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Advance Placement: Four Things to Know When Choosing a Bank · Earn Your Leisure

• 0:00
  Speaker 1: So if I want to ask you four questions at
• 0:03
  Speaker 1: one time, so I'll get some high second, Wait a second,
• 0:11
  Speaker 1: some high level some high level information, high level information.
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  Speaker 2: Going back to this banking stuff.
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  Speaker 1: So when we're when we're looking at a bank, right,
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  Speaker 1: there's a couple of different factors that go into play
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  Speaker 1: in the in the banking system. And let's really break
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  Speaker 1: this down. So let's start with net interest margins. Okay,
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  Speaker 1: what's the deal with that?
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  Speaker 3: All right?
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  Speaker 4: The one metric that's most important to banks is net
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  Speaker 4: interest margins. That's the difference between the money they lend out,
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  Speaker 4: the money they take in and the money they lend out.
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  Speaker 4: That's their banking profit so to speak. So in normal
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  Speaker 4: times and any earning season, we got earnings coming up
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  Speaker 4: in two or three weeks. I know, Ian studies these
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  Speaker 4: charts like crazy. You're looking at these different key operational
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  Speaker 4: metrics within different sectors. Well, in banking, that's the one
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  Speaker 4: that counts how much are they borrowing money for and
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  Speaker 4: how much are they lending it out for and how
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  Speaker 4: often are they lending it out, And the difference between
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  Speaker 4: what they borrow for and what they lend it out,
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  Speaker 4: that's their net interest margin.
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  Speaker 3: That drives their profits.
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  Speaker 4: We used to have this joke, can't really use it
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  Speaker 4: that much anymore, but you might as well. Banks work
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  Speaker 4: on the three six. Bankers work at three to sixty
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  Speaker 4: three schedule. They borrow at three, they lend at six,
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  Speaker 4: and they're on the golf course by three. Right, That's
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  Speaker 4: how a good bank's supposed to work. But with interest
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  Speaker 4: rates this high, they're lending out at a very high rate.
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  Speaker 4: Very few people are borrowing because these rates are pretty
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  Speaker 4: terrifying right now. It's dissuaded, it's caused demand destruction. So
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  Speaker 4: their net interest margins are really low. So you want
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  Speaker 4: to look at lending activity, but you want to look
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  Speaker 4: at net interest margins to see which bank is bringing
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  Speaker 4: the most money down to the bottom line, down to
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  Speaker 4: the profit area.
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  Speaker 1: The next one is percent of uninsured deposits.
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  Speaker 3: Right, this is a big one.
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  Speaker 4: Silicon Valley Bank had an enormous percent of uninsured deposits.
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  Speaker 4: They had a lot of money. They had a lot
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  Speaker 4: of customers that were over that two hundred and fifty
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  Speaker 4: thousand dollars limit. So that could have been small businesses,
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  Speaker 4: that could have been startups, that could have been wealthy
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  Speaker 4: people in Silicon Valley or just tech people who work
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  Speaker 4: in that industry that have gotten stock options over the
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  Speaker 4: years that have a few hundred thousand dollars or a
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  Speaker 4: million bucks in the bank.
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  Speaker 3: So the higher.
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  Speaker 2: What's that?
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  Speaker 3: Do you know the percentage was? By chance?
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  Speaker 4: I think it was like seventy nine or eighty that
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  Speaker 4: that number rings in my head. But when you look
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  Speaker 4: at a lot of the regional banks that have been
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  Speaker 4: attacked by short sellers over the past week or two,
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  Speaker 4: what are they looking at. They're looking at the banks
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  Speaker 4: with the highest percentage of uninsured assets because those are
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  Speaker 4: the most vulnerable. And the Fed raise rates again right
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  Speaker 4: last week. They're just making this problem worse. The higher
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  Speaker 4: interest rates go, the title thos and that interest margins go,
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  Speaker 4: and the higher the harder it is for banks to loan.
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  Speaker 4: So they're getting squeezed because they're paying they have extremely
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  Speaker 4: high lending rates. Nobody's borrowing the money they have protected
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  Speaker 4: in government bonds. The price of those assets has really
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  Speaker 4: gone down a lot, and they have a higher percentage
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  Speaker 4: of uninsured assets.
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  Speaker 3: Perfect storm surrounding banks right now.
