Return to Transcripts main page
Early Start with John Berman and Zoraida Sambolin
Global Stocks Tumble As Bank Collapses Fan Fears; Biden Reassures Americans Their Bank Deposits are Safe; Another Atmospheric River Storm Batters California. Aired 5-5:30a ET
Aired March 14, 2023 - 05:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CHRISTINE ROMANS, CNN ANCHOR: Good morning. Welcome to our viewers in the United States and around the world. I'm Christine Romans. This is EARLY START.
We begin with global markets in turmoil in the wake of the failure of two major commercial banks, SVB and Signature Bank in the United States. Global markets, Asian shares closed down sharply as investors fear further bank collapses to come. Two percent move in Tokyo, 2 percent move in Hong Kong. Those are big moves for one day.
European stocks have been climbing though in the last few hours, a mixed performance now, but trying to find some footing this Europe. And look at U.S. futures, stocks and futures in the U.S. are now up slightly. We'll try to make sense of all of this for you in a moment.
One place you don't want your investment dollars right now, regional bank stocks. On Monday, First Republic shares first more than 60 percent. Western Alliance Bancorp down 47 percent. PacWest Bancorp down 21 percent.
Driving the U.S. market overall, extreme fear. According to CNN Business the CNN business fear and greed index.
CNN's Clare Sebastian is live in London.
How is this playing out around the world, what've seen, Clare, in the U.S.? It seems logical that the global stocks are down now. But, explain why on earth the U.S. futures are up again?
CLARE SEBASTIAN, CNN INTERNATIONAL CORRESPONDENT: Yes, we'll get to that in a minute but first on U.S. futures, Christine, I mean, look, there have been five straight sessions, on the Dow, basically a week of losses leading up to today. So it could be that there's some sort of profit happening.
If you look into the individual stocks, there are some recovery and the banks even in those very hard hit regional banks not enough to reverse the losses on Monday but a little bit of a recovery there. Perhaps it seems that the initial fire has been put up by the quick action of the federal government, the Biden administration. The Treasury officials are also telling us that the scale of the outflow of deposits from the regional banks has slowed somewhat and that gives the sense to the initial crisis has abated somewhat.
But, of course, we've got CPI data this morning, that could change things, things could change by the hour with these features if CPI comes in very hard. And then the currently reduced likelihood of a higher rate rise next week goes up in a little bit, which, of course, the markets don't, like and if it comes in better than perhaps less likelihood of a rate rise, which currently down as I say. The Fed is also juggling this banking crisis.
As for around the world, in Japan, we saw a lot of fallout for the banking sector there and even the biggest banks amid scrutiny of their own treasury holdings on their balance sheet. And here in the U.K., that outlier in Europe was still seeing some fall off, HSBC, the bank that will swoop in and took over the UK arm of SVB down today, one of the biggest fall outs on the FTSE there, Christine.
So, still some contagion for the banking sector around the world.
ROMANS: You know, interesting, Clare, last night, Larry Sanders on "ANDERSON COOPER 360", the former treasury said the actually what's happening in the banking sector might be doing some of the tightening for the Fed, the Fed might have to tighten more than it other why is because actually, the banking center is sort of this cooling effect in banking might be a kind of tightening. So we will see, again the next Fed meeting is March 22nd.
Thank you so much, Clare. Nice to see you.
All right. She mentioned this scale of outflows, right? That's another factor that may be holding U.S. stock prices steady. Fewer customers withdrawing their money from U.S. banks on Monday. A senior treasury official says deposit outflows from small and mid-sized lenders slowed. Now, that's a sign, a central element of the Biden administration strategy is working, that sending a clear message that customer bank deposits are in fact safe.
More on that from CNN's Phil Mattingly at the White House.
JOE BIDEN, PRESIDENT OF THE UNITED STATES: The bottom line is this, Americans can rest assured that our banking system is safe.
PHIL MATTINGLY, CNN CHIEF WHITE HOUSE CORRESPONDENT (voice-over): President Biden seeking to reassure a nation on edge.
BIDEN: During the Obama-Biden administration, we put in place tough requirements on banks like Silicon Valley Bank and Signature Bank.
MATTINGLY: He also placed blame on his predecessor for contributing to this moment.
