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Quest Means Business
Credit Suisse Shares Hit All-Time Low Amid Funding Fears. ECB Asking Banks About Exposure To Credit Suisse. In Europe, Credit Suisse is down 20 percent, a record low, and other European banks have halted trading because of such big dramatic moves in the banking system. Gregory Meeks says strong support for stress testing for all banks, regardless of size, and doing it in a transparent and public way gives confidence to the public. Aired 4-5p ET
Aired March 15, 2023 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ELENI GIOKOS, CNN INTERNATIONAL HOST: The closing bell is ringing on Wall Street, a volatile day for stocks. Let's take a look at how the markets are
faring right now.
Dow Jones is losing about 300 points on the back of panic spreading in the banking sector.
Well, those are the markets and these are the main events: Swiss regulators step in to try and calm fears of the health of Credit Suisse.
The UK Chancellor tries to keep his budget drama-free.
And Hogwarts heads to Tokyo.
Live from Dubai, it is Wednesday, March 15th. I'm Eleni Giokos. I am in for Richard Quest and this is QUEST MEANS BUSINESS.
A very good evening. Great of you to join us.
Tonight Swiss regulators say they are prepared to step in as troubles at Credit Suisse revive fears of a banking crisis. Shares in the bank closed
down 24 percent in Zurich hitting an all-time low. The selloff came after the largest shareholders said it would not add to its investment.
That comments rattled investors already on edge by the collapse of Silicon Valley Bank. Stocks fell sharply in Europe; and in the US, they've
recovered some of their losses on Wall Street after the Swiss National Bank said it will provide Credit Suisse with liquidity, if needed.
Anna Stewart is in London for us.
We've just heard from the Swiss National Bank and also FINMA, the supervisory authority. It was important to get some kind of comment and
interesting to see that they say the capital adequacy ratios are where they're supposed to be for a systemically important bank.
ANNA STEWART, CNN REPORTER: And that is something Credit Suisse actually iterated themselves on Twitter just a couple of hours ago. We've been
waiting for some sort of statement from the Swiss National Bank or FINMA all day, better late than never.
But as you say they say they meet the capital liquidity requirements, Credit Suisse, that is, but they say if necessary, the Swiss National Bank
will provide Credit Suisse with liquidity. So it really is trying to draw a line under what has been a seriously tumultuous day for this bank. At one
point, share price falling below 30 percent. We saw it well under the $2.00 barrier. I never thought I'd quite see that.
And for Credit Suisse, Eleni as you know, it is really issues compounded. There's the issue of Credit Suisse undergoing a huge restructure, and has
faced for the last two years every kind of scandal, issue of risk management and corporate governance you can imagine including even this
week, failures over its financial reporting. It cited weaknesses in past years.
And then you've got the issue that spread from Silicon Valley Bank, when it comes to what these banks all have on their balance sheets, and
particularly those long-dated government bonds and what that means for their balance sheets -- Eleni.
GIOKOS: Yes, and really good point, and it is really tied into the interest rate environment, aggressive rate hikes to try and temper
inflation. I want to talk about what the ECB should be doing next year. I mean, a lot of the market analysts I've spoken to say it would be prudent
for Central Banks to hold rising rates for now. What are you hearing?
STEWART: Well, I mean, look at some of the share prices of European banks today. Credit Suisse down 24 percent, but also UBS down nine, BNP Paribas
down 10. SocGen down 12.
The timing is not good right now. The ECB is making its rate decision tomorrow. Now up to this point, the expectation has been for a half a
percentage point increase. And from what I'm hearing, that will still go ahead, but this is the first of the major Central Banks that now has to
brace with the issue of not just economic slowdown on the one hand and inflation on the other, but chucked into it, financial stability, because
the interest rate rises are really a huge problem now looking at these bank balance sheets.
It was sparked by Silicon Valley Bank, but clearly the ramifications of that have really spread in terms of investor confidence.
Whatever happens tomorrow in terms of the rate rise, I think whatever is said in that press conference, following it by Christine Lagarde will be
critical really as to where we see some of the share prices going for the rest of the week.
GIOKOS: Yes, and here is the thing, right? I mean, Credit Suisse clearly is good on the liquidity front, as you mentioned, currently busy with
restructuring. It needs time to do this, but it seems that negative sentiment is feeding through here and people aren't really focusing on the
fundamentals. There is something that is spooking investors. There is something that's spooking the markets.