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  Speaker 2: Credit spreads.
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  Speaker 4: Credit spreads is basically that it's really how much lending
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  Speaker 4: is going on and you want to look at the
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  Speaker 4: credit spreads between banks.
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  Speaker 3: What a banks do and what does the Federal Reserve do?
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  Speaker 4: It facilitates lending between banks, and it loans money to banks.
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  Speaker 4: It loans money to banks through what we call the
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  Speaker 4: discount window. And if you heard Fed chair Power last
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  Speaker 4: week and two weeks ago, what did the Fed do?
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  Speaker 4: That discount window is usually a seven day window. I'm
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  Speaker 4: a bank, I'm loaning to ian. He's got seven days
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  Speaker 4: to pay me back. We're loaning him at a certain rate.
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  Speaker 4: He's got to pay me back plus that interest. Well,
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  Speaker 4: now that windows only one day long, so we don't
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  Speaker 4: have to wait seven days to see what happens to rates.
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  Speaker 4: That's a one day borrow. So when banks get tight,
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  Speaker 4: and when liquidity gets tight like we had in the
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  Speaker 4: Great Financial Crisis, banks stop lending to each other.
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  Speaker 3: So you want to look at how much.
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  Speaker 4: Lending is going on right now and the spreads between
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  Speaker 4: what this bank is loaning to this bank. It's super
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  Speaker 4: in detail for a lot of folks, but you're going
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  Speaker 4: to hear this word a lot. What are credit spreads?
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  Speaker 4: Credit spreads are getting blown out?
• 3:54
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  Speaker 6: An illegal alien from Guatemala charged with raping a child
• 5:48
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• 5:52
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• 6:23
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• 6:27
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• 6:31
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  Speaker 6: Do what's right. Leave now. Under President Trump America's laws,
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  Speaker 6: border and families will be protected.
• 6:42
  Speaker 3: Sponsored by the United States Department of Homeland Security.
• 6:45
  Speaker 4: Right, nobody's loaning at anybody at a reasonable rate because
• 6:48
  Speaker 4: they're worried about that money. So when we hear this expression,
• 6:51
  Speaker 4: they're blown out credit spreads. That means ingest rates have
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  Speaker 4: risen so high that banks are loaning to each other
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  Speaker 4: at exorbitant rates, and nobody's borrowing.
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  Speaker 1: So it's how I've just got one more. But this
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  Speaker 1: whole banking system is extremely interesting because it's like I live,
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  Speaker 1: there's twelve regional uh federal Reserve banks, and then those
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  Speaker 1: banks overnight they lend money to all of the banks
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  Speaker 1: in their area. And then as they raise interest rates,
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  Speaker 1: then banks that's borrowing money from the big.
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  Speaker 2: The big guys.
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  Speaker 1: It's gonna be more expensive, which gets passed down on
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  Speaker 1: the credit cards. And it's the car, so it starts
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  Speaker 1: it starts at the top. They're loaning money overnight to
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  Speaker 1: the smaller guys, and then the smaller guys are auditioning
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  Speaker 1: out money to everyday people. So every time the interest
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  Speaker 1: rates get raised, that's how you are impacted in your
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  Speaker 1: day to day life.
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  Speaker 5: And then inversely, the people who are depositing large amounts,
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  Speaker 5: they're using that money to now loan.
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  Speaker 2: Okay, one last question.
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  Speaker 4: The silver lining here real quick, is that there's finally
• 8:01
  Speaker 4: money in the bank for actual depositors. So people who
• 8:04
  Speaker 4: are freaked out about the stock market are freaked out
• 8:05
  Speaker 4: about this, or that you could buy a CD right
• 8:08
  Speaker 4: now for four or five percent, you can buy a
• 8:09
  Speaker 4: money market for fun for four or five percent. So
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  Speaker 4: the silver lining and all of this is it's good
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  Speaker 4: for customers and depositors as long as our bank doesn't
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  Speaker 4: go under. But it's really rough between banks right now,
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  Speaker 4: and really rough for businesses. That's why everyone's talking about
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  Speaker 4: a recession. Lending is going to get so tight, nobody's
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  Speaker 4: gonna borrow, nobody's going to expand they're gonna start laying
• 8:27
  Speaker 4: off people.
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  Speaker 3: That precipitates a recession.
