bank is slowing. This is after Washington launched this shock and awe campaign trying to end the panic. And they wanted uninsured depositors to know that they are protected.

And also, this is all psychological, right?

Panic set in on Friday and over the weekend. Hopefully cooler heads will prevail, because we know that the FDIC insures up to $250,000 per borrower per bank and U.S. officials are willing to rescue the uninsured as well.

BOLDUAN: Stand by to stand by, right.

Rahel, what do you see on this latest check on inflation?

RAHEL SOLOMON, CNN CORRESPONDENT: The Fed has a lot to consider, including the fragility of the banking sector but also new inflation data. It's coming down and another headline coming in at 6 percent annually is matching what economists have said.

So that is excluding the volatile categories like food and energy. But when you look under the hood, a bit more concerning signs. Food prices are still higher by 9.5 percent over the last year.

Shelter prices -- and these are essential categories -- are up about 8.5 percent annually Shelter prices was the largest contributor to rise that we saw in inflation. And so still some concerning signs.

But essentially, we are seeing that inflation is cooling in a gradual way, as if you are turning off the oven at home after you cook something. You can't snap your fingers and it is automatically going to cool. It will take some time.

The White House announced new initiatives to help Americans deal with higher prices is a long process, the White House clearly trying to do what it can to help.

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SOLOMON: It is limited, yes. But the Fed has a lot to consider when it is meeting next week and you are hearing fierce debate in the financial community about whether they should pause because of what we are seeing.

BOLDUAN: They had a lot to consider before last week.

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BOLDUAN: And now after this weekend, it is even a more complicated picture. That is why the Fed is the Fed. And that is why it is their job, to figure it out.

But before we get to where the Fed is going, what is going on with Meta, now announcing more layoffs?

EGAN: More layoffs from the tech industry, laying off another 10,000 workers, the second round in four months. Back in November, they announced 11,000 job cuts, biggest in their corporate history and, today, they said they are closing 5,000 job openings they had.

This is happening for a few reasons. One, the Fed's interest rate hikes has slammed the valuation of tech companies. And they are under a lot of pressure to boost their profitability and cut expenses and also remember that the tech industry went on a hiring binge during COVID-19.

They added so many jobs, that they also incorrectly, in hindsight, anticipated demand during COVID would continue. And that has not happened. So they've been forced to correct and, unfortunately, that means they have to lay off workers.

BOLDUAN: And the tech sector hit again in a different way. Thank you for being with us.

We have Mark Zandi, who is chief economist for Moody's.

Mark, what do you see in this report?

Mixed mood or what are you seeing?

MARK ZANDI, ECONOMIST, MOODY'S ANALYTICS: Well, it is a script. and the good news is that it did not surprise anybody. But the bad news is that inflation is still hot. Year over year CPI inflation of 6 percent; moving in the right direction. The peak was last June, close to 9 percent, so moving in the right direction.

But I think that for us to be feeling comfortable and for the Federal Reserve to be feeling comfortable about things, it has to be below 3 percent. I am hopeful we need to see progress. Show me.

BOLDUAN: I think that everyone wants some show-me progress.

Before this week, CPI was the biggest data point the Fed would consider before they meet next week. And since then, two regional banks collapsing.

And how much more complicated is the decision after SVB on interest rates for the Fed?

ZANDI: Well, to disentangle this is very difficult. My thought is that the Fed is going to pause. They came up with these extraordinary measures to make sure that everyone understands that the government has the banking system's back and your money is good where it is in the bank.

They, you know, set up a credit facility -- and I won't go into the details -- but providing the banks to cash if they need it. With all that uncertainty, it would surprise me, despite the inflation and despite the strength of the economy for them to raise rates.

And I don't think it would make sense. They should pause and look around and raise the rates in May if they need to. BOLDUAN: And that is interesting, because, in your view, tackling the

inflation or restoring the confidence or calm in the banking system, is it either/or for the Fed?

ZANDI: Well, if you lose confidence in the banking system, it a complete mess. And we won't be talking about inflation at that time. But we will be talking about high unemployment and they don't want that.

So priority number one is to make sure that the banking system is on solid ground and people are confident that it is on solid ground. And once they establish that, then they can turn back and say, OK, what do I need to do to get the inflation back in.

And by the way, Kate, they don't need to do a lot more. As I said, it is moving in the right direction. We have to be patient and realize some positive things are happening underneath the hood to give us confidence. Without further rate hikes or another rate hike or two, we will get the inflation back in the bottle in a reasonable amount of time.

BOLDUAN: Last night Moody's put six U.S. banks on review.

What should people take from this?

ZANDI: Well, I am not in the rating industry but the banking system is under pressure. I think that the Silicon Valley Bank and Signature are an idiosyncratic case on their own. I believe that is what the ratings represent. At the end of the day, the big banks, the guys that really matter, they are in good shape.

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BOLDUAN: So a lot has been made of the rollback of banking regulation in 2018, by Congress and people suggesting that this mess with the banking situation and the mess with SVB and Signature could have been prevented had those regs still been in place, not rolled back.

ZANDI: Well, I don't know if it would have prevented it but it would have helped. The rollback allowed banks like SVB, because of their size, they are no longer big enough to take the stress test.

