We can get you a much more stronger story than that with Joe Castday of the CEO of Citizens Bank Covenment, who joins us around the type we now coome monit, Joe get more Ning, You've got a pathless story to tell. It is not that gloomy talk us through it.
It's not.
I think relationship bankers that have intimate knowledge of their their borrowers and that have been disciplined through this last five ten years are not going to see the type of weakness and the commercial real estate market that others are anticipating. I think those that have more distance from the borrowers or outside the banking system. I think that's
where he has a vulnerability. Lots of regional impacts as well, So large urban centers with large, multi tenant buildings have more susceptibility to some of these this weakness and higher interest rates and potential vacancy issues. Then maybe smaller, smaller type of commercial real estate that maybe office occupied still, but that the lender knew this borrower and was able to structure appropriately low LTVs focusing on debt service coverage
for the last few years. Those types of lenders are going to come out.
Okay, there was some real stress about nine ten eleven months ago, in the spring of last year for the smaller banks. I think for a lot of people, they concluded that the bigger banks will get bigger and the smaller banks need to grow and consolidate. Have a different view on that. The reason we need more than four thousand banks in America? Why do we need that number?
Well, when we talk about smaller banks, even the beginning of last year, small banks truly.
Ones like mine, we're fine.
We really didn't see the deposit runoff because there's a diversity of deposits. Average deposit amounts are very low, and so you didn't You weren't counting on hundreds of millions
of dollars concentrate on very few depositors. And also you had more like we have two thirds of our deposits are non interspering, non maturity deposits, and so when you have that, there's not even though you had some laws and some now competitive pressures on the interspering deposits, you just didn't have those same pressures as like some of the large regional institutions and broker deposits also also increased quite a bit due to the demand earlier last year,
and we've seen that soften quite a bit.
Again.
It goes back to relationships, and I think whenever we look at having four thousand plus banks in the United States is a great strength for us, both in having a bank in your location. If you're in rural areas, you may not have access to a bank if you
have consolidation. I mean a suburban area with over fifty sixty banks in one hundred thousand person town, but there's relevancy for a small bank because we're the ones sponsoring the football stadium and the Little Lady games, and we put on a big street festival to revialize her downtown. There's social capital there that you don't find in larger institutions, and you see it even representing TV and movies, just
how important a bank can be. Consolidation yields distance, which I think also yields risk, and we're seeing that as we just talked about commercial state and deposit potential loss. Whenever you have a tie to your bank and your banker, it listens the risk overall, even though maybe small institutions.
Systemically, it makes a difference.
Let's talk about some of those relationships, especially at a time where a lot of FED officials are talking about anecdotes and how important they are to really understanding the economy. How much is the economy slowing. Do you get the sense that your clients, the relationships that you have, are expressing a greater degree of concern that some of the macro data might suggest.
I really don't see that in our locality. I think regionally, you do hear that it does have an impact on small business as we have rates increasing for them, especially those that have variable rays where they're not having a big repricing or refinancing that this is hitting them at with each rate increase, and so they're starting to have that pressure. As commercial real estate has the higher need to be able to service their debt, we see rents go up quite a bit, so some of the small
businesses that's really been more of a struggle. And then for consumers as well, the higher cost of putting food on the table and i'll bring a household have been really challenging.
You talked about the strength of being a smaller bank and all of these relationships and the ability to diversify in the way that you want. How vulnerable do you feel to some of the new capital rules that could come down the pike that we keep hearing about in Congress.
Yeah, the new capital rules don't directly impact me because they're targeted for larger institutions, but there will be some type of trickle down. Well, I'm most concerned about those new rules is where we have greater specifity of whatever's that this is going to cost you more capital versus it being generally.
You need to have more capital.
Is you have unintended consequences, So then you have potentially some transactions that would occur within the banking system get moved out of the banking system and actually could have more herperal impacts to the economy and less ability for regulators to have an impact.
Do you think the proposal meets the moment then? Based on what we saw last year, what was that in your mind? Was that a favure of regulation or oversight?
You know it, Just as we need a whole banks accountable, I think regulators are also accountable too. We have really great regulations, and we have really great decentralized regulatory structure in the United States was a great strength, and I think where we've seen some failures or some vulnerabilities and
we never that hasn't been executed well. So that's what I would would say is that we really we have great regional examiners that are on the ground that understands the local econ what type of risk banks are taking. It's just important that they continue to do that. And I think changing the structure kind of can penalize and take that autonomy out and you then aren't able to assess risk as sophisticated in such a sophistical manner as you can do before.