STEWART: Well with Credit Suisse specifically, one of their major shareholders sold their holding just a couple of weeks ago which is why
Saudi National Bank is now the biggest shareholder.
STEWART: So I think any response from your biggest shareholders saying they don't want to increase their stake, even though the reasons are fairly
logical, they don't want to increase the stake to 10 percent because that would have all sorts of regulatory issues, but it is that sentiment that
clearly follows through: Is this bank, a share that people want to have in their portfolio? And frankly, Eleni, with Credit Suisse, in terms of
patience, in terms of the investors, this bank hasn't had any kind of break when it's come to bad news, and I'm not sure anyone really believes that it
will have a break or whether the restructure is actually going to A., succeed and B., when is it going to be restructured? You know, when will we
see the merits of all of these things.
GIOKOS: Lots of questions, Anna Stewart. Thank you so very much. Good to see you.
Now, the European Central Bank is trying to get ahead of possible spillover. It is asking EU lenders about their exposure to the Swiss bank.
Credit Suisse has a worldwide reach with $1.7 trillion in assets under management. The EU's Commissioner for financial stability also addressed
concerns about the situation in the US. She said the collapse of Silicon Valley Bank may offer important lessons. Take a listen.
(BEGIN VIDEO CLIP)
MAIREAD MCGUINNESS, EU COMMISSIONER FOR FINANCIAL STABILITY: We can say that the EU banking sector is in overall good shape. It has built up its
resilience in recent years and it is supervised closely by national and European authorities.
But I think at this very early stage, we can start to look at some of the lessons that these failures in the US have for the European Union. These US
banks were not subject to strict regulatory requirements for liquidity.
(END VIDEO CLIP)
GIOKOS: Well, Larry Fink says it's too soon to know how widespread the damage actually is in the banking sector. The CEO of Blackrock said in his
annual letter, "The world is now seeing the cost of a decade of easy money." He said that after the Fed's fastest rate tightening cycle in
decades. More dominoes could fall leading to financial instability.
Dan Gerard is a senior multi-asset strategist at State Street Global Markets. He joins me now live from Boston.
So great to see you.
Warnings coming through from Larry Fink, and it is interesting to sort of take a step back and see that the banking sector has been enjoying super
low interest rates, barely any inflation, easy money, and things have shifted dramatically here.
Do you believe that there is possible contagion that we're not taking into consideration?
DAN GERARD, SENIOR MULTI-ASSET STRATEGIST, STATE STREET GLOBAL MARKETS: Thanks, Eleni. Great to be here with you.
Look, I do think there is possible contagion. There is always the risk of it, but I also think that the system is in pretty good health.
I agree, it is too early to tell. That doesn't mean there is something out there waiting. It just means we need to sort through a lot of this first.
But I think to the main point here, this isn't happening in a vacuum. Some of the volatility we're seeing in banking is directly due to the fact that
we had a system that was pushing money in, a lot of money in through Central Banks, which then as we started to build up price pressures and
inflation, reversed it, and banks happen to sit at that intersection between the real economy and financial markets. So everyone is involved,
whether they like it or not.
GIOKOS: Exactly, and they benefit from easy money, and now, they are feeling the brunt of a tighter monetary policy environment.
Credit Suisse is a systemically important bank. It has good liquidity levels, but when an important bank of this nature is dropping to record
lows on its share price, and there is so much concern about its future, what do you believe that means for other banks? If we look under the hood,
what would you be looking for within the financial sector?
GERARD: Well, first of all, I think that for -- we've come a long way. We're always trying to sort of regulate for the last crisis, but I think if
we do look at the asset side of banks overall right now, including the ones that have been in question, the ones that have been in the news, the assets
are actually okay. These aren't assets that were taken with undue risk. It was really more of an interest rate risk question, as you mentioned in the
start of the show, rather than credit risk to start.
However, that doesn't mean that people shouldn't be worried about credit risk. In fact, there is probably too little attention paid to it. So, I
think that that's the answer here is that we need to know whether or not we're moving into more of a financial contraction in the real economy and
that is when we will start to see issues with the asset side.
However, I think that banks overall are in pretty good shape with their assets and this is much more of an interest rate question.
GIOKOS: I mean, I'm looking at the credit default swaps of Credit Suisse. I mean moving at 1.2 thousand basis points. How worrying are those signals?
And then I look at what the US two-year bond is doing and there is also a worrying signal there as well. Is this something the Central Bank should be
taking into consideration when thinking about whether they should hike during their next announcements?
