0:02

So tell us, have you been on TikTok a

0:04

lot lately? I've been on a little bit

0:06

more lately. I was a big user

0:08

during kind of the lockdown pandemic era,

0:10

as I think a lot of people

0:12

were. I went a little cold turkey,

0:14

because as we've discussed previously, I'm trying

0:16

to get better sleep, have better habits

0:19

about going to bed, a little less

0:21

screen time before going to bed. But in

0:23

anticipation of what might be a ban on

0:25

TikTok in the US, I think I've been...

0:27

upping my intake lately just to sort of

0:29

get it in before before the end. So

0:31

your New Year's resolution to get more sleep

0:33

isn't going so well. It's going okay overall.

0:36

I'm starting a little bit sooner. But

0:38

before we get into what's going on

0:40

with TikTok and Washington, I want to

0:42

talk about other stuff going on in

0:44

Washington and one thing that As we

0:47

prepare for a new presidential administration, we'll

0:49

be a huge interest in bank regulation.

0:51

That's going to be a big topic.

0:53

I know that's getting away a little

0:56

bit from social media, but we've got

0:58

a great guest today. We're talking with

1:00

Meg Tyre. She is a top lawyer

1:02

at Davis Polk and is super steeped

1:04

in the world of bank regulation. So

1:07

we're going to have a conversation with

1:09

her about what to expect on that

1:11

front in the years ahead. I'm excited

1:13

for that one. Street column. And I'm

1:16

Gunjan Banerji lead writer for live markets

1:18

here at the Wall Street Journal and

1:20

this is WSJ's take on the week

1:22

a weekly show about markets and investing.

1:24

Each week we're bringing you conversations

1:26

with insiders around the markets and

1:29

from the inside of the Wall

1:31

Street Journal's newsroom we're going to

1:33

be talking about finance, business, economics,

1:35

all that great stuff. And tell us we

1:38

have so much to talk about this

1:40

week I cannot stop reading about these

1:42

horrific... Los Angeles wildfires, I know you've

1:44

been all over the story. What's going

1:46

on there, especially on the insurance side?

1:48

Yeah, it's this, the situation, the

1:50

human toll is really bringing a

1:53

focus to what's been going on

1:55

in the insurance market. Already coming

1:57

into this, the California insurance market

1:59

was arguably... arguably in crisis. insurers

2:01

have been leaving the state for

2:04

homeowners insurance because of past wildfires

2:06

and the difficulty with modeling future

2:08

losses from wildfires and challenges in

2:10

figuring out how to price that

2:12

stuff and work within the state's

2:15

regulatory framework to do so. This

2:17

situation isn't going to make that

2:19

any easier and I think there's

2:21

a ton of focus on if

2:23

the losses from those fires start

2:25

to get into. We've already seen

2:28

projections for losses just really just

2:30

creep higher. day by day you started with

2:32

you know something could it be ten billion

2:34

could it be fifteen could it be two

2:37

twenty twenty five plus we're talking about insurance

2:39

losses for the market those are going to

2:41

be big numbers that the insurance industry is

2:44

going to have to figure out can we

2:46

continue to price this risk and i know

2:48

i know you know nobody's crying for insurers

2:50

uh... their big businesses however that might have

2:53

an impact like you said on people's ability

2:55

to afford their homes if insurance is really

2:57

expensive you've written about this just over

2:59

the past week where it doesn't seem

3:01

like there's a lot of concern about

3:03

insurers ability to make good on those

3:06

payments in fact this could help their

3:08

pricing power in some way Yeah, a

3:10

lot of times what you see in disaster

3:12

situations is that insurance stocks are hit initially

3:14

as people sort of wonder what the losses

3:16

are, and then, but over time, start to

3:18

gain because they think about the pricing power

3:20

that insurers might gain after a disaster. And

3:22

that's what's happening right now. And that's, well,

3:24

I don't know if we've started to see

3:26

that upswing yet. I think we're still in

3:28

the zone where we're not sure what's happening.

