An oft-cited fact is that rising rates support the profitability of the commercial banking system. Chris Whalen, veteran banker, chairman of Whalen Global Advisors & Author of The Institutional Risk Analyst begs to differ. Whalen explains to Farley that banks make money by the spread between their yield on their loans and their cost of funds, and that while rising rates do increase loan yields, they also increase banks’ cost of funds. Whalen also explains why he thinks the Federal Reserve will be unable to do Quantitative Tightening because it will be stuck with mortgage-backed securities (MBS) for many years.
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Timestamps:
00:00 Introduction
12:35 Inflation
18:13 The Problem The Fed Faces with Mortgage-Backed Securities (MBS)
21:08 Can the Federal Reserve Become Insolvent?
24:57 Mortgage Lending At Commercial Banks27
27:32 BCB Ad
28:20 Are Rising Rates Good For Banks?
31:54 Why A Recession Is Likely?
34:51 Outlook on Bank Stocks and U.S. Treasuries
44:00 Biggest Risk: Non-Bank Lenders
48:31 Credit Card Lending
51:16 Will Banks Suffer Losses from Russia's Invasion of Ukraine?
54:40 European Banks
58:35 Jack's Post-Conversation Explanation
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