Oversight Lapses Before SVB Failure

new push to recover stolen assets. China has warned Taiwan and the US about any diplomatic meetings for President Si in the US, the US is urging China not to overreact. President Zelenski invites President she to visit Ukraine. I'm at Baxter with Global News. That's all straight ahead on Bloomberg Daybreak Asia, the business news you need to start your day in just one fifteen minute podcast available on Apple, Spotify, the Bloomberg Business app and everywhere you get your podcast.

Good morning, I'm do Prisoner and I'm Brian Curtis. Here are the stories we're following today. The FED Vice chaff of Supervision Michael Barr, said that supervisors could have done more to keep tabs on Silicon Valley Bank before it collapsed this past month. A bar is leading an internal review of the agency's oversight of SVB. It testified today before a House panel. Anytime you have a bank failure like this, bank management clearly failed, supervisors failed, and our

regulatory system failed. We're going to look as part of our review at not only our supervisory issues, but also at the regulatory structure that the Federals are put in place in twenty nineteen and see whether the size thresholds we use, the standards we decided to put in place. All of that is on the table. The FED, the FDIC,

and Treasury officials testified at the hearing. They also appeared open to the prospect of raising the current two hundred and fifty thousand dollars cap on deposits, but they said that Congressional action would be needed. Treasury Undersecretary Nellie Leang said that she'd support proposals for reform, citing arise in

uninsured deposits over recent years. While speaking of the FDIC, the agency is now facing nearly twenty three billion dollars in cost from those recent bank failures, and we are told the FDIC is now considering steering a larger than usual portion of that sum to the nation's largest banks.

More from Bloomberg's Charlie Pellet, The agency has set it plans to propose a so called special assessment on the industry in May to shore up a one hundred twenty eight billion dollars deposit insurance fund that is set to take hits after the recent collapses of Silicon Valley Bank and Signature Bank. The regulator, under political pressure to spare small banks, has noted that it has latitude and how

it sets those fees. Sources say behind the scenes, officials are looking to limit the strain on community lenders, shifting an outsized portion of the expense toward much larger institutions in New York. Charlie Pellet Bloomberg Daybreak Asia. We could be heading toward a big issue in global currency markets. Bloomberg's Denise Pellegrini is tracking those developments. Bank of America says we could be headed toward a liquidity crunch in currency trading. Ba A warns this could happen later this

year as financial conditions tighten and economic growth slows. This one's banking crisis, as we've been reporting, has triggered some unusual volatility and major currency pairs like dollar yen. B of A strategists say while those wounds were far from crisis, levels of volatility could ramp up again. They say the effect of bank credit tightening is still playing out, the economic cycle is likely entering a contractionary phase, and if inflation proves to be overly sticky, they say spot liquidity

in currency pairs will likely be tested again. Denise Pellegrini Bloomberg day Break Asia. Well, we know of the changes there have been over at ubs and credit suite, and now the chair of us COM Kelleher, is saying he is keen to keep the most talented investment bankers at the newly acquired Credit Suite, but he said they should expect to be screened for their fit with the bank's values and their approach to risk. There are clearly parts of credit suites that have had a bad culture, right.

I think primarily that was focused in the investment bank, and by definition there will be some spill over into some of the control functions. But I think if I look at the Swiss retail bank, if I look at wealth management. If I look at other parts of business, I think they're probably really quite clean. But we need to then look and see what can we bring in, what can we merge, what makes sense. And we also

had very big news today at UBS. The bank is bringing back Sergio or Monte to replace a replace rather curren Ceo Ralph Hammers. That will happen as of April fifth, and we are hearing that Swiss regulators encourage the move to ensure a smooth takeover of Credit Suez by UBS. China is said to be deploying anti corruption officials abroad to bring back fugitives in stolen assets. Let's get the story from Bloomberg's Yvonne Man. These officials are being stationed

in some Chinese embassies around the world. The Wall Street Journal reports the officials will coordinate with foreign authorities on law enforcement matters. The move is a latest step in Beijing's campaign of tackling corruption. It's unclear which countries will be involved, but it's thought to include many G twenty nations. The journal wrote that the new plan does risk raising alarms and host countries, especially those in the West. In

Hong Kong, I'm Ivan Man Bloomberg Daybreak Asia. I'm Bryan Curtis along with Doug Krisner. Roshat Salama will join us in a few moments. So the banking turmoil story continues

to run here. Doug, it doesn't seem to be causing strategists to make changes in their forecasts, and the story that we're running on the terminal, which is pretty interesting about whether or not this is just the dough caught in the headlights, or whether or not they're just finding it difficult to formulate some sort of new thesis, whether it's more of a micro than a macro story, and exactly trying to figure out what has happened to effect change.