BIDEN: Unfortunately, the last administration rolled back some of these requirements.
MATTINGLY: Biden pointing to a 2018 law that eased some of the strictest restrictions on mid-size lenders, lenders like Silicon Valley Bank.
BIDEN: I'm going to ask Congress and the banking regulators to strengthen the rules for banks to make it less likely this kind of bank failure will happen again.
MATTINGLY: Biden's new regulatory push framing a new crisis moment --
BIDEN: Treasury Secretary Yellen and a team of bank regulators have taken action.
MATTINGLY: -- just hours after the administration's top finance officials triggered a dramatic show of dual-pronged government force. The action designed to halt financial contagion that threatened to rip through the bank system after the failure of Silicon Valley Bank. The bank ailure on Friday risking a cascade of events that threatened financial stability with a second bank failure Sunday and several more institutions on the brink officials said.
BIDEN: When we learned of the problems of the bank and the impact they could have on jobs, small businesses and banking systems overall, I instructed my team to act quickly to protect these interests.
MATTINGLY: Nine-three percent of Silicon Valley Bank's deposits above the $250,000 deposit insurance limit.
JANET YELLEN, TREASURY SECRETARY: I've been working all weekend with our banking regulators to design appropriate policies to address this situation.
MATTINGLY: Leaving thousands of small businesses and individuals at risk.
BIDEN: I instructed my team to act quickly to protect these interests. They've done that.
MATTINGLY: But the speed of the crisis and a potential systemic effects marking a jarring term for an industry viewed as stable and well-capitalized.
BIDEN: There are important questions as to how these banks got into this circumstance in the first place. We must get a full accounting of what happened and why those responsible can be held accountable.
MATTINGLY: And setting the stage for an equally unpredictable political fallout in the days ahead as officials move quickly to try to separate their actions from the politically toxic bailouts of the 2008 financial crisis.
BIDEN: No losses -- this is an important point, no loss also be borne by the taxpayers.
MATTINGLY: Phil Mattingly, CNN, The White House.
(END VIDEOTAPE) ROMANS: All right. To weather now, just a week until spring and the Northeast and New England are just now seeing their first nor'easter winter with heavy snow and rain and high winds into Wednesday.
Meteorologist Chad Myers is in the weather center with the latest.
It is raining outside my window. Cold, wet, almost freezing rain. What have we seen so far and how is that going to get?
CHAD MYERS, AMS METEOROLOGIST: Yeah, but not that far north, that northeast of you, there is the Punxsutawney Phil is saying, how do you like me now? Boy, this is a major northeastern for inland New England, just to west of I-95, that's where the rain and show is going to be.
Boston, it is raining right now. But that will change. Worcester, it is already snowing. Boston, you will get snow with this. As winds come from the north, later on today, your 40 degrees will turn onto 33 and you will turn to all snow and it will be heavy and wet. And that is the problem.
A foot to a foot and a half especially in the Berkshires and Green and White Mountains, bringing down trees, branching and also making travel nearly impossible in some spots with 45 to 65-mile-per-hour winds. This is a late season storm, but it is not messing around. Major impacts across a lot of New England for today.
Now back out to the West, this is the next atmospheric river, this is not as big as the one that came through Saturday and Sunday. That's the good news. The problem is California has pre-existing conditions. I know you've heard that lot from Dr. Sanjay Gupta.
But there is no place for this water to go. No place for this rain to soak in. It is all going to run off and we'll have again a major flooding event. Probably not what we'll call catastrophic, but there will be significant flooding in places that have already flooded. Waters are already high. The waters will go back up even for L.A., an awful lot of heavy rain coming in later on tonight.
ROMANS: Yeah, what a remarkable winter there in California.
All right. Chad Myers, thank you.
Staying in California, after years of drought, people are now dealing with severe weather for most of the season and in a lot of places they are beginning to feel like they have had enough.
As CNN's Veronica Miracle has more for us.
VERONICA MIRACLE, CNN CORRESPONDENT (voice-over): Storm-battered California is getting hit by another atmospheric river, more than 18 million people under flood alerts.
MAYOR TYLLER WILLIAMSON, MONTEREY, CALIFORNIA: 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.
