YouSaid · the spoken record

Simon Johnson

lines on the record: 63
first: 2023-05-17
most recent: 2023-05-17
sittings or episodes: 1
sources: podcast

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“Yeah, so Chris Suisse, when it was in serious trouble, had a balance sheet of around half a trillion dollars. The Swiss National Bank has foreign exchange assets of around about a trillion dollars. So yes, size matters, Tyler, but size relative to the ability of the government to stand behind its banks, including in foreign currency when they're operating not in domestic currency. And I think on that score, the Swiss did have that capacity. But that's not always the case. So Iceland, for example, and Iceland had big banks that failed in 2008. Iceland could not stand behind their banks. And that probably should not be allowed.”
2023-05-17 · Conversations with Tyler · Simon Johnson on Banking, Technology, and Prosperity · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, exactly. So the Japanese banks ran into big trouble end of the 80s and the 90s and subsequently had been pretty rough. And the European banks are also regarded as an imperfect model. Deutsche Bank, for example, is often held out as being very problematic, although it's backed by the German state, so they can get away with a lot of things. These Swiss banks that were struggling this week had universal bank features at some points in their history. So I think banking is a difficult business and rife with problems for the rest of us, Tyler, however you organize it.”
2023-05-17 · Conversations with Tyler · Simon Johnson on Banking, Technology, and Prosperity · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, that's a great question. I think in America, one of the things we're really good at is allowing people to get really big and powerful fast. So if Amazon owned a bank or if Microsoft owned a bank or if Apple owned a bank, would the system be more stable or less stable? Would it be more fair or less fair? It's a very good question. I think we're not going to do it politically. I think that that separation is something that's sufficiently ingrained and people are accustomed to it. But you're right to push them, Tyler. Absolutely.”
2023-05-17 · Conversations with Tyler · Simon Johnson on Banking, Technology, and Prosperity · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I think Gary Gensler's got the right. When it comes to crypto exchanges, I think he's got the right view, which is, you know, if it walks like an exchange and talks like an exchange, it's an exchange. It doesn't matter what you call it. And I think there's a pretty clear definition of also what's a security, which Gary is following up on. I think the bank non-bank distinction is a really interesting one, Tyler, because, of course, it all goes back to allowing money market funds to appear in the 1970s, which in itself was a reaction to high inflation and controls on interest rates. And once that genie's been let out of the bottle, it's very hard to put it back in. I would not run around handing out a lot more banking licenses to things that are not banks, but I'd also be very careful and cautious anything that provides bank-like services without a banking license. And that's exactly where stablecoins are.”
2023-05-17 · Conversations with Tyler · Simon Johnson on Banking, Technology, and Prosperity · IDENTIFIED FROM THE TRANSCRIPT · source
“That's the right question, Tyler. I think these privately issued stablecoins are pretty unstable personally. There have been a number of pressures there and a number of disappointments, as you know. I think they're not well regulated and the systemic risk council, which I'm co-chair now with Ercula Khanum from Finland, we've sent some letters really cautioning about that. That's the main part of the crypto space that we think has systemic implications. But you're right. I mean, could we get programmable money? Should we want programmable money? What could that look like? That's the right question to be asking. Perhaps there are other better protocols that could be developed given what we're currently experiencing.”
2023-05-17 · Conversations with Tyler · Simon Johnson on Banking, Technology, and Prosperity · IDENTIFIED FROM THE TRANSCRIPT · source
“I think it's pretty far off, Tyler. I mean, look, you mentioned money market funds a moment ago. I mean, one thing that could happen, of course, is people might decide to take their uninsured deposits, which are a claim, a liability of a bank. And you may have different views about the sustainability of vulnerability of that bank. And you could buy short-term government debt through a money market fund. And then you could just sit there and wait to see what happens. If you had a central bank digital currency, I think a lot of people would have migrated if they weren't already holding that they would have migrated from the bank account into that central bank digital currency. And that would be a big shift in the ability of the banks to fund their loan book. And that could have serious and difficult ramifications at a period of stress like this. So it's really, I think the complications of a central bank digital currency are more apparent this week than they were a couple of weeks ago.”
2023-05-17 · Conversations with Tyler · Simon Johnson on Banking, Technology, and Prosperity · IDENTIFIED FROM THE TRANSCRIPT · source
“I think that's going to be a lot of repricing in that market for that reason. But I think the concern, Tyler, was that the convertibility would not happen, that those bonds would be protected precisely because of the kind of contagion fears that you mentioned a few moments ago. So at least the authorities felt confident enough to do that. And that presumably means hopefully they know who owned those bonds and they were not owned by highly leveraged entities that could themselves be in trouble. I mean, so far it's only less than 48 hours after that happened. So far so good. But let's see exactly what the linkages are between various financial sector firms in Europe.”