GERARD: It should be. Remember, a banking crisis would be inherently disinflationary and that is not the way they want to achieve their goals.
However, so they don't want to push the system into that direction. However, they still need to look at this from the real economy and from the
price pressures that we see.
And the market has been adjusting so quickly as you mentioned. We were just a week ago, we were looking at a higher terminal rate for much longer into
2024. That has just quickly reversed into cuts expectation this year. And all the while, inflation pressures still haven't been tamed and are nowhere
near the goal of Central Banks.
So the Fed the ECB, they continually need to look at that from a real economic perspective, and keep a grip on this without pushing banks into
crisis and that is going to be a difficult balancing act, but I think that inflation still has to be the lens we view this through.
GIOKOS: You know, I think as a depositor, if you're banking with Credit Suisse, for example, or any of the banks that you've got exposure to, there
is worry that people are going to be pulling out deposits, and that would cause a run on the banks.
Are you anticipating this to happen where people are trying to look for stronger players? Do you think there's going to be a big shift?
GERARD: Well, it is already happening to some degree and there is some irrationality to it. We know especially with insured deposits. No bank, no
matter what their position is, can survive a big run. It's just -- that's not in a world of practical banking and maturity transformation, we need to
have trust in the system, which is why those insurance levels were put there.
I think that once calm prevails that we'll see that the system is actually pretty strong, but the beneficiaries to some of those runs on the regional
banks, for example, have been the large banks.
So we've seen tremendous depository inflow into the systemically important banks, the larger banks in the system. So I don't think that this is
necessarily just straight on, knock-on effect into worry. I think it's about shifting preferences for now.
GIOKOS: Dan Gerard, thank you very much. Good to have you on the show. I think we will find out more as the days go on. We've been dealing with so
many surprises this week. Thank you, sir, for your time.
Israel's leaders are confronting controversy over their judicial reform plans ahead of expected protests. We'll talk about what President Herzog
has been saying and why he invoked the term "Civil War."
We'll be right back.
GIOKOS: Welcome back.
So we devoted much of this program last night to business communities' concerns of Israel's proposed judicial overhaul. Tonight, the President of
Israel says the divisiveness over the plan could push the country to the brink of Civil War.
In a speech earlier, Isaac Herzog presented a compromise plan he is calling the People's Framework. It would give Parliament more power over how Judges
are selected while maintaining the Supreme Court's ability to overturn laws. It would also enshrine fundamental Civil Rights, however, the plan
Here is some of what the President said.
(BEGIN VIDEO CLIP)
ISAAC HERZOG, ISRAELI PRESIDENT (through translator): The entirety of legislation that's being currently discussed in the Committee needs to be
taken off the table and fast. It is erroneous, it is aggressive, and it undermines our democratic foundations. Therefore, it needs to be replaced
with another agreed upon outline, and immediately.
(END VIDEO CLIP)
GIOKOS: All right, Hadas Gold is in Jerusalem for us.
As we hear the President's speech, sharp words then and saying this could lead to Civil War. We also know that Benjamin Netanyahu cut his trip short
I want you to give me a sense of what the narrative is right now over this proposed reform.
GOLD: Well, the Israeli President giving a speech where he laid out his own compromise proposal tonight while warning that the Israeli society is
on the brink of Civil War as a result over the divisiveness of this judicial overhaul and just to help remind our viewers, the Israeli
government wants to make the most massive changes to Israel's judiciary since its founding.
And chief amongst them, what essentially give the Israeli Parliament, it would be whatever party is in power essentially, not only have the power to
overturn Supreme Court decisions, but also more power over how Judges are selected.
Now, there are many other elements to this massive section of bills that are part of these overall reforms, but the Israeli President, Isaac Herzog,
who actually has mostly a ceremonial role over the past few weeks has been trying to speak to all the different parties, speak to academics, and come
forth with a compromise.
Because as he acknowledged in his speech tonight, there are structural changes that he believes should actually be made. This was sort of a nod to
Netanyahu's governing coalition. And he put forth this compromise, which I won't go into the details, because it's very long, but it does give the
Parliament some more powers that they don't have, while still maintaining Supreme Court's ability to overturn certain laws, not all of them. It also
changes the rigor of how certain laws that are the quasi constitutional basic laws would be passed. And it does give the political parties a little
bit more say in how Judges are selected.