3:30

But I want to also... highlight what's

3:32

coming up, which is on Monday,

3:35

January 20th, we're going to have

3:37

Donald Trump's inauguration for his second

3:39

term as president. And there is

3:41

so many, so much anticipation and

3:43

so many questions about where the

3:46

economy and policy are headed. Gunjan,

3:48

what is top of mind for

3:50

Wall Street as Donald Trump

3:52

finally actually takes office again?

3:54

It really feels like Wall Street

3:57

and Washington have never been quite

3:59

this enmeshed. Wall Street CEOs have

4:01

been bending the need to Trump over

4:03

the past few weeks since his election.

4:05

They've been flying their private jets to

4:08

Maralago to meet with him. Some companies

4:10

have been saying, hey, we're shedding our

4:12

diversity policies. They're all rolling back on

4:15

some of their prior policies. Well, I

4:17

think the industry that's most maybe interesting

4:19

as we go into this transition is

4:22

technology. And, you know, we talked a

4:24

little bit about Tik talk at the

4:26

beginning. You know, Donald Trump has... kind

4:28

of taken on the cause of

4:31

maybe trying to save Tiktok from

4:33

its potential ban in the US.

4:35

And the Wall Street Journal and

4:37

others have reported that the US

4:39

CEO of Tiktok will be at

4:41

the inauguration. I'm not sure exactly

4:43

what that indicates as far as

4:45

Tiktok's future may be, and I

4:47

want to say we're recording this

4:50

before any potential ban would go

4:52

into effect, so it's unclear what

4:54

the resolution of that will be,

4:56

but... You know, Republicans in technology have

4:58

had a strange relationship these last couple

5:00

of years. Do you think that's going

5:02

to be something that's really in focus?

5:04

Not just the fate of TikTok, but

5:06

then what that means for... meta and

5:08

alphabet and other big tech companies. It

5:10

is going to be fully on display

5:12

at the inauguration. Mark Zuckerberg, Jeff Basos,

5:15

Elon Musk are all expected to attend.

5:17

And I think Wall Street is watching.

5:19

Who else is going to show up?

5:21

Right? Who's showing up at these parties

5:23

throughout the weekend? You know, the inauguration

5:26

balls, the host of events that happen

5:28

around this event. I think that's going

5:30

to be key to watch because President

5:32

Trump's policies could really reshape many industries,

5:34

which countries he puts tariffs on. So

5:36

should investors, though, be thinking about like,

5:39

okay, the stock market this week, next

5:41

week, like, what about just from a

5:43

broader stock market point of view? You know,

5:45

what policies the next administration puts on

5:47

are going to impact many companies,

5:49

many industries? I think stock market

5:51

investors, if you're an S&P 500

5:54

index investor, it has not benefited

5:56

you to pay attention to who

5:58

is president at any given. moment,

6:00

but tell us, as you've written about,

6:02

it could impact specific sectors, right? Take

6:04

the banks. Yes. I think

6:06

we're already seeing what people are

6:08

hoping for out of what

6:10

at least Wall Street is hoping

6:12

for out of a Trump

6:14

administration, which is more deal -making

6:16

activity fueled by things like a

6:18

lighter touch on regulation for

6:20

not just banks, but for other

6:23

companies, and also a more

6:25

permissive attitude towards mergers and acquisitions,

6:27

which benefits banks in two ways,

6:29

one, letting them merge, but

6:31

also they can participate in more

6:33

of those deals as advisors and

6:35

make a lot of fees. We

6:37

saw this past week a bunch

6:39

of the biggest banks reported their

6:41

earnings, and we saw really gangbusters

6:43

results from the Wall Street side

6:45

of those businesses already. I don't

6:47

know, maybe you want to credit

6:49

Joe Biden for some of that,

6:52

but I think some of that

6:54

is also coming from people trading

6:56

and companies, boardrooms getting active and

6:58

so you saw really strong results

7:00

for the Wall Street side of

7:02

banks, as well as

7:04

for investment banks like

7:06

Goldman Sachs and Morgan Stanley. So

7:08

people are already gearing up. They're getting

7:10

excited. They're thinking lower regulations are coming,

7:12

and they're gearing up for that. But

7:14

I also want to call out that

7:17

this coming week, what we're going to

7:19

see are earnings reports from a different

7:21

flavor of banks, and that is banks

7:23

that are really U .S. lenders to businesses

7:25

and consumers, a lot of credit card

7:27

companies, Capital One, Discover Financial and then

7:29

regional banks like Fifth Third, Key Corp.

