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Credit Suisse Borrowing $53 Billion From Swiss Central Bank to Stay Afloat; Video Shows Russian Jet Forcing Down U.S. Drone; Treasury Secretary Addresses Banking Concerns at Senate Hearing. Aired 10- 10:30a ET
Aired March 16, 2023 - 10:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JIM SCIUTTO, CNN ANCHOR: A very good Thursday morning to you. I'm Jim Sciutto.
ERICA HILL, CNN ANCHOR: And I'm Erica Hill.
Any moment, Treasury Secretary Janet Yellen set to take her place in the hot seat this morning, which should be facing lawmakers. Originally, she was supposed to talk about the budget, but you can bet there will be plenty of questions amid concerns over the U.S. banking sector. Yellen set to strike a calm, confident tone as she tells Americans that banks are sound and their deposits are safe. We're going to bring you those remarks live.
SCIUTTO: Plus, simply stunning video. We're now seeing the very moment a Russian fighter jet collided with a U.S. drone over the Black Sea, forcing it to crash into those waters. This newly declassified footage incredibly significant. We are going to explain just how.
We do begin though with the state of the U.S. economy and the world economy as well.
HILL: CNN's Matt Egan is with us now. So, everybody paying very close attention to the treasury secretary this morning, to her words, she is getting out of this a little bit, right, putting out some of those statements. She wants Americans to remain, to know that their money is safe.
MATT EGAN, CNN REPORTER: Yes, this is a big moment for the treasury secretary. I mean, Janet Yellen, she knows that confidence is a fragile thing, and, clearly, it has been shaken by the bank failures in recent days. So, she's got to go out there and reassure the public that the money in the bank is safe. In her prepared remarks, we know that Janet Yellen says that, quote, Americans can feel confident that their deposits will be there when they need them. And she points to what she describes as, quote, decisive and forceful actions that U.S. officials took over the weekend when not one but two banks collapsed. And she points out that deposits in those banks were safe, notably even above the $250,000 FDIC insurance limit. So, that's the message from U.S. officials. I think if you look at the market though, the market is telling a little bit of a different story. We the U.S. stocks are opening lower, and look at the bank stocks. Now, the first line there are regional banks, the top line. First Republic Bank, that's a San Francisco-based regional bank, down 30 percent this morning, a 10 percent loss for Western Alliance, PacWest down 20 percent. These are very significant losses on top of what's already been significant losses. Clearly some concerns there remain about those regional banks.
Credit Suisse is up but not all that much despite the fact that last night, we had the Swiss National Bank, the central bank there, swoop in with this $50 billion lifeline for Credit Suisse. JPMorgan is out with a report this morning saying that they don't think that this emergency support is actually enough, and Credit Suisse is still going to need to be taken over. So, markets are clearly on edge and we have officials on really both sides of the Atlantic scrambling to try to put out this fire.
HILL: Yes, absolutely. All right, Matt, we'll keep an eye on it. Thank you.
SCIUTTO: Well, just time ago, the European Central Bank raised Eurozone interest rates by half a percentage point. The hike the first decision by central bankers since concerns spiked about the global banking system. Earlier, I spoke with the U.K.'s chief finance minister, Chancellor of the Exchequer Jeremy Hunt. I began by asking him about Credit Suisse securing that $53 billion loan to shore up its balance sheet.
SCIUTTO: Credit Suisse, of course, is a globally interconnected, systematically important bank, far different from Silicon Valley Bank.
Are you concerned from an economic perspective that the U.K. has potential exposure to the risks associated with Credit Suisse?
JEREMY HUNT, U.K. CHANCELLOR OF THE EXECHEQUER: Well, as I say, we monitor the situation. What I will say, Jim, is that since the financial crisis of 2008, we have massively strengthened our regulatory safeguards. And last weekend, the Bank of England said he had full confidence in the stability of the U.K. markets and U.K. system. The reason that we work night and day to try and find a solution to the Silicon Valley Bank issue was not to do with financial stability but because of our tech sector. Because amongst the U.K. subsidiaries customers were 4,000 of our most important tech and life science companies, and we wanted to make sure that their deposits were secure. So, that was our motivation, and we were very pleased to be able to secure the sale of the U.K. subsidiary to HSBC.
SCIUTTO: On that topic, U.S. -- the U.K. steps regarding Silicon Valley Bank, is it your view that the SVB issue has been contained in the U.K.?