But almost as soon as the Israeli President stopped speaking, we heard from the governing coalition, essentially rejecting the proposal. And actually
just in the last few minutes, we heard from Benjamin Netanyahu who is taking off as we speak, to go to Berlin after delaying his trip not only
because of the situation over the reforms, but also because of an ongoing security situation.
And he essentially said that, unfortunately, what was presented by the President were not agreed upon by the coalition representatives and that
key sections only he say, perpetuate the existing situation, and do not bring the required balance to the Israeli branches of government, and
that's the unfortunate truth.
So it seems as though we might just be back to square one because despite this proposal, which the President, the Israeli President said, should be
taken as a whole and you can't cherry pick parts of it, the Israeli government, Benjamin Netanyahu is coming forth right away and saying
thanks, but no thanks.
GIOKOS: Hadas Gold, thank you very much for breaking that down.
Now the co-founder of Israel's biggest venture capital firm says ChatGPT is about to change the way we do business. It comes as the AI chatbot gets a
big tune up.
OpenAI announced a new version of the technology that powers the chatbot and it says the bot is more capable than ever and less likely to go off the
rails as some users have experienced in the past.
GIOKOS: OpenAI also says this version can ace standardized tests like a simulated Law School exam, and it can even write code.
Richard Quest spoke to Viola's CEO, Shlomo Dovrat about the AI platform's potential while he was in Tel Aviv this week.
SHLOMO DOVRAT, CEO, VIOLA: I actually think that, you know, after decades of amazing economical boom, which was created because of globalization,
because of the technology transformation, low interest rate, we are seeing a plateau of the current innovation scale.
When you think about the digital life of consumer, how all of that, I do see, there are no more new smartphones, et cetera. However, we are at the
beginning of a new innovation cycle, which is probably going to be bigger than the internet, bigger than everything we've seen to date.
I think AI can enable now innovation, not only around the digital consumer life, but around agriculture and construction and many of the traditional
RICHARD QUEST, CNN INTERNATIONAL HOST, "QUEST MEANS BUSINESS": I think back to, in the 90s, when I first learned about the internet, and You've
Got Mail, and I think how that grew. Now, how does this change our lives?
DOVRAT: Well, if you want to solve things like autonomous car, if you want to create, you know, more complex decision making, like how do I take
managed risks of bank in an automatic way? How can I replace lawyers with a machine? Or how can I replace journalists or venture capitalists with a
machine? You need AI.
And, the emergence of this new generation of AI is opening up huge amounts of opportunities.
QUEST: When you're now looking at opportunities, what are you looking at? What for you is as a startup that you think this is the one I'm going to go
DOVRAT: So when you look at the history of tech, internet created some giant companies like Google, Amazon, et cetera and then came mobile,
social, and Cloud and Facebook and Netflix. I think the next generation will create huge companies, hopefully, some of them in Israel.
Think about Tesla. Tesla is one of the most valuable companies in the world now and it has actually enabled the electrical vehicle revolution. I think
that type of revolution will now happen in many industries and we will see many new Tesla's, new Amazon, new Facebook, new Google. And you know, what
I am really looking for is to find those companies in Israel, back them early, and help them become the next Tesla of the world.
QUEST: How many people knock on your door and say, I'm going to be the next Google, the next Amazon, the next Tesla.
DOVRAT: We actually look at thousands of -- Israel is a very vibrant, entrepreneurial -- we look probably at 3,000 entrepreneurship projects a
year and we invest in maybe 10. So, it takes a lot of effort and a lot of - - you know, we need to do a lot of diligence and we need to understand, are they really going to change the world?
QUEST: Yes, but the real -- the real magic source of those 3,000 is you can't afford to ignore any of them.
DOVRAT: We don't ignore any of them.
QUEST: You can't afford to, because you've got -- you just do not know -- I mean, the scrap of paper that somebody shoves in your hand could be --
DOVRAT: It's not about paper, it's looking at the eyes of the people, of those entrepreneurs, understand what is their motivation, understand what
their capability, what their vision is. It is to get rid of old ways of thinking.
When you're a venture capitalists and you invest in innovation, you always have to talk about what can happen and not about what is likely to happen,
and imagining the impossible is the core of what innovation is all about.
GIOKOS: Now, moving to Africa, the CEO of Kenya Airways says if Africa's aviation sector wants to be successful in the long term, it needs to
I spoke to Allan Kilavuka about the future of the industry on this week's "Connecting Africa."
GIOKOS: Allan, great to see you.
The Continental Free Trade Area is creating so much excitement, but it's all about implementation. How are you guys pricing the potential of growth?