7:31

And so I think those actual like

7:33

really like lender, traditional banking businesses that

7:35

aren't as steeped in the Wall Street

7:37

kind of deal -making boardroom side of

7:39

things, it's going to be really interesting

7:41

to see how their results go and

7:44

what they say about what they expect

7:46

for the year ahead. And already we

7:48

have not heard optimistic talk from

7:50

banks about loan growth coming this year, and

7:52

that's an indicator that if there

7:54

is economic enthusiasm, you

7:56

know, it's not necessarily

7:58

translating yet into... that like real

8:00

kind of core banking activity. Meg Tyer,

8:02

who is the head of the Financial

8:05

Institutions Group at law firm Davis Polk

8:07

is going to be fantastic to dive

8:09

into all of this with. Meg and

8:11

Davis Polk have represented a lot of

8:13

big banks including JP Morgan Chase, Bank

8:15

of America, Morgan Stanley, and also a

8:17

lot of smaller regional banks as well.

8:19

So it's going to be a very

8:21

interesting conversation about what the expectations are

8:23

for banks in Washington this year and

8:25

in years ahead. We are going to

8:28

take a quick break and when we

8:30

come back, we'll have our conversation with

8:32

Meg. We're

8:43

joined now by Meg Tyer, head

8:45

of the Financial Institutions Group at

8:47

the law firm Davis Polk. Meg,

8:49

thank you so much for joining

8:51

us today. It's a pleasure to

8:53

be here with you. So I

8:56

wanted to set the stage a

8:58

little bit to come into a

9:00

conversation about bank regulation and financial

9:02

regulation more broadly. But during the

9:04

Biden administration, there was a few

9:06

things happened in banking, one of

9:08

which was something that in the

9:11

industry is known as the Basel

9:13

III end game proposal, which was

9:15

a package of bank capital rules

9:17

that was meant to essentially finish

9:19

up the process that really started

9:21

back after the 2008 financial crisis.

9:23

A long story short, it proposed

9:26

what was essentially a significant capital

9:28

increase on some of the largest

9:30

banks, particularly some of the largest

9:32

kind of global Wall Street banks,

9:34

your J .P. Morgan Chases and

9:36

Bank of America's and Citigroups and

9:38

Goldman Sachs's and stuff. And it

9:41

also was 100 billion and up,

9:43

so it wasn't just the G -Sips,

9:45

right? It went relatively down into

9:47

regional banks. Wasn't capital neutral? In

9:49

the first Trump administration, the mandate

9:51

was sort of to, you can

9:53

make changes to bank regulation, but

9:56

keep basically their capital levels are

9:58

okay where they are, right? That's

10:00

capital neutral. That's capital neutral. In

10:04

the Biden administration it

10:06

seemed like that that kind of went out the

10:08

window a little bit and and there was

10:10

this push for for banks

10:12

to have higher capital requirements

10:14

which I just want to

10:16

briefly explain and and maybe

10:18

you have a better analogy

10:20

for this but but basically

10:22

banks need a cushion of

10:24

equity that is like kind

10:26

shareholders money that is at

10:28

risk before it touches like banks

10:30

deposits and things like that.

10:33

That's the capital that banks have

10:35

to people debate about whether they hold

10:37

it or not. Yeah, but essentially like

10:39

banks need to keep more need to raise

10:41

more money in order to do their

10:43

business. Banks are highly leveraged. They're more highly

10:45

leveraged than a tech company or a

10:47

manufacturing company. Meaning they borrow a lot.

