Pub. 2 2023 Issue 4

How did short-selling contribute to the bank failures and market volatility? 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. How do you combat that? How should policymakers deal with it? We understand the role of short sellers in a free market. However, there’s a fundamental difference between making investments based on a company’s financial standing, strength and trajectory, and profiting on misinformation and distrust that you’re seeding. Some short sellers raked in over $1 billion the first couple of days in May. We were the first to urge the SEC to look at the market manipulation that was occurring, and they did. That alone calmed things down. But even within the last couple of weeks, there were over $2 billion in short-sale positions on regional banks. We’ve continued to urge policymakers to keep an eye on it. What kind of role did social media play? 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. Some people have referred to the failures as a “crisis,” others prefer to call it “turmoil,” — whatever it was, are we past it at this point? For the most part. We try to avoid calling it a regional-bank crisis. Lumping all regional banks together is probably what’s caused the most harm in all this. Regionals range from $10 billion to $700 billion in assets. Banks in the $10 billion to $20 billion range are vastly different from super regionals, and super regionals are very different from the top four banks. We need to ensure different institutions are able to play their unique roles in the economy. What about policy ramifications? Will the Fed come out with stronger capital requirements? If so, how will the industry respond? 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. Policy wise, I’m not sure anything could have been done to prevent their failures. Will regulators ease up on M&A? 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. You’ve called for an unpoliticized debate on lingering policy questions like deposit insurance. Is that even possible anymore? I doubt things will ever be completely unpoliticized, but we should be able to have substantive, data-driven conversations about the realities of today’s marketplace. CBA has not taken a position on deposit insurance in particular, and we’d never support unlimited insurance or anything that creates moral hazard. We should discuss the needs of today’s depositors, but any change to deposit insurance will require congressional action, and it’s unlikely anything’s going to happen on Capitol Hill with this Congress (possibly even the next Congress). Right now, we should be having the conversation to ensure we reach a reasonable conclusion once the issue makes it to Capitol Hill. Lately, CFPB Director Rohit Chopra seems more willing to engage with the industry. Do you feel like he’s listening to you? 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. INDEPENDENT REPORT | 31

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