I think that that view is in the market and also the view I think Preamiserra was able to articulate this pretty well, that the market may be underestimating the degree to which the Fed is going to have to cut rates. I thought that was kind of curious. And if you look at what was going on in markets today in the bond market, very little movement. A two year that has been recently trading almost like a memestock. We've talked about that, Brian. Today we were only up

about two basis points in New York trading. Even with the level of risk appetite in the equity market, I would have expected a little bit more movement among treasuries. Yes, absolutely, and you know that carries through to the stock markets. So I think both markets are having a difficult time here and figuring out what comes next. If you look at the SMP five hundred year to date, it's up

a little under five. Person said, it's not a huge move. Yes, we've seen tech outperform, but overall the market has not made an enormous move and it's frustrating both bulls and bears in both markets. They would expect probably to see more momentum. Well, we do have coming up Catherine Rooney Vera someone that we can talk to about some of these trends, chief investment strategists at Bulltick Capital Markets. But

now it's time for global news. China has warned Taiwan and the United States that any meeting while President Tying one is in the United States if it involves her, would be a serious provocation. At Baxter has Global News from the nine sixty News from in San Francisco. Yeah, that's right, Brian Presidents high left Taipei yesterday bound for New York on a plane guarded by F sixteen fighters as it headed over the Pacific. So in New York today and the plan has been for her to meet

with Kevin McCarthy House Speaker while in Los Angeles. After McCarthy Cancil plans to go to Taiwan himself. She'll later meet with too Ol Lies in Central America. China says it opposes the visit and will definitely take measures to respond. The US is urging China not to overreact. National Security Council spokesman John Kirby says this is just a transit. Transits are not visits. They are private, and they're unofficial.

I would also remind everyone that this is this is not new and Kirby says she's traveled through the US six times since twenty sixteen and has met with members of Congress without any incident. US Defense Secretary Lloyd Austin has told a House hearing today that he does not feel a China attack on Taiwan is imminent or inevitable. He's adding that having said that the US and Taiwan

need to maintain a combat ready, credible force. While visiting the front lines in bach Mud to a Ukrainian President, Voladimir Zelenski says he wants to meet with China's president, she Jumpeg. I want to speak with him because I have had contact with him before full scale war. He invites him to visit Ukraine. Banking crisis regulators congressional hearings today in the US, moving to the House of Representatives. Bloomberg Government reporter Emily Wilkins says a regulator seemed to

be a well, a bit more reflective today. It was really focused today on whether the FDIC could have done more that weekend right after Silicon Valley Bank collapsed. Could they have found a private buyer. Could they have found something in the private sector that would have kind of kept the bank going to some degree? I think there

are some concerns how long that wound up taking. Meanwhile, I think for a lot of Republicans there are some questions about what needs to happen with the FDIC, and Bloomberg's Rick Davis on Bloomberg Sound on Radio says these hearings seem to be bipartisan and that they may feel it's time to catch up to the times we've seen this in crypto, We've seen this in other derivatives. We've

seen this now in the banking system. We have a federal government that is still in the twentieth century while they're regulating businesses that are pushing the envelope in the twenty first. So we'll see where it goes from here. US is urgent in the European Union and other allies to sanction a Chinese satellite company for allegedly supporting Russia's military operations, actually sending images of Ukrainian troops to the

Wagner Group. To be able to attack global news powered by more than twenty seven hundred journalist and listen over one hundred and twenty countries in San Francisco, I'm Ad Baxter, and this is Bloomberg. This is Bloomberg Gaybreak Asia. I'm Brian Curtis along with Rishad Salamat, and our guest is Katherine Rooney vera chief investment strategist Boltic Capital Markets. So you're a strategist. You've probably heard us musing over how

strategists haven't changed their targets much. The banking termol story. Is it a big impact story or a low impact story? You can get all kinds of opinions from many different strategists. They really can go from this is a non issue to this is, you know, going to induce the next large crisis and recession. You can hear people saying the feed is going to cut or the feed is going

to have to continue to hike as a result. So what I would say is that we don't know yet, and my perspective is that the FETE has to continue to focus on inflation. I do think Brian that more likely than not, the lending standard, the tightening of lending standards that we should expect to continue to happen from this fallout, will aid the FED in its goal to get inflation lower and perhaps take twenty five to fifty basis points off the table that they may otherwise have increased.

So what do they do? I mean, surely it's a bit of a wake up call because no matter what your opinion is on what happened to the banks, there are strange caused by the cost of borrowing going up in an inverted yield could which has made life very difficult, and you don't want it to continue shortly. Yeah, that's right, and I am not with the strategists that are recommending both banks and broad terms and tech as sectors to play.