What kind of proposal would you like to see some kind of deposit insurance reform? What would you like to see?
I think the deposits insurance is also there's so many different tools with marketplaces to be able to exchange deposit insurance, ability to pledge collateral to deposits, that there's really to me, no, there's no need to really change anything there. We have less than we're right at five percent uninsured deposits in our organization, and when we saw organizations last year be over ninety percent uninsured deposits, there was no reason for that.
There is plenty of tools to be able to use, and you now see banks really shifting and making sure that they don't have that exposure on uninsured depositor unclateralized deposits.
Brahma. We've been talking about this whether the regulation, the proposal at least makes the moment of nine, ten, eleven months ago, and the message I keep receiving every single time is probably.
Not not only that, but a lot of people are saying that. Probably down in Washington, they're going to start to agree with this. Morgan Stanley actually started to turn bullish on US banks.
That's sick.
That's agra sick because she didn't think that the capital rules would be as harsh as some people were expecting. So that pushback is pretty widespread, and maybe some people are already pricing in that it's not going to really get applied as initially proposed.
We'll keep this conversation going, Jill, let's talk about real estate if we can just a little bit. You mentioned it earlier. Do you have a different view on commercial real estate? And is your view on commercial real estate different to your overall view on CRA across the nation. And what I mean by that is your bank exposure might be one thing, but do you think that speaks to a broader story At the moment yeah.
I recently saw a survey of banks that were confident with their own commercial real state holding has been not necessarily really confident broadly, and I think it has to do with just that there aren't as many banks in commercial real estate. I mean as far as like looking at the whole portfolio, only fifty percent or so is financed by banks. You know, I feel really comfortable with
our portfolio. We have always been a real estate concentration concentration bank and have great risk managment tools, and where as a banker you have to be an expert risk manager, and so it requires discipline going into higher risk type of lending, and so making sure you really understand is this desk det service coverage ratio real, and there's this value. Is this appraisal we got reasonable? What is the value looking like over time?
Does it make you nervous that everybody else thinks their bank book is okay and everybody else's is the problem?
Yeah, well it would on the surface, but when you look at the composition of how real estate's been financed, there's been lots of deals we've passed on the non banks have financed, and so I think there is a lot of that market mix occurring. Banks have great tools, so we can also reamortize. We have flexibility when it
comes to restructuring rates. We've all been through workouts so for so as long as you go in with your eyes wide open, that you're working with borrowers that note you know, have great integrity, you should be okay.
Jill, I was surprised by this. I think you were too. What does auto lending look like for you in the bank.
We've seen less demand for car loans and so the rates are driving consumers not to purchase on whenever I look out on the ground, but there is some demand up there from like I didn't kind of buy a car a few months ago or a few years ago, and so now it's trying to buy one.
But I think we will see some great demand.
There's demand kind of pin up because the rates have been high. We've seen consumer debt go up as well and being more difficult to have the savings that we saw during COVID and even pre COVID.
So this is surprising data for me.
What creases the wheels for you? Can you give us an idea of the number we talk about moves of fifty basis points one hundred basis points one four percentage point on FED funds coming down, and that's going to get things going again. Does that move the dial for you when you drop rates that much to people start lining up to borrow money to buy cars.
Well, not necessarily buy cars.
So I think we're still seeing a lot of auto financing and sendatives from the dealers and from the manufacturers. So you know, I don't really see that as much because I think there are other debt is what's causing some stress. So it's not necessarily going on and getting necessarily the new car loan. Definitely on the carline, you would have a high higher rate associated with that, but the other demands upon in the perception of what the rate would be, I think it's keeping folks from purchase.
Can you give us an idea of rates to borrow right now? What does it look like if we come to the bank to you today, What am I paying? I'm not paying five point fifty, which is Fed funds. What am I paying?
Yeah, you're right at the prime rate, and so you're maybe a little bit less than that, but you can still go to deal or finance and get quite a bit lower. And so they're really kind of and I don't know what GM is doing, but they may have some incantyms and being interesting.
Look at that, Jill, it's going to see you. Thanks for being with us, appreciate it. Great to be I send our love to est George favorite FED official formerly the Kansas City Fed. Just the absolute best, the best. Love to the absolute best, Jill. Thank you,