ALLAN KILAVUKA, CEO, KENYA AIRWAYS: The estimate is that trade is going to increase by about 52 percent, okay, particularly goods -- moving of
goods from one place to another, and so are the economies of the people going to move.
Now, part of the problem is even access in terms of allowing people to move into countries, so you're expected to have visas to begin with. So one of
the things we need to do is to free up the movement of people, and then together with the African Continental Free Trade Area, which allows access
so it eliminates tariffs and other non-tariff barriers, then it allows for more trade to happen.
From there on, we need to partner with the traders and the tourists, so that we provide the logistics for moving both people and goods into and out
of South Africa.
GIOKOS: You're looking to work even closer with South African Airways for example. You're looking for new codeshare opportunities as well. Could you
take me through that strategy in terms of with working with other airlines and what that could mean for you.
KILAVUKA: we have a bigger vision though. So the Africa market -- the Africa vision market is very fragmented. We have so many. I mean, 55
countries, we have so many airlines in the continent, most of them are not viable, truth be told. The solution to that is to consolidate, right, just
like that has happened in Europe, it happened in the in the US, it happened in Asia. We need to consolidate so that you create bigger entities, which
are more economical from a scale perspective and they can respond to high costs.
They can, you know, together, talk to suppliers and get more big gains when it comes to purchases. So bring down the unit cost of operation. In
addition, because of scale, they can then open up the African continent a lot more.
GIOKOS: So you're talking consolidation, basically in the industry.
KILAVUKA: Yes, so that is a discussion we've been having with South African Airways. How do we consolidate? And not just South African Airways,
it is African countries as well.
So my agenda as a person, and we as an airline, is really how do we make aviation more viable in Africa? One way of doing it, and I'm completely
convinced is you have to consolidate the industry. A fragmented state at which we are in is not going to make it.
GIOKOS: All right, up next, I'm speaking with a House Democrat, Gregory Meeks, about the fallout from the collapse of SVB, who is to blame and what
US lawmakers intend to do about it. That is coming up in just a moment.
Stay with CNN.
GIOKOS: Hello. I'm Eleni Giokos, and there is more QUEST MEANS BUSINESS in a moment, when we'll be speaking to us Congressman Gregory Meeks about
whether the SVB crisis can be linked to a rollback of banking regulations.
And the British Finance Minister says that contrary to most predictions, the UK will avoid recession this year.
For that the headlines this hour: US Defense Secretary Lloyd Austin says the US military will keep flying drones wherever international law allows.
The Pentagon says that on Tuesday, a Russian jet hit a US drone in international airspace over the Black Sea forcing it to crash into the sea.
Austin called on Russia to operate its aircraft more safely.
A Ukrainian official says the drone incident shows Russia's willingness to expand the conflict. zone meanwhile, the head of the Wagner Group claims
his fighters have captured a small settlement north of Bakhmut.
That city has been the site of intense fighting for months. A Pakistan court has told police to hold off on arresting the former prime minister
Imran Khan. It suspended their operation until Thursday morning in order to maintain peace.
Police had clashed with Khan's supporters outside his property. Khan says this corruption charges against him are biased.
Entire villages in eastern Africa have been washed away by tropical Cyclone Freddy. Officials in Malawi say, at least 225 people have died. Emergency
workers are still combing through mud in search of more bodies.
Freddy has been raging since early February and is the longest lasting tropical storm in recorded history.
Honduras says it will establish diplomatic ties with China, a move that could sever its existing relationship with Taiwan. The Honduran foreign
minister says, it is about, quote, "pragmatism, not ideology." He says Honduras is drowning in debt and needs investments.
GIOKOS: Credit Suisse's troubles weighed heavily on Wall Street. Markets clawed back losses when the Swiss national bank said that it would provide
the liquidity if needed. The Dow finished off 270 points. The S&P closed down more than half a percent.
And the tech heavy Nasdaq fared better, finishing flat. Rahel Solomon is in New York for us.
It has been one hell of a roller coaster this week. All eyes on banks. And just when we are licking our wounds on SVB, Credit Suisse comes along.
There is a big concern about what that would mean for the financial sector as a whole.
RAHEL SOLOMON, CNN CORRESPONDENT: Well, Eleni, I think what we are really witnessing is that it doesn't take much in this environment to spook
investors. As you, know Credit Suisse have been beset with problems for almost a decade. Scandals and such.
