Lloyd Blankfein on money safety: “In a way, yes”


On the wave of failure Bank of Silicon Valley and in Signature Bank and individual issues Credit Suisse And First RepublicMany Americans are wondering: is my money safe?

Lloyd Blankfein, former CEO of Goldman Sachs, said the answer is not black and white in Sunday’s issue of Fareed Zakaria GPS.

“The answer is like yes with an ellipsis,” Blankfein said.

This is because the government removed the power of the Federal Reserve to issue a full guarantee on all deposits in the system, a power it exercised in 2008.

Instead, the central bank, along with the Federal Deposit Insurance Corporation and the Treasury Department, has the power to guarantee deposits from bank to bank if they detect a systemic emergency.

Blankfein said the Fed meant it would treat any bank crash or event as systematic and use its powers, but it could not issue a full guarantee up front.

“I think you can rely on that,” Blankfein said. “But there is a tail risk in this lack of absolute certainty.”

Experts say that after the collapse of the bank do not rush to withdraw money.

“I don’t think people should panic, but it’s smart to have insured deposits versus uninsured deposits,” adds Jay Hatfield, CEO of Infrastructure Capital Advisors and portfolio manager for the InfraCap Equity Income ETF, to make sure your bank is FDIC insured. , which are the majority.

Each deposit account holder is insured for up to $250,000 – so, for example, if you have a joint account with your spouse, your money will be insured for up to $500,000.

If you are banking through a federally insured credit union, your deposits are insured up to a minimum of $250,000 by the National Credit Union Administration, which, like the FDIC, has the full faith and confidence of the US government.

Zakaria added, “Many people see it as a kind of salvation and in a way another example of capitalism for the poor and socialism for the rich.”

Blankfein said the government is helping not because of which groups of depositors are affected, but because of systemic risk to the entire banking system.

The expression used in these conversations is moral hazard. This means that if these savers are protected, “they and other savers in the future will not be so careful when they leave their money.” According to him, this could lead to a repeat of the current crisis.

Blankfein supported the policy change to increase the FDIC insured limit.

“Do we want to make depositors responsible for doing this kind of forensic accounting analysis of banks?” Blankfein said. “We don’t force people to analyze planes when we get on them. We rely on the FAA. If it’s certified, we’ll stumble upon them.”

According to Blankfein, the difference between 2008 and today is the difference in assets.

In 2008, he said, banks had “bad assets on their books” or assets that couldn’t be valued at all – think subprime mortgages that were worthless.

The problem now is that “people are withdrawing their deposits, but the assets are probably making good money in the long run, but they have lost value in between,” Blankfein said. He also added that banks are better capitalized due to reforms carried out since 2008.

If the current model of banking continues, most Americans will think their money is only safe in banks that are too big to fail.Blankfein said.

“Is it a virtue that there are over 4,000 banks in America? Most large countries have several large banks with branches,” Blankfein said, adding that there are banks in the US that specialize in certain industries, such as SVBs with technology.

“I wouldn’t necessarily want to experiment and give it up,” Blankfein said. “But if we encourage people to only go to the biggest banks, then the consolidation of this sector will go beyond what people find attractive.”

Blankfein said markets are predicting the Fed will raise interest rates by 0.25% and that “we can stop there.”

Democratic Senator from Massachusetts. Elizabeth Warren, a member of the Senate Banking Committee, criticized Federal Reserve Chairman Jerome Powell on Sunday, saying he has failed in two of his main jobs, citing higher interest rates and his support for bank deregulation.

The Fed is set to announce its latest benchmark interest rate decision at the end of its next two-day meeting on Wednesday.