MIRACLE: At least 11 such river events have hit the U.S. west this winter. Late last week and over the weekend, some places across California saw over a foot of rainfall.
WILLIAMSON: And with the ground already being saturated, from previous rainfalls and this one hitting us hard, you know, our team has been as prepared as possible but weren't expecting it to be as bad as we're seeing it.
MIRACLE: This drone video shows flooding in the central coast region of California after the Pajaro River breached the levee.
SHERIFF TINA NIETO, MONTEREY COUNTY, CALIFORNIA: We had failure at the levee and we knew that if there was failure at the levee that it would inundate the community of Pajaro.
MIRACLE: Now, Monterey Peninsula residents could soon find themselves on a virtual island cut off from rest of the country by the floodwaters.
NIETO: When we give you an order you out, please get out.
MIRACLE: This ring video shows firefighters going door to door trying to wake people in the area warning them that if they didn't leave they could get trapped.
CURTTIS RHODES, CALIFORNIA FIRE: Some of the water that comes across the road is about four to five feet right now and your standard vehicle cannot get across it.
MIRACLE: Another evacuation warning for people living along some areas of the San Joaquin River.
UNIDENTIFIED MALE: It's going to get higher. Yes, it's going to get higher this time.
MIRACLE: From excessive rainfall to heavy snow fall, people living near the sheer in Nevada mountain range are dealing with a deluge of snow leading to dangerous road conditions.
UNIDENTIFIED MALE: That was a white knuckle experience.
MIRACLE: The heavy snow even causing a South Lake Tahoe store's roof to collapse.
UNIDENTIFIED FEMALE: We knew that there was a lot of snow on the rooftops but just didn't expect it because we didn't hear anything yet.
MIRACLE (on camera): The Monterey County sheriff tells me that here in Pajaro, the water level has receded about a foot over the last 24 hours, but with this next storm coming in, they anticipate the water level will go back up to that level or even higher. They are also expecting to do a lot of rescues in the next few days.
Veronica Miracle, CNN, Pajaro, California.
ROMANS: All right. Veronica, thank you for that.
Chinese President Xi Jinping is set to speak to Ukrainian President Volodymyr Zelenskyy in a call next week. "The Wall Street Journal" says it will mark the first time the two have formally spoken since Russia invaded Ukraine. The Biden administration has been pushing the countries to engage directly with each other.
CNN's Salma Abdelaziz is live in London for us with this part of the story.
Salma, what do we know about this potential phone call?
SALMA ABDELAZIZ, CNN REPORTER: Well, I'll start with a few caveats. CNN has been reaching out to Beijing, Kyiv and others to try to confirm the story, but we don't yet have that confirmation. So this is still very much reporting from "The Wall Street Journal" from this time, but significant if true. The reporting is that President Xi Jinping is preparing to hold a virtual meeting with President Zelenskyy.
To give you some context around this, of course, President Xi Jinping now elected for an unprecedented third term, armed with that domestic support he seems to be turning outward. You will remember President Biden is also expecting a call from President Xi Jinping in the coming days. We don't know exactly when that will take place.
But we also have an expectation that he will be traveling to Moscow potentially next week to meet with President Putin. Now, these two leaders have met dozens of times. They are considered very close and they have become even closer experts say during the conflict in Ukraine. President Putin recently boasting their relationship as having no limits.
And you will remember that China seems to be getting more involved. Just last month, Beijing proposed a 12-point peace proposal essentially trying to poise itself as a potential peace broker, a neutral party that could find a solution when it comes to Russia's invasion of Ukraine.
But the United States says this is simply not true. It sees China as very much siding with Russia, concerned that these two countries are in lockstep, that they hold a similar vision of the world. And it's also the United States has been warning that China could potentially be giving weapons to Russia to restock its arsenal. Regardless you can expect that all of these topics would be on the agenda if President Zelenskyy does have this virtual meeting with President Xi Jinping.
ROMANS: All right. Salma Abdelaziz, thank you so much for that in London for us. The U.S. has taken a big step to counter China's growing influence in
the Indo-Pacific region and Beijing is not happy about it. President Biden joined his British and Australian counterparts in a naval base in California. They announced plays for Australia to get its own nuclear-powered submarines early next decade.
