An oft-cited fact is that rising rates support the profitability of the commercial banking system. Chris Whalen, veteran banker, chairman of Whalen Global Advisors & Author of The Institutional Risk Analyst begs to differ. Whalen explains to Farley that banks make money by the spread between their yield on their loans and their cost of funds, and that while rising rates do increase loan yields, they also increase banks’ cost of funds. Whalen also explains why he thinks the Federal Reserve will be unable to do Quantitative Tightening because it will be stuck with mortgage-backed securities (MBS) for many years.

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Timestamps:

(00:00) Introduction

(12:35) Inflation

(18:13) The Problem The Fed Faces with Mortgage-Backed Securities (MBS)

(21:08) Can the Federal Reserve Become Insolvent?

(24:57) Mortgage Lending At Commercial Banks27

(27:32) BCB Ad

(28:20) Are Rising Rates Good For Banks?

(31:54) Why A Recession Is Likely?

(34:51) Outlook on Bank Stocks and U.S. Treasuries

(44:00) Biggest Risk: Non-Bank Lenders

(48:31) Credit Card Lending

(51:16) Will Banks Suffer Losses from Russia's Invasion of Ukraine?

(54:40) European Banks

(58:35) Jack's Post-Conversation Explanation