>>> PRESIDENT JOE BIDEN IS LOOKING TO QUELL FEARS OF THE BANKING SYSTEM TODAY ANNOUNCING THE FDIC WOULD INSURE ALL OF THE DEPARTMENTS DEPOSITS.

TODAY BIDEN SAYS HIS ADMINISTRATION HAD TO STEP IN.

>> THE DEPOSITS WILL BE THERE WHEN YOU NEED THEM.

SMALL BUSINESSES ACROSS THE COUNTRY THAT HAVE DEPOSITED IN THESE BANKS CAN BREATHE EASIER KNOWING THEY WILL BE ABLE TO PAY THEIR WORKERS AND THEIR BILLS.

HARD-WORKING EMPLOYEES CAN BREATHE EASIER AS WELL.

>> JOINING US TO BREAK THIS DOWN.

PROFESSOR OF ECONOMICS AT LOYOLA UNIVERSITY CHICAGO , AND FINANCIAL COLUMNIST TERRY SAVAGE.

WELCOME BACK TO CHICAGO TONIGHT.

REMIND US THE STEPS THAT LED TO THIS COLLAPSE AND, WHAT WAS UNIQUE ABOUT THIS BANKS BACKGROUND?

>> WHEN WE TALK ABOUT A RUN WE NEED TO KNOW, IT TAKES A SUBSTANTIAL AMOUNT OF DEPOSITORS TO GET PANICKED AND SIMULTANEOUSLY, ALTOGETHER GO AND TRY TO WITHDRAW THEIR DEPOSITS.

THIS HAPPENED BECAUSE THE BANK WAS HIGHLY SPECIALIZED WITH FIRMS RATHER THAN INDIVIDUALS.

SOMETHING LIKE 90% OF THE DEPOSITS, WAS NOT INSURED.

SO THEY WERE BY VENTURE CAPITALISTS WHO HAD EGG AMOUNTS.

IT SO HAPPENED THAT ON WEDNESDAY, A WEEK AGO, THE BANK NEEDED SOME CASH, AND TRIED TO SELL SOMETHING LIKE $20 BILLION OF THEIR BONDS.

BECAUSE THOSE BONDS HAD LOST A LITTLE BIT OF THEIR VALUE, THEY HAD SOME LOSSES.

SO THE MARKET REGISTERED THAT, ON THURSDAY THEY TRIED TO RAISE SOME CAPITAL, ABOUT 2 1/2 BILLION DOLLARS.

THEY WERE NOT SUCCESSFUL.

THESE TWO EVENTS TRIGGERED THE FACT THAT $40 BILLION WAS READY TO BE WITHDRAWN.

>> TERRY SAVAGE, A LOT OF ANALYSTS SAY IT'S HIGH INTEREST RATES AND INFLATION THAT WERE REALLY THE PRECURSORS TO THIS.

ARE THESE BROADER ECONOMIC FACTORS TO BLAME FOR WHAT HAPPENED HERE?

>> THE HIGH INTEREST RATES ARE.

ALL THE TIMES WE HAVEN'T REPORTED ABOUT FAILING BANKS, WHETHER IT WAS BACK IN THE 80s OR WHETHER IT WAS THE FINANCIAL CRISIS OF 2008, THEY MADE BAD LOANS AND HORRIBLE MORTGAGES TO PEOPLE WHO HAD NO MONEY.

THIS TIME THIS BANK DECIDED THEY WOULD TAKE DEPOSITORS MUTTER -- MONEY AND INVEST IN U.S. BONDS AND SECURITIES.

HERE'S WHAT WE ALL LEARNED.

LAST YEAR WHEN THE STOCK AND BOND MARKET WENT DOWN, WE LEARNED THAT BONDS GO DOWN NOT BECAUSE THEY ARE BAD BUT BECAUSE WHEN INTEREST RATES GO UP, BOND PRICES GO DOWN.

WHO WANTS A 10% 10 YEAR BOND WHEN YOU CAN GET A NEW 4% 10 YEAR BOND.

THE BANK WAS CHOCK-FULL OF THOSE LOW INTEREST RATES.

WHEN INTEREST RATES WENT UP, THE MARKET VALUE WENT DOWN, IT DIDN'T MATTER.

BUT ONCE THEY HAD TO SELL THEM TO GIVE THE DEPOSITORS THEIR MONEY BACK.

THEN THEY HAD TO SELL THEM AT A LOSS AND THAT'S WHAT CREATED THIS CRISIS.

SO YES, RAISING RATES SO FAST AND UNEXPECTEDLY FOR MANY, WAS REALLY WHAT WAS BEHIND THIS.

BUT THE WHOLE SYSTEM IS BRACED .

WHEN PEOPLE PULL THEIR MONEY OUT, THAT'S WHAT HAPPENS.

>> DOES THIS MEAN BANKS WITH SIMILAR EXPOSURE COULD RISK THE SAME OUTCOME?

OR IS THE FACT THAT THIS BANK DEALT WITH A SPECIFIC SORT OF GROUP OF CUSTOMERS IN SILICON VALLEY, TECH STARTUPS THAT , THAT COULD HAPPEN THERE?

>> THEY WERE PARTICULARLY VULNERABLE BECAUSE THEY HAD A HUGE AMOUNT OF UNINSURED DEPOSITS.

OVER THE WEEKEND WHICH WAS SUCH A TRICKY TIME, NO OTHER BANK WANTED TO STEP UP AND BUY THIS BANK.

THERE WAS A REALIZATION, THAT PANIC COULD SPREAD AND OTHER BANKS COULD BE VULNERABLE BECAUSE THEY ALL OWN GOVERNMENT BONDS AND THE BONDS HAVE A MARKET VALUE OF LESS.