10:49

They borrow a lot in the form of

10:51

deposits and we have a fractional reserve

10:53

system. The reason generally that banks

10:56

that it's sort of it's

10:58

not ideal for a bank to have more capital

11:00

from its own point of view is that

11:02

that means that it essentially like they have

11:04

they need to have more stock

11:06

to do their business which means

11:08

that the earnings they make are

11:10

spread over a larger sort of

11:12

pile of stock so it reduces

11:14

their the profitability per share the

11:16

the return on equity and so

11:18

it basically makes the bank less

11:20

profitable by some measure. It also

11:22

makes it harder for the bank

11:24

to make loans right because assets on

11:26

the asset side of the balance

11:28

sheet are risk weighted so if in

11:31

a growing economy we want banks

11:33

to make loan if we're now going

11:35

through this period of reshoring and

11:37

manufacturing if we want if we

11:39

want banks to be making

11:41

loans into companies for what

11:43

we're trying to do next

11:45

in the economy higher capital

11:47

is correlated to fewer loans

11:49

also higher liquidity requirements is correlated

11:51

to fewer loans but we

11:53

have to worry about bank safety

11:55

and soundness in bank runs

11:57

so that calibration has a lot of

11:59

trade a lot of stakeholders and is

12:02

super important. I think one of the

12:04

changes that we're anticipating in 2025

12:06

is a lot more bank mergers,

12:08

particularly in the regional bank space. And

12:10

that might be pretty good for bank

12:12

stocks because, you know, investors like to,

12:15

when a company gets bought, that, you

12:17

know, usually is above their trading

12:19

price. And so that might be one

12:21

reason that bank stocks have done. pretty

12:23

well lately. They've had an

12:25

initial. There's definitely a Trump bump.

12:27

Yeah. There's a Trump bump. There's a Trump

12:29

trade going in on banking stocks. I think

12:32

changes. It's cooled off a little bit, but

12:34

it's cooled off. Look, I can't, I find

12:36

it impossible to follow the stock market, you

12:38

know, on a day by day or even

12:41

a week by week basis. So I have

12:43

a question as someone who chats with investors

12:45

on the phone all day. A lot of

12:47

them are really excited about banks right now.

12:50

Bank stocks, they've had this Trump bump. But

12:52

I've been trying to wrap my head around

12:54

what happens if the Trump administration loosens regulations

12:56

on banks, but the Trump administration

12:59

is also supposed to be good

13:01

for crypto and private credit and

13:03

all these different things. What does

13:05

that mean for banks? So I think when

13:07

we talk about regulation and deregulation,

13:09

we use those words and it

13:11

brings to mind the analogy of

13:13

a light switch in a light

13:15

switch in a building. you know,

13:17

in a room, we were on,

13:20

off, the light is on, the

13:22

light is off. In fact, all

13:24

these systems and the financial sector,

13:26

whether it's private credit, whether it's

13:28

banks, are highly highly regulated systems.

13:30

So I prefer to think

13:32

not in terms of regulation,

13:35

but basically in looking at

13:37

the efficiency of regulation.

13:40

And that is what I think

13:42

is... happening or about to happen.

13:44

Crypto is a completely different story,

13:46

right? Because right now, we don't

13:49

really have a good regulatory framework

13:51

for crypto. And the crypto sector

13:53

itself has been begging for a

13:56

good regulatory perimeter, right? They've been

13:58

begging for a good frame. framework

14:00

and we've been stuck in this world of

14:02

is it a commodity is it a security

14:05

can we take this square peg and put

14:07

it into this round hole and yet in

14:09

doing that we haven't had investor or consumer

14:11

protection. But it's a competitor to banks right?

14:14

Yeah what if they let crypto as

14:16

part of this regulatory framework

14:18

and it seems like obviously

14:20

crypto really has president Trump's

14:22

ear right they've helped. the

14:24

industry funded a lot of

14:26

winning candidates, right? So they've

14:28

got some momentum. If they

14:30

win the argument and are

14:32

allowed to essentially hold your

14:34

money like a deposit, if

14:36

crypto companies can lend, do

14:38

traditional banks kind of lose

14:40

business to those guys? So

14:42

I don't think that crypto

14:44

is 100% competitor of banks.

14:46

We did have. FTX and

14:48

they crashed and they went

14:50

down. And did you notice

14:52

there was no systemic impact

14:54

on the banking sector? On some

14:57

banks there was, right? Just one.