HUNT: In the U.K., yes. We believe that we have got a solution that the SVB customers are able to access their deposits as normal. I think it might have taken one or two days at the start of the week for full banking services to be restored under the new owner, HBSC, but they are now supported by Europe's largest bank and one of the most credit- worthy organizations in the world.
SCIUTTO: You mentioned regulations post-2008, which were designed to prevent that sort of thing from happening again, among them stress tests, et cetera. What has this exposed about any weaknesses in those measures and given the troubles of the Credit Suisse, the questions about Credit Suisse, in your view, in the U.K.'s view? Does this now require a second look to see if the regulations need to be further tightened so that we don't get to this precipice again?
HUNT: Well I think from the financial and regulatory point of view, the robustness of the new rules was demonstrated in Silicon Valley Bank U.K. was solvent. And that was because of the requirements that have been put in place since the banking crisis of 2008. But from the point of view of our tech sector, our life sciences sector, remember, the U.K. has the third largest tech economy in the world after the United States and China. We are Europe's largest life science industry. We have got Europe's largest T.V. and film industries.
So, we have a budding Silicon Valley happening here in the U.K. And I think what we realized is that we need more diversity so that those very important companies have more choices to where to bank, how they can get scale up capital. That's something we're looking at because we want people to be able to expand the unicorns, even decacorns in the U.K. without having to move overseas.
SCIUTTO: Understood. Yes, you don't want all of your eggs in one basket. If we could move on to the question now of inflation and interest rates, interest rates in the U.K. stand at 4 percent comparable to where they are here in the United States. Are you seeing any the cracks in the U.K. financial system from these rates?
HUNT: We believe our financial system is totally robust but inflation is too high, and we want to bring it down, because inflation is bad for families in the U.K. just as it is bad for the families in the United States. And we have set a course, I announced it yesterday at my budget, to bring inflation down to less than 3 percent within the year. And we think we are on track to do that. But that's not about the stability of the financial system. It's just because it's very bad in the economy, it causes industrial disputes, it eats away at the value of people's pay packets, and we think it's a bad thing, and that is why we want to tackle it.
SCIUTTO: Do these latest concerns, though, about SVB, Credit Suisse give any incentive to pause at least on the hike in rates to prevent putting other banks in danger?
HUNT: Well, we have a very strict policy in the U.K. of saying that the Bank of England is fully independent from the finance ministry what we call the treasury here. And so they make decisions on monetary policy that are completely uninfluenced by me.
So, I leave it to them, and I think that system, since the Bank of England has become independent, has been pretty successful on the whole and keeping inflation low. But I would never get involved with their decisions about the appropriate level of interest rates.
SCIUTTO: Let me ask you from this perspective then. Inflation in the U.K. higher than even here in the U.S., stands at more than 10 percent. Larry Summers, the former treasury secretary here, he described it this way. He said that inflation is a threat but that the banking strain is only a fear.
From your perspective as you -- with your job helping to manage the U.K. economy, what is the bigger threat? Is the bigger threat inflation or is the danger from rising inflation rates?
HUNT: Well, they go together. Because when inflation is high, then central banks use the interest rates as a lever to bring down inflation. And that, of course, is very challenging for families who see the prices of their mortgages go up, for businesses who see the price of their loans go up, but it is the lesser of two evils because it helps bear down on inflation. And we do not want to go back to the high inflation economies that we had in the 1970s. I think that we all know how dangerous that could be. So, inflation is our focus.
SCIUTTO: With enormous repercussions for average, the economy, et cetera. Mr. Chancellor, we appreciate you having on this morning. Thanks so much for taking the time.
HUNT: Thank you, Jim.
SCIUTTO: New this morning, just incredible video just declassified and released by the U.S. military showing the very moment a pair of Russian SU-27 fighter jets, wow, look at that, forced down a U.S. MQ-9 Reaper drone over the Black Sea. I'm told this morning the U.S. military able to extract this latest video. Just the last 24 hours, the first video they had less conclusive. This one, Erica, it really does show it hit it.
HILL: Yes. CNN National Security Reporter Natasha Bertrand joining us from the Pentagon this morning with more. So, Natasha, walk us through what we are seeing in this video.
NATASHA BERTRAND, CNN NATIONAL SECURITY REPORTER: Yes, Erica, really remarkable footage here. So, essentially, what we are seeing is the vantage point of the drone, and we're looking at the Russian fighter jet kind of speeding up towards the drone, releasing a whole bunch of jet fuel, kind of spraying it on to the drone, and then the video cuts out. And that, we're told, is the moment of impact. That is when the Russian fighter jet hit that drone. And then you come out of it, the video reemerges and you can see that that propeller, which was intact at the beginning of the video is now damaged. And that is a result of the direct hit by the Russian fighter jet on this drone.