2023-05-17 · Conversations with Tyler · Simon Johnson on Banking, Technology, and Prosperity · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, absolutely, and they've had many cautions from the regulators. I think that the losses that have imposed on their convertible bonds, the so-called COCOs or 80 additional tier one bonds, we're going to see what happens. But I think if that works and that sends a signal that these are additional, actually going to be treated like equity or more than equity, right? Tyler, because the equity holder's got some compensation in the purchase. They got $3 billion for a bank that was worth $8 billion on the Friday before this happened. But the AT1 bonds were taken to zero. That's the current position.”
2023-05-17 · Conversations with Tyler · Simon Johnson on Banking, Technology, and Prosperity · IDENTIFIED FROM THE TRANSCRIPT · source
“A very big problem, Tyler, honestly. So uninsured deposits are about $8 trillion at the end of last year, insured is about $10 trillion. So like you say, 50-50. And it's all about the signal, right? 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. And 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-sized 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 non-financial 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.”
2023-05-17 · Conversations with Tyler · Simon Johnson on Banking, Technology, and Prosperity · IDENTIFIED FROM THE TRANSCRIPT · source
“It may do, I don't think we're going to get a consensus to ensure all deposits, Tyler, for exactly the reasons you're flagging. I do think that we might leave individual deposits at 250K where it is now, and we might have a sensible design of an insurance scheme for small business transaction accounts. I think if you have a nine-person startup, telling them to spend time on financial management when they're trying to build a new hot source company or whatever it is, it's kind of a distraction and rather unfair. And the FDIC already has this category called transaction deposits, operational deposits. So they could use that and we can carve that out. And then, yes, you want to avoid situations where hedge funds put money on deposit with crazy banks that go off and take crypto risk or other risks that are not well managed.”
2023-05-17 · Conversations with Tyler · Simon Johnson on Banking, Technology, and Prosperity · IDENTIFIED FROM THE TRANSCRIPT · source
“Exactly. Sorry, the Sheila Bair proposal was to ensure all uninsured deposits. We could talk about that. I think a very sensible version of that would ensure business transaction accounts or operational deposits, as the FJC calls them. Basically small business, working capital, payroll, the account from which they make payroll and so on. I think those are a real issue at the moment. I think ensuring all deposits is something you only do when you're absolutely desperate and hopefully we won't get to that.”
2023-05-17 · Conversations with Tyler · Simon Johnson on Banking, Technology, and Prosperity · IDENTIFIED FROM THE TRANSCRIPT · source
“No, actually, I think Sheila Bear nailed this. Actually, she nailed it in the Silicon Valley Bank weekend, if you like, and she wrote about it last week in the Financial Times, which is what you could have done was have the Silicon Valley Bank unassured deposits take a haircut. The assets of that bank were mostly high-quality government long-term government bonds that were underwater, but only because of the interest rate increase. So they probably would have got about 90 cents in the dollar by reasonal estimates, I think, Tyler. And the FTIC also pays out about half of what they owe in that kind of recovery process in cash after just a few days. So they would have had cash. They would have had a hecker. But then Tyler, I think the key point that Sheila makes is you should have insured all the other banks. So in other words, uninsured deposits in Silicon Valley Bank would have had losses. That would have addressed some of the moral hazard issues that we're now very worried about. And all the other banks would have been insured. So you wouldn't get the contagion.”
2023-05-17 · Conversations with Tyler · Simon Johnson on Banking, Technology, and Prosperity · IDENTIFIED FROM THE TRANSCRIPT · source
“I think we're in the process of exploring that Tyler because, well, I actually testified to the Senate this 2015. There was a big argument, as you know, over many years about this. I said, if you let banks go over $50 billion, you're going to have to pay attention to them because there could be systemic knock-on effects. And I talked about long-term capital management, which wasn't a bank, it was about $100 billion. And we talked about other episodes in 2008. But I guess the consensus shifted. And so the view coming out of the reforms or changes of 2018 was that $250 billion total assets was where systemic attention should start to be paid. And Silicon Valley Bank was smaller than that. Signature Bank was significantly smaller than that. So, you know, it's a very good question, Tyler, whether there's a minimum size. We can talk about that knock-on effects. What does contagion mean in this context? But it's definitely worrying when you think about what has been done and for whom over the past two weeks.”
2023-05-17 · Conversations with Tyler · Simon Johnson on Banking, Technology, and Prosperity · IDENTIFIED FROM THE TRANSCRIPT · source