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  Speaker 1: Arise in credit, the fault swaps, what is credit and
• 8:33
  Speaker 1: this is, by the way, ladies and jail, this is
• 8:36
  Speaker 1: your master's degree.
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  Speaker 2: If it sounds like a encyclopedia.
• 8:42
  Speaker 1: Your master's degree in five minutes, because it is for free,
• 8:45
  Speaker 1: by the way, right.
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  Speaker 4: Credit to fault swaps is basically derivative or an options contract.
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  Speaker 4: It's it's an insurance contract. So if I'm if I
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  Speaker 4: believe that the Bank of Ian Dunlap is getting risky,
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  Speaker 4: I may buy a credit to fault swap from you. Right,
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  Speaker 4: It's an insurance contract that says if he doesn't, if
• 9:02
  Speaker 4: his stock price goes under, if his stock price keeps
• 9:04
  Speaker 4: going down, you're going to each other on that insurance.
• 9:08
  Speaker 2: All right, sorry to use.
• 9:09
  Speaker 4: You, go ahead, already use you. So it's basically it's
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  Speaker 4: an insurance contract betting on the health of a bank.
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  Speaker 3: In some cases, it could be anything.
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  Speaker 4: You can buy credit default swaps on a lot of
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  Speaker 4: different securities, but the ones we're watching really closely right
• 9:24
  Speaker 4: now are the credit default swaps on banks. Why because
• 9:28
  Speaker 4: they're the amount and the volume of credit default swap
• 9:31
  Speaker 4: purchases and the price of credit default swaps against some
• 9:34
  Speaker 4: of the biggest banks in the world, like Deutsche Bank,
• 9:36
  Speaker 4: has been rising a lot in the past few days,
• 9:39
  Speaker 4: more and more investors are doubting their ability to either
• 9:42
  Speaker 4: get through a recession or they're doubting the ability, in
• 9:45
  Speaker 4: the case of regional banks, for them to be able
• 9:47
  Speaker 4: to survive this period of high interest rates, and they're
• 9:50
  Speaker 4: depositors taking money out. So watch credit default swaps and
• 9:54
  Speaker 4: if you need a really good explanation if I didn't
• 9:56
  Speaker 4: do a good enough job, the Big Short movie, which
• 9:58
  Speaker 4: was terrific, that really explained if I financial crisis. There's
• 10:01
  Speaker 4: a great explanation of credit to fault swaps in that movie.
• 10:03
  Speaker 4: You should watch, and I'm sure the clip is on YouTube.
• 10:05
  Speaker 4: But basically it's an insurance contract between me and another
• 10:09
  Speaker 4: investor betting on the health of a bank in this case,
• 10:12
  Speaker 4: but it could be any security that was well put.
• 10:15
  Speaker 2: Thank you for.
• 10:19
  Speaker 1: My graduates from my school being force bad.
• 10:23
  Speaker 2: Drop drop, Mike, drop bag drop drop.
• 10:38
  Speaker 6: An illegal alien from Guatemala charged with raping a child
• 10:41
  Speaker 6: in Massachusetts. An MS thirteen gang member from El Salvador
• 10:45
  Speaker 6: accused of murdering a Texas. Man of Venezuelan charged with
• 10:50
  Speaker 6: filming and selling child pornography in Michigan. These are just
• 10:54
  Speaker 6: some of the heinous migrant criminals caught because of President
• 10:57
  Speaker 6: Donald J. Trump's leadership. I'm Chris Denome, the United States
• 11:01
  Speaker 6: Secretary of Homeland Security. Under President Trump, attempted illegal border
• 11:06
  Speaker 6: crossings are at the lowest levels ever recorded, and over
• 11:09
  Speaker 6: one hundred thousand illegal aliens have been arrested. If you
• 11:13
  Speaker 6: are here illegally, your next you will be fine nearly
• 11:17
  Speaker 6: one thousand dollars a day, imprisoned, and deported. You will
• 11:21
  Speaker 6: never return. But if you register using our CBP home
• 11:24
  Speaker 6: app and leave now, you could be allowed to return legally.
• 11:28
  Speaker 6: Do what's right. Leave now. Under President Trump, America's laws,
• 11:33
  Speaker 6: border and families will be protected.
• 11:36
  Speaker 2: Sponsored by the United States Department of Homeland Security.