Now, this video really directly contradicts the Russian narrative of events. Just remind viewers, the Russians have been saying repeatedly over recent days that the fighter jets did not make physical contact with the drone and that the pilots were acting in a very professional manner. Well, now, we're seeing that actually this video appears to back up the U.S.'s version of events, which is that the pilots appear to act recklessly and dangerously and directly kind of harassed the drone, ultimately hitting it.
Now, it is unclear at this point what is going to happen to the wreckage of this drone, which did fall into the Black Sea. We are told that the Russians have arrived at the site of the crash, but it is unclear whether they are going to be able to obtain any of the debris or wreckage because the depth of the sea there is very, very deep, it's about a mile deep. And the U.S. itself does not have any naval assets in the area that would allow it to readily go and collect the debris itself.
Finally, we should note that out of all of this, we are told that this was a direct order by officials within the Russian Defense Ministry for the pilots to actually take this action and directly harass this drone. So, this wasn't just some rogue pilots that made this attempt to intercept the drone, this was actually a tasking that came directly from the Russian Ministry of Defense. Jim, Erica?
SCIUTTO: Yes, with extreme danger. Natasha Bertrand, thanks so much.
HILL: Still to come here, on the run, the authorities now searching for former Maryland Governor Larry Hogan's ex-chief of staff, this after he skipped out on a court date, what he is accused of doing.
SCIUTTO: Plus, a super PAC closely aligned with former President Donald Trump is now demanding ethics investigators, go after who, Florida Governor Ron DeSantis. Why they say his recent political activity violated state law.
And an alarming report from the CDC, the maternal death rate in the U.S. is spiking. What's driving that rise? We'll explain just ahead.
HILL: Take you now live to Capitol Hill. Treasury Secretary Janet Yellen appearing there before the Senate Finance Committee. Originally, she's scheduled to be there talking about President Biden's budget, but you can imagine that much of the initial question will likely involve the banking system, inflation concerns. Let's listen in.
JANET YELLEN, TREASURY SECRETARY: Chairman Wyden, Ranking Member Crapo and members of the committee, thank you for inviting me here today. I'd like to start with an update on the recent developments in the banking system. This week, the government took decisive and forceful actions to stabilize and strengthen public confidence in our financial system. First, we worked at the Federal Reserve and FDIC to protect all of the depositors of the two failed banks. On Monday morning, customers were able to access all of the money in their deposited accounts so they could make payroll and pay the bills.
Shareholders and debtholders are not being protected by the government. Importantly, no taxpayer money is being used or put at risk with this action. Deposit protection is provided by the deposit insurance fund, which is funded by fees on banks.
Second, the Federal Reserve is providing additional support to the banking system with a new lending facility. This will help financial institutions meet the needs of all of their depositors. I can reassure the members of the committee that our banking system is sound and that Americans can feel confident that their deposits will be there when they need them.
This week's actions demonstrate our resolute commitment to ensure that our financial system remains strong and that the depositor's savings remain safe.
Now, let me turn to the topic of the hearing, the president's fiscal year 2024 budget. Over the past two years, the United States has experienced a historic economic recovery. In January 2021, our country was in the middle of an economic calamity triggered by the coronavirus pandemic. But Congress and the president took decisive action through the American rescue and our vaccination campaign. And today, our own unemployment rate is near historic lows and we have seen the strongest two years of business creation in history.
Now, our task is to navigate our economy's transition from rapid recovery to sustainable growth, and this includes bringing down inflation. We have seen some moderation in headline inflation but more work needs to be done. Our administration will continue to build on the actions we have taken to expand supply and provide cost relief in areas like energy and health care.
With your partnership, we have also laid a foundation for long-term economic growth. In just the past two years alone, Congress passed three transformational laws, a generational investment in infrastructure and a stark expansion of American semiconductor manufacturing, and the largest investment in clean energy in our nation's history.