These challenges that Credit Suisse are not necessarily new and yet, you saw the type of panic it really spread because of how sensitive, how on
edge investors really are. And perhaps because of the fear of contagion on the heels of SVB, on the heels of Signature Bank and Credit Suisse, it
explains why we saw such a quick response perhaps from the Swiss national bank essentially saying that, not only does Credit Suisse meet really
strict regulatory requirements in terms of capital requirements but also saying that it will do what it needs to do if necessary to try to ensure up
liquidity at Credit Suisse similar to what we saw here in the U.S. with the Federal Reserve and the Treasury Department.
But Eleni, what is interesting. I just got off the phone with a banking expert and I asked him what will it take to calm markets, even after this
government intervention program here in the U.S.
He said, it is going to be more government responses.
How quickly do governments step up and how much do they do?
And I said, what are you hearing?
And he said, the next thing that might come. I mean, this will be pretty extreme. But if we get an announcement, it is something that they are
considering. But if we get an announcement from the Treasury Department, from the FDIC, that they will insure all deposits.
But it really gives you a sense of just how on edge people are about the state of the economy. He said, even though it's a small risk, the
consequences of it are so large that the government really can't take any chances.
GIOKOS: Yes, we have been down this road before. And we know what this could do in terms of contagion.
Very quickly, give me a sense of what banking stocks did today?
It seems there has been a spillover of the negative sentiment. But again, deposits have shifted into larger banks.
SOLOMON: Well, it is so interesting. We are seeing a shift to perceived quality, both in terms of investors and depositors, as depositors move
their money to banks that they believe are more safe. And investors sell stocks that they believe are weaker and put them in the larger banks.
But what is noteworthy today is the larger banks, the perceived safety banks, those too got swept up in the larger selloff, -- JPMorgan Chase,
Bank of America, Wells Fargo, Citigroup.
SOLOMON: All off between 3.5 to -- 1 percent to about 5.5 percent. So really a tough go for bank stocks as we deal with the lack of confidence
GIOKOS: Where to hide when there is a lack of confidence. Rahel Solomon, thank you so much.
Some U.S. lawmakers trace today's banking crisis to the weakening of the Dodd-Frank Act. In 2018, former president Trump signed a bipartisan law
that watered down reforms enacted by his predecessor, Barack Obama, after the global financial crisis.
The Dodd-Frank Act was designed to make the financial system safer for consumers. Among those who lobbied to weaken it was SVB chief executive
Representative Gregory Meeks is a Democratic congressman from New York and is senior member of the House Financial Services Committee. He joins me now
from Washington, D.C.
Sir, great to see you. Everyone is asking what went wrong.
What was the reason behind SVB's collapse?
If the Dodd-Frank bill had not been watered down, SVP as well as Signature Bank would have been liable to conduct a lot more stress tests, perhaps
something would have been seen far sooner. Red flag would have been noticed.
Is that your perspective as well, that part of the reason here is a weakening of regulation?
REP. GREGORY MEEKS (D-NY), RANKING MEMBER, FOREIGN AFFAIRS COMMITTEE: Thank you for having me, first of all. But let me just say that, clearly
the purpose -- there's a strong support for stress testing for all banks, even the regional and small banks, and doing it in a transparent way and in
a public way.
Because that then keeps the confidence to the public that what is going on. And if something is going on, you can wind it down in a timely fashion.
And so, clearly one of the issues that might have been the case here, and you have to look at all of the issues in the longer term, I think that
stress testing is one. If we had kept the rules where it was, at the very least we would not be talking about it now.
We would say that stress testing worked or didn't work. And the next thing that we need to look at doing. So you should always err I think on the side
of caution when it comes to banks in that regard so the credibility and all of the banks is clear to the depositories.
And that did not take place here. So now we have to have this conversation. It is something that must be looked at as we move forward.
GIOKOS: Conversation, again it feels. We learned so many big lessons during the global financial crisis and that is why stricter regulation came
into effect. Then watered down. Now there are calls for more regulations, for stricter regulations.
Do you see that happening imminently?
MEEKS: Well, I would hope that we would do that. I do have concerns, frankly, because I know that a number of my Republican colleagues may not
be there and we may not have the votes to push that. Forward now
I would hope that the united voices of the people of the United States would put tremendous pressure on all members of Congress because,
irrespective (sic) of whether you are a Democrat, Republican or independent, this crisis and when the banks -- there's a run on the banks -
- affects us all.
