Why fmr. FDIC Chair Sheila Bair is nervous about regional banks

All right. Former FDIC chair Sheila Bair joins us now with more on the bank. She’s also the CNBC Global Financial Wellness Advisory Board. Sheila, it’s always great to see you. Nice to see you. Thanks for having me. I understand that you think the big banks are are largely in, in good shape, nothing to worry about here. But even with the economy pretty strong still you are worried about the regional banks. What do you think is that shoe that’s going to drop there? Well, I think I, I’m, I’m worried about a handful of them. I think some of them are still overly reliant on uninsured deposits, have a lot of concentrated commercial real estate exposure. And then I think the larger picture really is the potential instability of their uninsured deposits even for the healthy ones if we have another bank failure. So I do as I said before, I think Congress should reinstate the FDI CS transaction account guarantee authority so that they can stabilize those deposits. Congress isn’t doing much of anything these days. So wait in line. But I do think that this is a, this is still a problem for the regional banks and fingers crossed if there’s another failure, we’re just quite not sure what’s going to happen. The 10 year yield at 4.6% and some forecasting it to go to you know four and three quarters 4.8%, does that concern about regionals and and the exposure to commercial real estate, does that heighten? Well, yeah, I mean the higher the rate. So part of the problem with commercial real estate is, is that a lot of us refinancing this year and next. So the higher the rates go for those refinancings, the more distressed there will be with borrowers to be able to continue with their payments. But with CRE, the commercial real estate we had this problem during the great financial crisis. There are things you can do. There are workout strategies. I know some people pejoratively call it extended, pretend you don’t want to do that if you know if the borrowers cook, the borrowers cook. But a lot of these borrowers can get through with some active workout strategies. So I think it’s, I still think it’s a slow burn over time. And again the the big issue is whether there’s another shock to uninsured deposits because of a bank failure. And I think that that is really the biggest challenge confronting regional banks right now. Hey, Sheila, it’s Tim. Thanks for for joining us. I I share your view that the, the big money center banks are in a very different balance sheet place than some of the regionals. I I guess if we’re worried about commercial real estate though when I think of the sheer size of the CRE market relative to even subprime, we’re we’re not even close. We’re stratospheres apart in terms of broader exposure. And this is where I just, I’m not sure people understand, not you of course, but the world of of of everybody who is assessing credit and the potential domino effect from where CRE could go, especially if rates have to go another hundred basis points higher. And in that world, don’t the money center banks have exposure to regional banks? Well first of all the the money center banks to have their own significant compression real estate exposure. This is not a concentration for them. So there’s less focus on it. But yeah, I mean I think I have to say though I think that their big mega banks benefit regional banks distress. I don’t I I are you suggesting there’s going to be some knock on impact. If there are there’s going to be a string of failures with the regional banks. I I think it helps them you know the business goes there that’s where it goes. They’re they’re viewed as too big to fail rightly or wrongly. I know my former agency, the FDIC is committed to ending too big to fail and is determined to use the resolution authorities they have the big bank got into trouble but the market doesn’t believe that. So, no, I think regional bank distress benefits, the benefits, the big money center banks, there’s no doubt in my mind. Sheila, it’s Karen. Thanks for being on a question about Basel 3 end game two, quick. Do you think it went too far and how do you think? Where do you think it ultimately shakes out? Well, I I think, yeah, I think there’s some really good things in it. There’s some things that are probably not very good and and very, very complex and a lot of administrative costs from that unnecessary complexity. I don’t think that should be a priority right now. Let those rules primarily respond to, you know, things that we didn’t get done after the great financial crisis. They’ve been 14 years in the banking. My view is they can wait a little longer. Liquidity really needs to be front and center. I know the regulators are working on a new package of of of strategies and proposals to deal with to provide more liquidity mainly by getting banks to use the discount window more and be more prepared to use the discount windows. So I expect those to be coming out, but I I think that should be a higher priority right now in the Basel 3 end game. At some point those will get done. There’s a lot of good things in it, but I don’t think that should be the priority right now.