SO THE FED STEPPED IN AND DID SOME VERY UNUSUAL THINGS.

THEY SAID WE WILL OPEN A SPECIAL WINDOW, ANY BANK AND GET THEIR MONEY AT THE BASE VALUE OF THE BONDS IF THEY NEED THEM.

AND THE FDIC SAID, DON'T WORRY ABOUT IT, WE ARE GOING TO BACK ALL OF THIS WITH OUR MONEY AND THE TAXPAYERS AREN'T GOING TO PAY FOR THIS.

BUT BETWEEN THE TREASURER AND THE FDIC, THEY CAME UP WITH A PLAN TO RESTORE CONFIDENCE AND TO DO IT THEY HAD TO ENSURE ALL OF THE AMOUNT.

EVEN OVER 250,000.

THAT WAS A BIG ANNOUNCEMENT AND WHAT QUELL THE PANIC TODAY.

>> SO THIS NOTION THAT THE FDIC IS GOING TO INSURE NOT JUST THE STANDARD 250,000 BUT ALL OF THE DEPOSITS, IS THAT THE RIGHT MOVE AND IS THERE WORRY THAT COULD CAUSE SOME MORAL HAZARD OR SLIPPERY SLOPE?

YOU DON'T WANT THEM DOING THIS FOR EVERY BANK.

>> IT IS THE RIGHT MOVE BECAUSE, THE MONEY HAS NOT DISAPPEARED.

THE BANK HAD THE PORTFOLIO OF 200 BILLION.

IT CONTINUES TO HAVE THE SAME BONDS, BUT IF THEY WERE TO SELL THEM, IT WOULD HAVE DROPPED QUITE SIGNIFICANTLY TO SAY HUNDRED AND 40.

WHEN THE FDIC COMES IN AND THEY HAVE 140 BILLION THEMSELVES FROM MONEY THEY'VE COLLECTED FOR MANY YEARS.

THEY WOULD SIMPLY HAVE TO CONTRIBUTE 20-30 BILLION BECAUSE THE REMAINING ASSETS CONTINUE TO BE GOOD.

LIKE TERRY MENTIONED THESE ARE GOVERNMENT BONDS, THE BEST THERE IS.

THEY SIMPLY DROP BECAUSE THIS BANK HAS BOUGHT THEM IN 2020 DURING THE YEARS OF COVID .

WHEN INTEREST RATES WENT FROM ZERO TO ALMOST 5 PERCENT LAST YEAR THEY LOST SOME VALUE.

>> TERRY IS THE SITUATION AN OPPORTUNITY TO LOOK AT REGULATIONS IN THE BANKING INDUSTRY?

DEBT TO ASSET RATIOS AND THINGS LIKE THAT?

>> WE HAVE A LOT OF REGULATIONS IN THE BANKING INDUSTRY.

THE BIG QUESTION BY THE FED, WHICH OVERSEES THAT PARTICULAR BANK, THEY WEREN'T AWARE THAT THEY HAD DEPOSITS THAT COULD MOVE IN AN INSTANT.

THEY HAD ASSETS THAT CAN BE SOLD BECAUSE RATES ARE UP AND THEY COULDN'T BE SOLD FOR THEIR FULL FACE VALUE.

A COUPLE YEARS AGO THERE WAS A MOVE TO LOOSEN SOME REGULATIONS BECAUSE THE BURDEN WHICH WAS SUPPOSED TO GUARANTEE SAFETY, WAS SO EXPENSIVE HER COMMUNITY AND REGIONAL BANKS.

THEY SAID, IF YOU ARE A SMALLER BANK YOU DON'T HAVE TO GO THROUGH SOME OF THESE PROCEDURES.

SO IT'S A FINE BALANCE BETWEEN BANKING REGULATION , AND THE COST OF REGULATION.

WE THROW IN THIS WILD CARD OF THE FED RAISING RATES.

THE BIG QUESTION NOW IS, THE FED IS CREATING MONEY LITERALLY TO GIVE TO THE BANKING SYSTEM, IN ADDITION TO THE FDIC, AT THE FED IS REALLY OPENING THIS WINDOW.

AT THE SAME TIME THE FED SAYS, WE ARE FIGHTING INFLATION.

EVERYONE THOUGHT THEY WOULD RAISE INTEREST RATES BY 50 MORE BASIS POINTS BUT NOW THE QUESTION IS, WILL THE FED RAISE RATES KNOWING THAT EVERYBODY IS LOOKING AT THE BANKS AND WHAT THEIR BALANCE SHEETS LOOK LIKE CARS -- BECAUSE WHEN RATES GO UP, IT LOWERS THE VALUE OF YOUR BONDS.

YOU CAN HOLD AND IT WILL BE GOOD BUT RIGHT NOW THE VALUE GOES DOWN.

>> SO MAYBE THEY ARE FORCING THE FED TO RETHINK THAT.

FOR FOLKS IN CHICAGO WORRIED ABOUT REGIONAL OR LOCAL BANKS HERE, HOW WELL-POSITIONED ARE THESE BANKS?

>> I BELIEVE WE SHOULD NOT REALLY WORRY BECAUSE THE BANKING SYSTEM AT LARGE IS VERY STABLE.

WHAT HAPPENED IN THIS PARTICULAR BANK WAS SIMPLY BECAUSE 20% OF THEIR CLIENTS, THE DEPOSITORS, WENT THERE AND SAID I NEED MY MONEY.

IF WE DON'T PANIC EVERYTHING WILL