So I would hope that we look at additional regulation, stress testing, whether or not we need to raise the $250,000 protection on depositories,
whether we should have the same system for single or individuals as opposed to small businesses, because that is what has been devastating with the SVB
and signatory situation.
That so many small businesses and companies were affected which could affect then the salaries of workers. And we don't have to happen. So I
think that we have a lot of work that we must continue to do. We can't rest upon what we did with --
GIOKOS: Congressman, do you believe that we will get an announcement about the backing of more deposits across the board and above the $250, 000
MEEKS: Well, I think that the government has in effect done some of that already. Especially with SVB and Signature Bank. And also by setting up a
lending facility for all small banks and credit unions. So we moved in that direction.
MEEKS: We have to look further down the road what should be done, how much it will cost and how it will be paid for and whether or not we do have --
or it comes along with the more stringent regulations.
GIOKOS: Is there a fear that we might be seeing more cases like SVB and Signature Bank?
The question here now arises. If some of the banks were not conducting stress tests after Dodd-Frank was watered down, that might mean we have
other issues brewing. And we also know what impact higher interest rates have done to the banking sector. tighter monetary policy seems to be
putting stress on the banking system.
MEEKS: So we need to examine all of that. It seems to me that the failures of SVB and Signature came from also mismanagement of the bank. And a
misjudgment of the interest rate risk.
The vast majority of the small and midsize regional banks are still strong because they have had diversified portfolios. Therefore they are not at
risk of failure absent some kind of run because of panic.
So we look at SVB, for example, all of their investment seems to be in one area. Here is where the testing could have come in handy, stress test, to
see that they over invested in one area, making it not as secure, as opposed to having it diversified.
GIOKOS: Yes. Congressman Gregory Meeks, thank you very much for joining us. Great to have you on the show. Much appreciated.
MEEKS: Thank you for having me.
GIOKOS: Moving on. And I do need to clarify, the earlier issue in this program. In our coverage of Israel president's speech today, we played a
sound bite from his speech last week on the same issue. That was from him speaking on March 9th.
Now the British economy will shrink this year but avoid a recession. That was the message from the finance minister as he dusted off his red box and
delivered his spring budget. We will break it all down. That is coming up next.
GIOKOS: The British finance minister says that, contrary to many predictions, the U.K. will avoid recession this year.
GIOKOS: Jeremy Hunt delivered his spring budget today, announcing tax and spending promises, including an extension to subsidies to hold down
household energy bills. He also had this to say about the U.K.'s inflation.
(BEGIN VIDEO CLIP)
JEREMY HUNT, U.K. CHANCELLOR OF THE EXCHEQUER: Despite continuing global instability, the OBR report today, that inflation in the U.K. will fall
from 10.7 percent in the final quarter of last year to 2.9 percent by the end of 2023. That is more than halving inflation.
(END VIDEO CLIP)
GIOKOS: Yael Selfin is the chief economist at KPMG U.K. She joins me now from London.
Great to see you. Look, good news. I think maybe had anticipated a recession in the U.K. That has changed and it gave the chancellor a little
bit of wiggle room to be able to play around with budgets.
I want you to give me a sense of what you are feeling right now with the way that he has handled the money and whether this will have an impact on
U.K.'s growth trajectory.
YAEL SELFIN, CHIEF ECONOMIST, KPMG U.K.: Well, I mean to start with the wiggle room, it's all dependent on the forecast. The economic environment
has improved but there are still relatively optimistic, especially for next year but also in the medium term.
So that wiggle room that is around 25 billion at the moment per year may prove to be a little bit smaller than that. And then in terms of what he is
done on average, he is spending about 16 billion of that. Part of it is going on sheltering households in the short term for a little bit longer
from the higher energy crisis.
That's a bit extended but it is relatively not that much money, considering what he was projecting that he will need to spend years the energy crisis
have gone down. It's another transit is going on, trying to bring more people to the labor market.
It is quite possible he will be able to do some of it, bring some people. But it may not be that many. And we will still probably have a tight labor
market in the U.K. going forward.
And then he has done a little bit on business investment as well by creating a new capital allowance that is relatively generous but it is
still temporary so that may not make a big difference in terms of the trend of business investment in the U.K.
And it's also still limited to only capital so plants and machinery, nothing on intangible and on the type of investment that many businesses
tend to make nowadays in normal, more modern economies.
GIOKOS: Yes, if I may ask this, I mean a few analysts have said that it is significant that there was no movement and money allocated for striking
public sector workers that would match salaries to what we have seen on the inflation front.