Right now, there are some by the dip type of investors that are making a nice profit off of some of these some of these volatile moves and these rapid swings in the market. But I still believe that this is going to induce and actually probably bring forward the recession that I think is the next phase and the

inevitable phase of this economic cycle. So what I'm recommending to our clients, both institutional and retail, is to maintain cautious positions with regard to equities, remain overweight fixed income, gold and cash. And if you are dedicated equity investor, I'm in the camp of remaining in staples, energy state

and specifically utilities. So we have all these we have all these is on tightening up conditions in the financial markets, not only the new interest rate hikes that the Fed's doing, but the cumulative weight of the long and variable lag of the rates already done. You've got QT that's sort of running in the background, and then, as you mentioned

a moment ago, tighter lending conditions. But I understand that the bulls say that don't worry too much about the tighter lending conditions because there's still a lot of cash left over from the stimulus. We know what the bears are saying, it's the cumulative weight, but the bulls have an answer to it. Yes and no. I mean that's evaporating quickly. You can see consumers are releveraging. I think it's I'm I guess more in the bear camp. I think that that's not the environment that we should be

in at this point. There's massive dislocations in the economy and in the markets at this juncture that have to become unwound. The labor market is still remarkably strong, even though even though we are seeing some some some signs of a deceleration therein um inflation is still a major issue. You have sticky inflation that's trending higher, service sector inflation that's remarkably remarkably high. So sorry, that was just Risch and I talking as you were finishing your line, So

sorry about that. Rich has got a question for do you think that a recession, with the noise of their being possibly a recession getting louder and louder in your opinion, will there be one? Yeah, that's a good question when everyone when everyone says it probably doesn't happen because consensus is generally generally wrong. I tend to be a contrarian,

so I wouldn't I wouldn't go against that thesis. But I do think that, you know, we have to consider that um that this time is really not different they usually isn't. You know. We economic cycles have their ups and downs, but they are by nature cyclical. We are in stagflation, which by definition is below trend growth, below potential trend growth, with sticky high inflation. That's what we're

in right now. And if I'm right, and I think, I think that that the leading indicators are indicative of this, and the labor market does in fact roll over, you're going to see a drop in consumption in an economy that's two thirds based on consumption. The next phase of the economic cycle is not going to be you know,

we haven't seen the trough here. It's not going to be expansion or re acceleration, or this no landing scenario that some people are postulating a few weeks ago, which I always thought was silly, or this immaculate disinflation, which at some point became you know, the zeitgeist. So so I think that yes, we're instaculation, we're moving to recession. The question is timing. Does happen at the end of this year at the beginning of next year. I think it starts at the end of this year. I think

it goes into twenty twenty four. The FETE doesn't cut this year, I think they cut next year. The fet has finally gotten serious with regard to inflation fighting because it realized that it has taken a hit in its credibility and it's going to claw that back. That's my view, and I don't I'm not the guys that think that the FED is going to be cutting this year with

inflation above the target. Yeah, but Katherine too. Actually, what I think Brian was alluding to in his question, and that is that with credit conditions where they are right now, liquidity where it is, you know, trying to get a loan is going to be much harder. Collateral is going to be more, collaster is going to be needed, spreads

are going to be higher. Rejection rates also will be going to the upside as well, and that's going to have a big, big impact in terms of investment and the like and the whole velocity of money and the economy itself. So surely that's why we possibly are heading

more towards a recessionary camp than we weren't before. Yeah, those who perhaps didn't think that we were going to move into recession or that was the next phase of the economic cycle probably have joined our camp, which says that recession is an inevitable part of an economic cycle, and that's what we're moving to. So yes, I would agree that it's increasingly consensus. I would say that the majority of economists now believe that we are we are

moving into recession, if not already in one. And I think that this banking crisis, if we're calling it that, I think that's debatable as well, has accelerated the timeline with respect to that contraction and aggregate demand. But we should expect it to come. And I'll finish with one point, which is that that's not the fetes job, nor is it the federal government's job to deter that natural phenomenon from happening. It's not their job. The FETE has a

dual mandate. It's you know, price stability and full employment. So it's not to extend the economic cycle. It's not to bring back a bull market. It is to get inflation back to the target, which they might change at some point. But it's way too early to be talking about a change in the target with inflation more than double. Okay, you've mentioned recessions coming and that you've got a defensive posture like healthcare and staples and yes and utilities and such. Well,

what about something like gold? Does that fit into the picture? Yeah, of course I'm gonna have gold if you if you kind of get my drift. I like gold, I like cash, I like cash equivalents. I mean you had at the beginning of this year, I was talking about commercial paper at four point seven percent, tea bills three months, six months, nine months, you could get out of five five percent handle that I mean, is there cash instruments, money markets? So this is where I had a lot of our

clients position in cash, cash equivalents, in gold. I think it makes sense, and I think if we're dedicated in equities, we have to be in the defensive sectors, not in the high fires. The rotation at the beginning of the year I think was premature. All Right, Catherine, Yeah, you're pretty nervous, pretty careful I'd say in pretty bearish. Katherine Rooney Vero with US chief investment strategist at Baltic Capital Markets.

This is Bloomberg Daybreak Asia. Your morning brief on this story is making news from Hong Kong to Singapore and Wall Street. Look for us on your podcast feed every day, on Apple, Spotify, and anywhere else you get your podcasts. You can also listen live each day on Bloomberg eleven three zero in New York, Bloomberg ninety nine one in Washington, one oh sixty one in Boston, and Bloomberg nine sixty in San Francisco. Our flagship New York station is also

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