Simon Johnson: evaluation

Transcript context

…Let me tell you my worry and see what your response is: that once you start playing the credibility game, which ultimately you can’t avoid, that even letting a truly small bank — much smaller than SVB — fail, it sends a signal. And then, since about half of the deposits in US banks are not FDIC-insured, it doesn’t matter how small the bank is; the signal is, in a sense, infinitely large once it happens once. Is that a problem? If so, how do we get around it? It’s a very big problem, Tyler, honestly. Uninsured deposits were about $8 trillion at the end of last year; insured was about $10 trillion. Like you say, 50–50, and it’s all about the signal because if you believe that uninsured deposits are in jeopardy, which was the case during that Silicon Valley Bank weekend, then you may be looking for other places to put your money. I think that that shift in deposits away from — if there is a shift in deposits away from, let’s say, regional banks or mid-size banks towards very large banks, for example, they’re not going to be particularly good at replacing the regional banks in what they do in terms of lending to the nonfinancial sector all across the country, for example. If the shift, by the way, is down to community banks, that’ll be interesting. They might actually be able to step up and fill some of the gaps, but I still think that’s going to be pretty disruptive in a lot of markets. Let’s say you had been in charge with Credit Suisse. What would you have done in advance to have eased the path of the mess we’re now in? Because they’ve been poorly managed for a long time, right?…

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