“Shark Tank” judge Kevin O’Leary and anchor Poppy Harlow debated bank investments on Monday’s edition of “CNN This Morning” after Silicon Valley Bank’s (SVB) collapse.
Regulators shut down SVB after its stock dropped by 60% on Thursday and 62% in premarket trading Friday following mass customer withdrawals. The Federal Deposit Insurance Corporation (FDIC) took control of the New York-based Signature Bank on Sunday after the Friday collapse. O’Leary said banking should be seen as “highly regulated utilities,” which sends a message to investors to avoid stocks in banking and own bank bonds.
This collapse is the second-largest banking failure in American history standing only behind the 2008 failure of Washington Mutual.
Harlow argued that there is a difference between small and medium-sized banks that were deregulated through legislation passed in 2018. O’Leary said all banks are capable of failing.
“I do want to push back on that because you have to differentiate between the small and medium-sized banks that were given more lax requirements in the 2018 legislation and the big guys, because the big guys closed up on Friday and there’s a flight to safety to J.P. Morgan, to Citigroup etc.”
“That doesn’t mean — you should not assume that just because they’re big, they can’t fail,” O’Leary argued. “Managers make mistakes all the time —”
“No, but they are held to stress test requirements, higher liquidity requirements because of Dodd-Frank, that didn’t diminish for those big ones,” Harlow said.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 prohibited excessive risk-taking that led to the financial crisis of 2008, according to the National Archives. The 2018 legislation rolled back provisions enacted in the Dodd-Frank law for small and medium-sized banks. (RELATED: ‘Time To Buy Gold’: Tucker Carlson Reacts To ‘Second Biggest’ Bank Failure In American History)
O’Leary argued the banks will be “far-less profitable” after President Joe Biden nationalizes the banking system, and that banking stocks will underperform for decades to come. He argued that investors having “zero risk” in the banking system “will have consequences.”
“This has fundamentally changed the way you should look at banking because I’m not really comfortable that all of a sudden we de-risk everybody all of the time. It was a good idea to de-risk $250,000 and make more sophisticated investors think about their behavior and how they should put their capital to work. Get diversity. You don’t have to do that anymore according to what the president is going to say, you have zero risk. There’s no such thing as a free lunch, and this going to be very expensive for shareholders and banks long term. I would never put my money into a bank’s pocket ever again.”
President Joe Biden assured that the bank’s customers will have access to their money and that the bank’s bailouts will not be the responsibility of the taxpayers. He announced that management of SBV will be fired.