(BEGIN VIDEO CLIP)
BIDEN: As we stand at the inflection point in history, where the hard work of deterrence and promoting stability will affect the prospects of peace for decades to come, the United States can ask for no better partners in the Indo-Pacific where so much our shared future will be written.
(END VIDEO CLIP)
ROMANS: All right. CNN's Kristie Lu Stout live in Hong Kong for us.
Kristie, what is in this U.S. agreement with the UK and Australia and what does Beijing have to say about it?
KRISTIE LU STOUT, CNN CORRESPONDENT: Well, Christine, Beijing is once again expressing its firm opposition to the Aukus deal, a deal widely seen as a bid to counter China and its military ambition in the Pacific. Now, these three Aukus leaders unveiled this ambitious for a new fleet of nuclear-powered advance submarines.
Early next decade, Australia will receive at least three advanced submarines in the first batch and American Virginia class attack submarines and then a decade later followed by British designed submarines containing U.S. technology. And Australia will follow that design to create its own vessels to be manufactured in the Australian city of Adelaide.
Now, in the meantime, U.S. submarines like the USS Missouri will be allowed to rotate through Australian ports.
Earlier we heard from the prime minister of Australia and he commented on the historic nature of this deal. Take a listen.
(BEGIN VIDEO CLIP)
ANTHONY ALBANESE, AUSTRALIAN PRIME MINISTER: The Aukus agreement we confirm here in San Diego represents the biggest single investment in Australia's defense capability in all of our history.
(END VIDEO CLIP)(
STOUT: Aukus officials say the submarines will not carry nuclear weapons and Australia has pledged to remain a nonnuclear weapons state. Now, on Tuesday, just a few hours ago, China's ministry of foreign affairs said that the three countries for their own geopolitical self interests ignore concerns and go further and further down the wrong and dangerous path, unquote. This deal is likely to further inflame tensions with China. Australia says it offered China a briefing over the Aukus deal and when the U.S. President Biden was asked whether he was worried that China would see this deal as aggression, he simply replied no.
Back to you, Christine.
ROMANS: All right. Thank you so much. Nice to see you, Kristie Lu Stout.
All right. Just ahead, migrants rush the border. Could a buggy new app be to blame?
Plus a zebra attack in Ohio of all places. But first, failure of two commercial banks, what it means for you and your money.
ROMANS: All right. Uncertainty shaking markets this morning after the collapse of Silicon Valley Bank and Signature Bank. The big question is will more banks follow.
(BEGIN VIDEO CLIP)
LARRY SUMMERS, FORMER TREASURY SECRETARY: I think that with support that the government is providing, this need not be, and I don't expect will be, the kind of major systemic event that is affecting everybody in the country that we had in 2008 or that we had during the depression.
(END VIDEO CLIP)
ROMANS: Investors are closely watching the plunging stock prices of over regional banks looking to see if they can find their footing when markets open.
I want to bring in former chief innovation officer at the FDIC, Sultan Meghji.
Nice to see you. Thank you for getting up early for us.
A senior Treasury official tells CNN the scale of the outflows of deposits from the regional banks is slowing. That is a good sign. What are you expecting?
SULTAN MEGHJI, FORMER CHIEF INNOVATION OFFICER, FEDERAL DEPOSIT INSURANCE CORP.: It is a fantastic sign, and, frankly, it's the best news to come out of yesterday for the banking sector that we were expecting, and I think it really does show that the concentration in this very small number of banks of kind of a significant balance sheet differential is being sustained a little bit. And so I think that we're all breathing a bit of a sigh of relief on that.
ROMANS: Was all out of this out of the blue, this turmoil? I mean, back in 2019, a board member of the FDIC wrote this? Quote, size, complexity and reliance on market funding and uninsured deposits would present very substantial list in resolution with potential systematic consequences. And that regulators were overconfident in the resilience of regional banks.
Is there a failure of regulation here?
MEGHJI: Well, you know, one of the most interesting things about this entire discussion is we did see it coming. We did see a significant aboriginal, banks and stretching them selves by interfacing with the market directly, by interfacing with significant bond portfolios, by utilizing mortgage-backed securities.
