IntraFi’s Chief Content Officer, Rob Blackwell, recently sat down with Lindsey Johnson, president and CEO of the Consumer Bankers Association, for an episode of his Banking with Interest podcast. Together, they covered a lot of ground including the regulatory landscape in in the wake of the collapses of SVB, Signature, and First Republic, the possibility of new, stricter capital requirements and stress testing, pending proposals to limit credit card late fees, how social media is changing banking, and more.
What follows are a few excerpts from the full interview.
It definitely had an impact. There was a lot of misinformation leading up to the failure of SVB. By the time First Republic collapsed, a lot of the misinformation out there was purposeful. It was seeding distrust, and the folks creating it were profiting from it.
Social media contributed to SVB’s failure (as did depositor concentration and group thinking among those depositors, the vast majority of which were uninsured). Banks have been overconcentrated in boom-and-bust sectors before—for instance, in the 1980s, Continental Bank was overconcentrated in oil. But it still took 10 days for Continental to lose 30% of its deposits. When Washington Mutual failed, it lost more than 4% of its deposits over 16 days, and when Wachovia failed, it lost 10% of its deposits over 19 days.
At SVB, the bank lost 25% of its deposits—over $42 billion worth—in a matter of hours. That’s astounding. And the St. Louis Fed reported that the FDIC knew SVB was going to lose another $100 billion the following day. The speed at which money can be transferred and communication happens today is incredible. All our banks are discussing the impact of social media, both on their deposit bases and on the narrative they communicate to the public.
We’ve been encouraging policymakers and industry players to try to resist defaulting to personal priorities. [Fed Vice Chair for Banking Supervision] Michael Barr has been pushing higher capital requirements since his nomination. Progressive policymakers have been pushing back on S.2155 [the Economic Growth, Regulatory Relief, and Consumer Protection Act] since before it was finalized. It’s important to remember that SVB and Signature were well-capitalized banks with good liquidity. Policywise, I’m not sure anything could have been done to prevent their failures.
Hopefully. We have the most dynamic and competitive marketplace in the world, with 5,000-plus banks, fintechs, and nonbanks serving communities and customers. But when we shut M&A conversations down, we force things to occur that shouldn't occur, and we force banks that should merge to not merge. They shouldn’t have to wait 12 to 15 months for approvals. There's a ton of capital sitting on the sidelines, and banks are missing out on opportunities.
I was thrilled to see Director Chopra at our annual conference, CBA Live. We had a very substantive dialogue about not only the bank failures, but also some of the forthcoming rules, such as 1071 and CRA. It was a very positive sign, and we want to continue the discussion and be able to share information. I don't necessarily think we will change his agenda, but we can still have an impact in certain areas.
Our banks support the intent of 1071. We've had significant concerns about some of its elements, and we actually did achieve certain things that are reflected in the final rule, but one of the things we didn't achieve was a phase-in approach for 1071. We just need more time to implement it. The largest banks in the country don't have the systems in place to collect and report this data from small businesses. If it’s going to be difficult for them, I can’t imagine the challenge facing smaller institutions.
It’s obviously a really important case. The CBA believes in having a strong regulator overseeing consumer protection. Agencies should be able to operate and issue regulation without reproach. But we don't see that happening today, and we want more stability, transparency, and oversight of the CFPB. If the Supreme Court does rule that the bureau’s funding structure is unconstitutional, and that Congress needs to make it constitutional and fund the CFPB, there are a number of bills that have passed committee that would do just that.