Lloyd Blankfein on money security: ‘Sort of yes’

New York (CNN) After the bankruptcy of Silicon Valley Bank and Signature Bank, and separate problems at Credit Suisse and First Republic, many Americans are asking the question: Is my money safe?

Lloyd Blankfein, the former CEO of Goldman Sachs, said on Sunday that the answer to “Fareed Zakaria GPS” is not black and white.

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

That’s because the government removed the Federal Reserve’s ability to issue a blanket guarantee for all deposits in the system, a power it used in 2008.

Instead, the central bank, along with the Federal Deposit Insurance Corporation and the Treasury Department, have the authority to guarantee deposits bank by bank if they find a systemic emergency.

Blankfein said the Fed suggests it will view any bank run or event as systemic and use whatever authority it has, but is unable to provide a blanket guarantee in advance.

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

Experts say in the aftermath of the bank deposits not to rush to withdraw money.

“I don’t think people should panic, but it just makes sense to have insured deposits versus uninsured deposits,” added Jay Hatfield, CEO at Infrastructure Capital Advisors and portfolio manager of the InfraCap Equity Income ETF to ensure that your bank is FDIC insured. , which are most.

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

If you bank through a federally insured credit union, your deposits are insured at least up to $250,000 by the National Credit Union Administration, which, like the FDIC, is backed by the full trust and credit of the U.S. government.

The future of banking

Zakaria added: “There are many people who think that this is somehow a bailout, and this is somehow another example of capitalism for the poor and socialism for the rich.”

Blankfein said the government was helping not based on which groups of depositors were affected, but because of systemic risks to the entire banking system.

The phrase used in these conversations is moral hazard — meaning that if these savers are protected, “they and other savers won’t be as careful where they put their money in the future.” This could cause a repeat of the current crisis, he said.

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

“Do we want to make it the duty of depositors to do that kind of forensic accounting analysis on banks?” Blankfein said. “We don’t let people do aircraft analysis when we board. We rely on the FAA. When it’s certified, we get on it.”

The difference between 2008 and now is the difference in assets, Blankfein said.

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

The problem now is “people are withdrawing their deposits, but the assets are probably good money in the long run, but they’ve lost value in between,” Blankfein said. He also added that banks are better capitalized due to reforms that took place after 2008.

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

“Is it a virtue that America has more than 4,000 banks? Most major countries have a few large banks with branches,” Blankfein said, adding that the US has banks that specialize in certain industries, such as SVB with technology.

“I wouldn’t necessarily want to experiment and pull that back,” Blankfein said. “But if we encourage people to only go to the biggest banks, the industry will consolidate beyond what people think is attractive.”

Blankfein said markets are predicting the Fed will raise interest rates by 0.25%, and it would be “OK to stop there.”

Democratic Sen. Elizabeth Warren of Massachusetts, a member of the Senate banking committee, lashed out at Federal Reserve Chairman Jerome Powell on Sunday, saying he has failed at two of his most important jobs, citing interest rate hikes and his support for bank deregulation.

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

CNN’s Aileen Graef contributed to this story.






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