The strategic priority for our administration this year is to work with you to effectively implement these laws. We are seeing the early results. In just seven months, there has been a wave of investments in clean energy manufacturing across the country. And our new resources for the IRS are already paying off. Taxpayers are getting drastically improved customer service this year. For example, we have answered hundreds of thousands more phone calls during this filing season than at this time last year. Our proposed budget built on our economic progress by making smart fiscally responsible investments. These investments would be more than fully paid for by requiring the corporations and the wealthiest to pay their fair share. Fiscal discipline remains a central priority in the budget. We have proposed a minimum income tax of 25 percent on taxpayers with wealth in excess of $1 million. We have also proposed an increase of the corporate tax rate to 28 percent from the current 21 percent, and it will come as no surprise that I hope Congress will implement the United States' part of the global minimum tax deal.
On the spending side, we suggest additional investments to boost our long-term growth potential. This includes the improving the availability of high quality child care, providing free and universal preschool and boosting the supply of affordable housing. We also proposed restoring the child tax credit and earned income tax credit expansions that were enacted in 2021 but have since expired. Importantly, with the proposed tax reforms, we estimate that this budget will deliver deficit reduction of nearly $3 trillion over the next ten years. Thank you and I look forward to taking your questions.
SEN. RON WYDEN (D-OR): Thank you, Secretary Yellen. Let me begin with what I emphasize that it is critically important that Congress take steps to make sure there're no questions about the full faith and credit of the United States. And this is a matter within the finance committee's jurisdiction.
Now, on Friday, the House Ways and Means Republicans passed a plan dealing with what they call prioritizing payments by the treasury.
They say that when treasury runs out of stop gap funding, it should prioritize payments to Wall Street and creditors in China and everybody else. I'm coming off some town hall meetings in Oregon this weekend. It wouldn't be a big hit everybody.
Now, setting aside the merits of this Republican plan, does the federal government have the technical capacity to prioritize some payments ahead of others? I understand there's not even a precedent for this.
YELLEN: The government on average makes millions of payments each day, and our systems are built to pay all of our bills on time and not to pick and choose which bills to pay. There is a reason that treasury secretaries of both parties have rejected this incredibly risky and dangerous idea, and it has never been tried before.
SCIUTTO: We've been listening there to the U.S. secretary treasury, Janet Yellen, testifying on Capitol Hill. Notably, she began by saying these words, the U.S. banking system is sound, meant to be words of encouragement, as there are continuing fears about exposure of banks as interest rates have gone up. We'll continue to watch as she testifies there.
HILL: Joining us now is CNN Senior White House Correspondent M.J. Lee. So, of course, she had been scheduled to appear there before the Senate Finance Committee, M.J., to talk about President Biden's budget, which we heard a lot of at the tail end of her remarks. As Jim noted, though, she did begin by talking about what is on everyone's minds, and that is, of course, these bank failures and the action that was taken over the weekend. What more is the White House expecting from this appearance this morning on the Hill and specifically in terms of the questions that she may be getting?
M.J. LEE, CNN SENIOR WHITE HOUSE CORRESPONDENT: Yes, Erica, you are absolutely right, that this was a hearing that was previously schedule for the treasury secretary to talk about President Biden's budget, but the timing of this has become so key, and you heard her right off of the top addressing the health of the U.S. financial market and talking about the failure that we saw in recent days of Silicon Valley Bank and Signature Bank, and she was very clear at the top saying the words, our banking system is sound. And she said that the actions that the administration took in recent days should reassure Americans that their deposits are safe.
She, of course, was referring to the sweeping emergency actions that we saw the administration take over the weekend. One backstopping all of the funds of the depositors and also the Federal Reserve creating this sweeping emergency lending program, but the reality for this administration, including for Janet Yellen, is that all of those actions have clearly not been enough to reassure investors and markets. And right now at this moment in particular, something that U.S. officials are watching very, very closely, of course, is the situation with Credit Suisse.
Now, U.S. officials have tried to emphasize that they believe that situation is separate from the situation that is confronting U.S. regional banks. They are also hoping that with some time, there will be a little bit of calm restored after the news that there has been basically a $54 billion infusion of cash from the Swiss National Bank, but that's a situation that is quickly unfolding, but, again, U.S. officials are again trying to use a testimony like this, and every other sort of U.S. official I've spoken out about this really trying to urge calm and really trying to emphasize that there are not going to be more dominos to fall, that there is no reason for people to panic right now.
HILL: All right. M.J. Lee live for us at the White House this morning, I appreciate it. And, again, we will continue to monitor that hearing.
SCIUTTO: Still ahead, the state of Texas taking over now the Houston school district. What that means for the current school board superintendent of the eighth largest school district in the nation, which, by the way, elected a Democratic elected mayor, we'll see what's going on. That's coming up.