And in all of those situations, once the Fed started hiking rates and we saw a compression and some of the prices of the tech companies that exist in this universe, it was inevitable, and you know, for years now, we have known that this kind of concentration risk can be a challenge. And certainly, the regulatory community struggles to keep up with that kind of fast pace change.
ROMANS: It's sort of a once in a generation set of circumstances, right? I mean, you had all of this cheat money flowing. So, whether it's into crypto, into start-ups, or whatever, there is all of this money going into deposits of these banks. They're putting into super safe -- at the time, treasury securities, what the interest rates rising quickly. Those are less valuable. So that's that differential you're talking about.
The three banks that failed in the last week were highly concentrated to, they did business with crypto. SVB did startups. Is that part of the problem there? That they were niche banks when the interest rates rose, the got caught?
MEGHJI: It's a really interesting comment, one I hope people pay attention to is that when you see these niche banks that start of quite small, many orders of magnitude smaller in Silicon Valley Bank ended up, that you end up in a situation where when they grow that quickly, and there of cheap money, or one of the tech sectors are hard or biotech is expectedly hot, you can have a bank go from innocents, category A to category B in size and scale, but the regulatory committee didn't catch up and, regulated at that level.
Certainly, with Silicon Valley Bank, we saw I think a mismatch in terms of how was regulated versus how it should have been regulated, giving its size, complexity in concentration.
ROMANS: Sultan, it was just a week ago, not even a week, ago the Fed chief was saying - preparing the market for the potential of a 50 basis point rate hike in its fight against inflation. Things have changed so much, now the big focus is, on I guess, financial stability and the stability in the financial system.
Larry Summers, last, night on Anderson Cooper, said something interesting. He said something to the effect, up there might be a cooling effect, a tightening effect happening in banking right now that could do some of the Fed work for it. Maybe the Fed wouldn't need to tighten as much. What is your take on all of that?
MEGHJI: I think you've got to pressures now that the Federal Reserve has to deal with it, that they didn't have to deal with a week ago. The first is that absolutely, the banking sectors, I think we're all paying attention to the stock futures this morning, and paying attention towards CPI is going to come in just a few hours.
And the second is the fundamental, leave the market is saying, hey, we are slowing down now. We mean it this time. And we are going to slow down. I think a lot of us would be surprised if the 50 basis point hike incurred.
ROMANS: Sultan, the president, the White House, they say that the banking system is safe. Everyone I talked to says this is not 2008. And there could be -- there could be more bankruptcy 's. Ahead we've had effort by the fed to cool off the economy. If the banking system safe? What we see more -- and we could still see more bankruptcies and banking?
MEGHJI: Both of those senses archer. I think that the American banking system is the safe, does the sound, this and the most resilient in the world. And I think we demonstrated that with the regulatory community, the balance sheet in the full faith and credit of the United States, in a really impressive way. But it doesn't mean we're not going to see more bankruptcies in the coming days and weeks.
I think a lot of us are paying attention to ten or so banks that we want to see good news. We want to see funding, we want to see restructuring, we want to see the ability for them to respond to this kind of question mark around their survivability. I should also point out, back in the 80s, there were nearly 30,000 banks in the United States, and now, we're in the 4,000 range. It's a national evolutionary process of the American system to see a contraction in the number of banks. And to see deposit centralized in the large money center banks.
ROMANS: All right. Professor Sultan Meghji, thank you so much. Fascinating discussion. Have a nice day.
MEGHJI: Thanks for having me.
ROMANS: All right. Quick hits across America:
The Missouri highway patrol says the suspect accused of shooting two police officers about 80 miles west of St. Louis is now in custody. One officer died, the other is listed in critical condition.
And Ohio man is listed in fair condition after he was attacked by a zebra at a field near his home, on Sunday. Officials say the zebra acted aggressively with the medical team arrived that led an officer to shoot and kill it.
Illinois is now the third state to guarantee 40 hours of paid leave for any worker for any reason. Governor Pritzker says it gives workers the flexibility to attend a medical appointment or care for a sick relative.
Just ahead, NASA finds tunes its plan to shut down the International Space Station.
And assessing the damage from cycling Freddy. The latest from Malawi.