The Importance of Regional Banks Following Basic Finance Principles
Michael Milken discusses the importance of regional banks following basic financial principles to mitigate interest rate risk and increase private credit.
00:00:00 Michael Milken, influential financier and founder of the Milken Institute, discusses the state of regional banks and the need for them to adhere to basic finance principles.
💼 Michael Milken is a highly influential financier and founder of the Milken Institute, known for his work in high yield finance.
📚 Milken is also a philanthropist and author, focusing on public health and medical innovation.
🏛️ The interview touches on the role of regional banks and the current state of the banking industry.
00:01:10 Michael Milken emphasizes the importance of following basic finance principles. Banks borrowing short and lending long have led to significant losses.
🏦 Regional banks should have followed basic financial principles of borrowing short and lending long.
💸 Banks borrowed at low rates and bought intermediate securities, resulting in a potential unrealized loss of trillions of dollars.
🔒 Banks had enough credit and equity to absorb credit losses, but their excessive borrowing increased their risk.
00:02:17 Michael Milken discusses the importance of regional banks following basic financial principles like managing interest rate risk.
📉 Regional banks like Silicon Valley Bank and First Republic faced financial challenges due to interest rate risk.
💰 The Federal Reserve's actions of printing money helped mitigate losses in the banking sector.
🌍 Central banks in Europe and Asia also experienced losses in their efforts to stabilize the economy.
00:03:26 Michael Milken discusses the opposing actions of the Federal Reserve and the Treasury in response to inflation and the banking sector.
🏦 Regional banks should have followed basic financial principles.
💼 There is a conflict between the Federal Reserve and the Treasury in their approach to helping banks.
📉📈 The Federal Reserve is aggressively fighting inflation through interest rate hikes.
00:04:36 In a recent interview, Michael Milken emphasized the importance of following basic financial principles, criticizing regional banks for not doing so. He also highlighted the significant liquidity in the country and the caution exercised by major banks in managing their liabilities and assets.
💼 Regional banks should have followed basic financial principles.
💰 Financial institutions have reduced flexibility by borrowing short-term and investing in intermediate securities.
🏦 There is a significant amount of liquidity in the financial system, including Money Market funds and major banks.
00:05:46 Michael Milken emphasizes the importance of regional banks following basic finance principles to mitigate interest rate risk and increase private credit.
📉 The current situation is a result of interest rate risk, not credit risk.
💼 Private credit is expected to increase, with long-term asset owners becoming loan owners.
📚 The lesson learned is to match liabilities and follow basic finance principles.
00:06:55 Milken Institute Founder Michael Milken suggests that regional banks should have followed basic financial principles, leading to a stronger banking system in the hands of long-term liability holders.
💰 Regional banks experienced a decrease in loans due to reduced checking accounts and commercial deposits impacting their balance sheet.
📊 Since the 1970s, the financing of this country has relied on public and private markets, with banks only holding 20% of the loans.
🏦💪 As loans shift away from the banking system, there will be a stronger presence of long-term liability holders like pension funds.
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