Banker and author Chris Whalen (@rcwhalen), chairman of Whalen Global Advisors, who is also the author of The Institutional Risk Analyst, joins Julia La Roche on episode 73 to discuss the failure of First Republic Bank, the Federal Reserve’s role in the spate of bank failures, and why we should expect more failures ahead. 

In this episode, Whalen outlines why thee will be a repricing across the banking industries as banks have to raise deposit rates to get closer to T-bills, but many banks can’t do that. As a result, he expects that the Fed will have to drop rates before the end of the year or risk more bank failures. 

0:00 Intro 

1:41 Welcoming Chris Whalen 

2:22 The false narrative around First Republic’s failure 

3:14 The Fed panicked and started excessive open market intervention in 2019

4:09 Outliers in banking are the ones going down 

5:02 It’s just like the 1980s 

5:48 If banks don’t reprice, they’re not going to make it

6:20 The Fed likely didn’t recognize this existential risk 

7:00 Fed buying MBS was a terrible mistake 

7:47 Monetary policy is implemented in the bond market 

8:11 Why was the Fed buying MBS? It’s dangerous.

10:19 Not surprised by bank failures

11:45 Most banks are insolvent 

12:45 Weaker banks will get picked on, but larger banks could go down

13:36 Bank of the Ozarks successfully raised more deposits 

14:00 Powell will have to drop rates before end of the year or we’ll have more bank failures 

16:38 Not a failure of supervision 

17:24 Where is the blame placed? 

18:50 All banks are going to be vulnerable 

19:50 Net Interest Margin is going to get squeezed 

20:45 How many more bank failures can Powell and Yellen survive? 

22:41 Different from 2008? 

24:00 Impact or rate hikes 

25:11 Fed raised too far, too fast, and left the banks with big losses

26:40 Commercial real estate risk 

29:33 Powell could lose control of the situation if he doesn’t talk to Congress and the public about the situation