14:59

Right, right. And the question then

15:01

that came was whether there were

15:04

banks, and this was the case

15:06

with both banks that failed, that

15:08

they had a lot of deposits

15:11

from crypto companies. But

15:13

banks don't buy, sell, hold,

15:15

crypto. They can take... deposits

15:18

from crypto companies. They may

15:20

in the new environment be

15:22

able to custody if the

15:24

SEC changes its interpretation. And

15:26

they may have services to

15:28

crypto. But I kind of think we're

15:30

going to have two ecosystems

15:32

that end up living side by side

15:34

in the same way that we have

15:37

non-bank credit living side by side with

15:39

banks. And in the same way that

15:41

what we've seen in the private credit

15:44

markets It kind of starts out as

15:46

a competitor to banks, but now they're

15:48

in all of these partnerships. So it's

15:50

a complex system where I think

15:53

we're more going to be in an

15:55

environment of frenemies than enemies. But

15:57

how do you think that today's, just

15:59

call it... Republican Party

16:01

maybe thinks about these issues, right?

16:03

Because maybe you're tempted to

16:05

think of, you know,

16:07

kind of a traditional framework in which

16:10

like, oh, Republicans must be friendly to

16:12

banks, right? And given the sort of

16:14

sometimes populist edge of some leaders today,

16:16

you think of, you know, JD Vance.

16:18

It has, you know, co -sponsored a

16:20

bill that would basically, you know,

16:22

add additional burdens to the credit card

16:24

industry, right? They're not necessarily friends

16:26

to some of these big financial institutions.