Is this also a standout point for you?
SELFIN: Well, it was touch and go whether that will be included or not. Having said that, he has -- I mean inflation is going to go down
significantly, as he says and as OBR forecast show at this stage, which means that in the medium term, workers will recover a big chunk of the lost
purchasing power because already they are expected to go up by more than inflation in the medium term.
Generally, if you look at the squeeze on disposable incomes, there were other things that were also making seem relatively tight for households. If
you look at the fact that the allowances weren't raised by the same amount as inflation as well.
So that's the other part of the budget that's also going to make it harder for households in terms of their ability to spend.
GIOKOS: One thing for households, though, one thing for households is expanded childcare allowance, which is interesting. I think it's adding 30
hours a week for parents, for households we have two working parents.
How significant would you say this is for families?
SELFIN: I mean it could be quite significant. We haven't seen all of the details yet of that.
SELFIN: So we need to see who is ineligible and how that is going to be provided. But I think it could potentially be significant, especially for
the lower income households.
But how far is it going to incentivize how people go to move, to enter the labor market?
This is how to set the numbers. All beyond them but both relatively small in terms of the impacts that they project at the moment that it will make
all the labor market.
GIOKOS: Yes. Yael Selfin, thank you very much for joining us. Great to have you on the show.
Now the Wizarding World of Harry Potter is coming to Japan. Marc Stewart has a special preview of Warner Brothers new Tokyo studio tour. Want to
stay tuned for that.
GIOKOS: The Wizarding World of Harry Potter could bring even more tourism to Japan, which is already moving post-pandemic. Warner Brothers, which has
the same parent company as CNN, is launching a new Harry Potter studio tour in Tokyo. CNN's Marc Stewart took a look behind the magical scenes for us.
MARC STEWART, CNN CORRESPONDENT (voice-over): Harry Potter's magic --
ROBBIE COLTRANE, ACTOR, "RUBEUS HAGRID": You're a wizard, Harry.
STEWART (voice-over): -- is transporting to Tokyo. It's on this massive lot where fans will see some of the series most iconic sets like the Great
Hall at Hogwarts and the Forbidden Forest. It's part of the new Warner Brothers studio soon to open in Japan.
(on-camera): What goes through your mind when you see the train, you see the sets, you see the costumes?
JEFF NAGLER, PRESIDENT, WORLDWIDE STUDIO OPERATIONS, WARNER BROTHERS: Wow, I can't believe it. And when I come here, I have to remember that I'm here
on a business trip and not to be looking at this as if I'm just a fan.
STEWART (voice-over): Jeff Nagler is President of Warner Brothers Worldwide Studio Operations.
(on-camera): Why Japan?
NAGLER: I think that was one of the easiest decisions for us actually because of the whole global interest in Harry Potter after the United
States and after the U.K. Japan is the third best area for Harry Potter fandom.
STEWART (voice-over): The Tokyo studio is modeled after the one in London and will be larger. A big draw the Hogwarts Express train that was made in
London transported by land and by sea to its new home here in Japan.
(on-camera): It's not just about the sets, it's about the accessories, the costumes, the props, like the ones you've seen in the movies.
UNIDENTIFIED FEMALE (through translator): We normally don't get to see what goes on behind the scenes in movies. But here we get to see how films
UNIDENTIFIED FEMALE (through translator): For example, it shows us how the people who work in the costume, props, movie set departments, all work as a
STEWART (voice-over): A glimpse into Movie Magic far from Harry Potter's roots in the U.K.
(on-camera): Do you see Asia as a growth market for experiences like this?
NAGLER: Absolutely. We do look at China and we look at Japan, we look at South Korea. We have a big fan base in Australia, New Zealand as well. All
of -- it's not Asia, it's the whole Asia Pacific region.
STEWART (voice-over): Stories of imagination appealing to audiences around the world -- Marc Stewart, CNN, Tokyo.
GIOKOS: That looks like a fun assignment. Marc Stewart there for us.
Well, troubles at Credit Suisse weighed heavily on Wall Street which closed mixed on the day. The Dow finished 280 points, lower it clawed back some
losses after the Swiss national bank said it would provide liquidity to Credit Suisse if needed.
The S&P closed down more than a half percent in the meantime and the tech heavy Nasdaq picked up a few points on the day.
Well, that is it for QUEST MEANS BUSINESS, I'm Eleni Giokos in Dubai. "THE LEAD WITH JAKE TAPPER" is up next. See you soon.