Why US Banks Are Trying to Turn Themselves Into Super Apps

SPEAKER_2 (0:02)

Bloomberg Audio Studios, podcasts, radio, news.

Tracy Alloway (0:18)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:22)

And I'm Joe Weisenthal.

Tracy Alloway (0:23)

Joe, if I had said to you a few years ago that there's a bank, and the bank is taking deposits, checking accounts, and it's putting that money into US treasuries, and that business model is gonna completely fail, the bank is gonna collapse, what would you have said?

Joe Weisenthal (0:45)

I would have said, let's short the stock. That's what I would have said. I would have said, if you told me that and you knew, the only insight, the only actionable thing there, I would have said, all right, let's short it.

Tracy Alloway (0:54)

All right, that's the right answer, clearly. If you were a banking regulator, what would you have done?

Joe Weisenthal (0:59)

Well, I don't know anything about being a banking regular. It seems really hard. And regulators in general often get criticized in various ways. And they're like, oh, you busted this really small-time tiki-tack insider trading ring. It's not that big of a deal. Or, oh, here's this thing that collapsed. And why didn't you catch it before? They're always going to get upset about that. But I have to say, I have a lot of sympathy for the regulators, because for the most part, my impression is that the US has one of the most robust, transparent, high-depth capital markets and financial systems in the entire world, which for the most part does not collapse. And so I feel like when it comes to regulatory issues, there's a lot of unseen where what we see is like, if they're in the news, it's not good, but most of the time things aren't in the news.

Tracy Alloway (1:46)

That should be the tagline for America's financial system. Most of the time does not collapse.

Joe Weisenthal (1:51)

Yeah. Unironically.

Tracy Alloway (1:53)

Well, I'm talking, of course, or I was talking about Silicon Valley Bank and the collapse there. And I think it's still very surprising to me. In one sense, it was an old-fashioned bank run, but in another sense, it's very surprising that here's a bank that's basically buying a bunch of ultra-safe assets, US. Treasuries, and still it ran into trouble. And banks, of course, are mandated to buy treasuries as well. We talked about this on the show any number of times now. But I want to talk more about it.

Joe Weisenthal (2:23)

Sure. You know, the one thing I'll say, too, that I've been thinking a lot with SVB is, I think in the wake of the 2008-2009 financial crisis, we got very focused on the asset side of the balance sheet, right? And so it's like, oh, what do they hit? What kind of subprime loans do they have? And how good are they? All of that, et cetera. But one of the things, you know, like Josh Younger talked about recently and others, Stephen Kelly had a note in our newsletter. You know, a lot of it is the difficulty in modeling the liability side and the slipperiness of the deposit base and how hard that is to know because you can have long duration deposits that suddenly become overnight deposits. It's really tricky. And I still think these are difficult things to understand.

Tracy Alloway (3:03)

Yeah, it feels like we're always fighting the last bank battle or the last bond battle. Okay, well, on that note, we do in fact have the perfect guest. We are going to be speaking with Rohit Chopra. He is, of course, the former Director of the Consumer Financial Protection Bureau, also a former FTC Commissioner. So really the perfect person to talk to if we want to dig into what happened to SVB, what it means for bank regulation, and then also what banks are doing right now. Rohit, thank you so much for coming on Odd Lots.

Rohit Chopra (3:34)

Thanks for having me.

Tracy Alloway (3:35)

Here's my first question. Maybe it's a little pointed, but does the CFPB still exist? So we just got the one big beautiful bill that's been passed, and it looks like it slashes funding for the Bureau. And of course, we know that Trump isn't exactly a fan of federal agencies. So I'm curious, is it still functioning?

Joe Weisenthal (3:53)

And it's already kind of gutted.

Tracy Alloway (3:54)

Yeah.

Joe Weisenthal (3:55)

Anyway.

Rohit Chopra (3:55)

It's a good question. And it seems by every single piece of evidence that it's just maybe there technically, but not doing a damn thing. We are hearing nearly every day about another financial institution that is being released from obligations. It has been months since there has been an enforcement action, and many are estimating that this means billions and billions of dollars that consumers are not getting back in refunds. And frankly, a big disadvantage to all of those financial companies that follow the rules.