16:28

And so maybe there's a feeling

16:30

that the way to go forward in

16:32

finance is not to just like,

16:35

oh, let's let banks do whatever they

16:37

want, but it's said to say,

16:39

you know what, let's allow more people

16:41

to compete with them. Let's let

16:43

fintech companies do stuff that they've been

16:45

prevented from doing and things like that. How

16:47

much do you think that will play into the regulatory

16:49

conversation in 2025? There's

16:51

a really, really interesting

16:53

new coalition that has

16:55

formed. And so

16:58

the the ingredients

17:00

on the cooking pot on the stove

17:02

and the stew are going to be

17:04

quite different. You know, the multicultural working class

17:06

coalition that Trump has put together. So

17:08

I'm from a small town in Michigan and

17:10

I like to call them Joe and

17:12

Jill Lunchbox. And I kind of remember them

17:14

from my high school class, right? And

17:16

he works on the line and she works

17:18

in retail. And

17:20

I think they're going to care about

17:22

overdraft fees. They're going to care about credit

17:25

card fees. mean, Trump has

17:27

proposed a cap on credit card interest

17:29

rates that would not be good for banks. It wouldn't be

17:31

good. And it's probably not. I don't know if he'll go

17:33

that route. It's not going to go that route. But I think

17:35

you don't think so. You don't think they'll. I

17:37

don't think that cap will happen. But

17:39

I think what he's responding because it

17:41

would just drive, it would just drive

17:43

too many people out of the credit

17:45

card sector. But I think that what

17:47

he's saying is he knows that Joe

17:50

and Jill care about that. And he

17:52

knows they care about protection, you know,

17:54

their sons in the army. You know,

17:56

this is my teaching couple. They're not

17:58

a real people. There are

18:00

people like that, and I think

18:03

there's a lot of fraud out

18:05

there, and there's a lot of

18:07

concerns of consumers by fraud. So

18:10

I just think we're going to see

18:12

a new mosaic. I think we're going

18:14

to see a new mosaic, and on

18:16

the consumer side, I think

18:19

that there's still going to be

18:21

a fair amount of caring about

18:23

what Joe and Jill lunchbox need

18:26

in their lives. So stepping back

18:28

a little bit. How much does

18:31

regulation matter as opposed to things

18:33

like the economy for banks? Which

18:35

one trumps the other? Oh, that's

18:37

a great question. I'm not sure

18:39

there's a good answer. I want

18:41

to think about it. Can I

18:43

add something else in? I think

18:46

there's regulation, there's supervision, and there

18:48

is the economy. What's the difference

18:50

between regulation and supervision? So the

18:52

regulation is what's public, the Basel

18:54

3, end game. The rules, the

18:56

rules, the rules. But banks. are

18:58

also supervised. They're examined. There is

19:01

this professional cadre of examiners who

19:03

are chartered, commissioned examiners who go

19:05

in and examine banks and their

19:08

loan books and the quality of

19:10

their loan books and the quality

19:12

of what the banks are doing,

19:15

and that can have a huge

19:17

impact on bank behavior. So even

19:19

without changing the rules, you can

19:21

have an impact. I think all

19:23

three of them, what's happening

19:25

in the economy. what's

19:27

happening in what I'll call regulatory

19:29

change, because regulations that are set

19:31

are just, you know, folks have

19:34

adjusted to it, and then the intensity

19:36

of supervision, all three of those are

19:38

going to have an impact on the

19:40

banking sector and what they do. It's

19:42

going to be a busy year, so we're

19:44

going to take one last break, and then

19:46

when we come back, we have one last

19:48

question for Meg Tire. Okay,

19:56

so we are really really

19:58

curious especially after the Silicon Valley

20:00

banking crisis. What is one thing

20:03

that you think we should be

20:05

paying attention to when it comes

20:07

to the next potential banking crisis

20:09

that's not on people's radars right

20:11

now? What do you think could

20:14

actually cause a really big

20:16

potential banking crisis? I'm so

20:18

glad you asked that question. Can I

20:20

answer it by saying what I think would

20:22

prevent? the next banking

20:25

crisis first. I guess that does imply

20:27

what could cause it. Okay, okay, okay, a

20:29

positive spin on that question. I like

20:31

it. Deposit runs that are triggered

20:33

by anything, and we've got 800

20:36

years of history, they are triggered

20:38

by many different things, but deposit

20:40

runs and a lack of confidence

20:42

is the last precipitating factor, whatever

20:45

the causal... trigger is. That's really

20:47

what happened in March 2023.

20:49

That's what happened in March 2023.

20:51

Here's the most important thing that

20:54

I think should be on the

20:56

agenda isn't high enough and that's

20:58

deposit insurance reform. And that's

21:00

going to take Congress. I

21:03

think there are two or three very

21:05

simple things that Congress could

21:07

do that would prevent the kind

21:09

of panicked run that we saw

21:11

last time. They could... raise the

21:14

insurance limit, index it

21:16

for inflation. They could raise

21:18

it a lot for what

21:21

I'll call operational accounts. For

21:23

religious institutions, for

21:25

charities, for small

21:27

and medium-sized businesses,

21:30

there's an amount

21:32

that could be chosen that would

21:34

make it so that next time we

21:36

don't have this pulling out of deposits

21:39

the way that we did. And I

21:41

think we can get there without ensuring

21:43

all deposits all of the time. Well

21:45

Meg, thank you for giving us

21:47

a roadmap for 2025 and beyond

21:49

and thanks so much for joining

21:52

us here. It's been a great really

21:54

deep pleasure and thank you so much.

21:56

Thank you Meg. And that's all for

21:58

this week. This show is... produced by

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Trina Manino, Jess Jupiter, Jessica Fenton, Michael

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LaValle, Jessica Fenton are

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our sound our sound Michael

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also wrote our theme

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music. Aisha al-Muslim, is our our

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development producer. Scott Salloway

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and and Chris are the deputy

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editors. editors, and is the

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head of news audio for the

22:20

Wall Street Journal. for For even

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more, head to For .com. head to

22:24

I'm Gunjan I'm Gunjan I'm And I'm Until

22:26

next time. Until. Some

22:28

of of us with a little gray hair hair

22:30

going back to going back to Basel one

22:33

of course being the city

22:35

in of course being they initially

22:37

discussed where I didn't know that.

22:39

discussed these things. Oh I a trip

22:41

to Basel to discuss can take a

22:43

we do a field trip.

22:45

So we do a field trip.