The stress tests are important, because they ask the banks and the regulators to simulate what would have happened to you, Mr. or Ms. Bank, if unemployment went to 10 percent, if the stock market plunged, if interest rates spiked.

Those are the things they have to be prepared for. And some institutions were too small didn't take that test because of the rollbacks. So I don't know, if they were regulated like they were before the change, if it would have forestalled this problem. But it certainly couldn't have hurt.

BOLDUAN: It is always great to see you, Mark. Thank you so much.

ZANDI: Yes, any time, Kate. Thank you. BOLDUAN: Thank you.

For another important perspective, let's get the view from Congress and bring in Democratic congressman Josh Gottheimer from New Jersey.

And thank you for joining us.

REP. JOSH GOTTHEIMER (D-NJ), CHAIR, HOUSE PROBLEM SOLVERS CAUCUS: Thank you, Kate.

BOLDUAN: Do you think that the actions taken by the Biden administration have done enough to stem the tide and keep more banks from collapsing?

GOTTHEIMER: I think you are seeing better news today than the past couple of days. I think we need a watchful eye and obviously the administration and the Treasury are doing that to make sure there is not a run on further small or regional banks.

I heard from our smaller banks and regional banks in Jersey, who saw a influx of people coming in to take their money from nonprofits and smaller businesses. And that is what I worry most about, with the smaller banks who went through this.

We can't go back to too big to fail and only a few banks with all the concentration. We need strong local, regional banks. And we can't have too many banks too small to survive for those regional banks.

BOLDUAN: Well, let me pose the question to you and what you said, is the administration's actions in any way incentivized more risky behavior as the people see the government coming to the rescue?

GOTTHEIMER: No, because I think that this is not about saving the shareholders, right. The administration was clear about that. The shareholders lose here. This is about protecting the depositors.

And if you go to bank and you can't trust that your money will be there, if you're a small business or a farmer, regular folks don't know if it is going to be there in the morning, we're going to have a real problem, a systemic problem.

People have to know when the deposit money, it will be there in the morning. Otherwise you'll have runs across the country and a systemic risk to the whole system, which is what the Fed stepped in and took action on Sunday night about.

BOLDUAN: And now the Fed is conducting a review of Silicon Valley Bank's oversight to see if, who and how was asleep at the switch on this one.

But what do you want your committee to do in light of this, in light of the bank's collapse?

GOTTHEIMER: Well, same questions, to really understand how this happened.

Are there more steps that should be taken?

I believe, in the case here, Silicon Valley, it seems to me, had the wrong list, took the wrong investments in Treasurys. And as the interest rates go up, the values go down and when there was the run on the bank and everybody showing up at the same time to get their money back, they didn't have enough cash.

And so it is not whether there's enough assets on the balance sheets, it was the wrong mix.

And how did that happen?

The Fed had oversight.

Were they asking the right questions and keeping an eye out for this?

I am worried about that for all of the regulators across the country, making sure that these banks are secure and sound. And that is what we need to know to get to the bottom of it.

And the FDIC insurance is another piece, because people need to feel confident that their money is safe, whether they are over the $250,000 or not.

BOLDUAN: I just spoke with Mark Zandi. I asked if the regulation rollback could have been a cause in this case. And he said that it couldn't have hurt.

[11:15:00]

BOLDUAN: So even if it is not a driving cause, do you believe that the rollback was a mistake?

GOTTHEIMER: No, because in that bill, a couple of things. It allowed the Fed, if you have more than $100 billion in assets, to do a stress test. The Fed didn't do that; they were doing every other year. So I want to understand why.

And part of the importance was ensuring that community banks could be strong and so when Dodd-Frank was passed, it had all of the same requirements for large banks and community banks.

And so community banks were consolidating and selling to the big banks, which is the opposite effect of what we were trying to create, which was getting away from a few banks that were too big to fail.

And so why weren't the regulators doing the job to get the asset mix correct?

That is what I am interested in and whether or not the bank had enough assets on the balance sheet but a question of ratios and mix and the long-term Treasury bills and investments. And of course, what they had in the liquid cash.

And that is the question that we have to get to the bottom of. The big thing is that, Kate, we don't want to go back to too small to survive and too big to fail. That is a disaster for the banking in our country and we need strong community banks.

And I will keep saying it over and over again. And I want to make sure that we have a system where larger institutions obviously can be strong and protected and so can the smaller institutions and depositors can be assured that their money will be there in the bank.

BOLDUAN: And confidence that, overnight, the bank will not be shut and so long, good luck.

It is great to have you.

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BOLDUAN: Say it again?

ZANDI: -- that it is the contagion that we have to keep a watchful eye on in the coming weeks. And we are all going to be working toward it in the committee and the administration.

BOLDUAN: And as we know, you have a ton of questions to be answered. Thank you, Congressman, for your time.

So 20 million Americans in the path of a dangerous nor'easter and that is not all, sever weather is still slamming the West Coast. We will have live weather reports for you next.

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BOLDUAN: So this morning we are tracking two big storms on opposite sides of the country right now. And this, of course, means millions of people are dealing with dangerous weather.

On the East Coast, the first nor'easter of the season bringing heavy snow and ripping winds. In the West, another round of wild rain and expected flooding for California.

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BOLDUAN: The Justice Department is going after a major drugstore chain for knowingly contributing to the opioid crisis. The case against Rite Aid -- ahead.