Gary Cohn is connected to the banking and finance industry, well connected.  In this interview with Face The Nation earlier today, Cohn is discussing the current status of First Republic Bank, another big player in the California banking system that is about to collapse.  Cohn notes something at the 1:15 mark that just seems obvious yet is undiscussed in most outlines of the FRB discussion.

Six weeks ago, in an effort organized by the FDIC, $30 billion was pushed into FRB by eleven larger banks to stabilize it.  However, the only thing that infusion of capital did was allow institutional depositors time and ability to withdraw their funds. A complete racket.  Once the at-risk group exits, suddenly the collapse is back on the tee.  WATCH:

[Transcript] – MARGARET BRENNAN: We want to turn now to Gary Cohn, who is the vice chairman of IBM, former Goldman Sachs president and a former Trump administration top economic adviser. Good morning to you. Lots of titles, Gary, Lots of experience. That’s why we like having you here. I want to ask you about what’s happening with First Republic. It’s been under pressure. We know they’ve been looking for a buyer, the FDIC, the government is looking to arrange, moving it into government control and then maybe selling it. What are you hearing about how this would roll out?

GARY COHN: Margaret, thanks for having me. I think you’re portraying the situation as we find ourselves again on a weekend. As we closed business of Friday, the FDIC was in a process of looking for acquirers or bidders for the assets over the course of the weekend. I think the FDIC has asked potentially three banks for their final bids for the entire bank. The FDIC would prefer to sell the bank in its entirety than the pieces. What will most likely happen is the FDIC will seize control and then simultaneously resell the asset to the successful bidder. I think that will happen sometime later this afternoon before the markets open in Asia this evening.

MARGARET BRENNAN: And this will be a faster process than what happened with SVB?

COHN: It will be- it will be a much faster process. Now, we’ve been going down this process for the last two weeks or so as first republics continues to be under pressure and continues to lose deposits. Unfortunately, First Republic reported this week that they had a massive outflow of deposits over the last quarter.

MARGARET BRENNAN: So if First Republic is sold, then the acquirer would take on the deposits. So what do you think about the conversation we had earlier with Congressman Khanna about whether Congress needs to do something here? Because it seems like we’re just going into emergency mode now for three banks.

COHN: Yeah.

MARGARET BRENNAN: Does there need to be a broader change to the regulatory system and to the laws?

COHN: Well, it’s an interesting question. So, look, I don’t agree with Congressman Khanna that we want unlimited FDIC insurance. I think that to me is a bit of a race to the bottom.

MARGARET BRENNAN: You had picked like two, 2 million. 5 million, 10 million.

COHN: Yeah. I mean, there’s got to be some limit. It’s- at some point you have to limit because you don’t want to race to the bottom where you know, the weakest bank with the weakest balance sheet in the world can offer you the highest rate of return on your deposits. And therefore, you take your deposits there because guess what? They’re insured by the federal government. That’s not what we want to see. We want to see some type of discipline in the system. When you talk about more and more regulation, I smiled because if you look at the report that came out that you referenced with Ro Khanna as well, you know, one of the findings in the report is that the regulators did not do a very good job enforcing the existing rules. So if you can’t enforce the rules you already have on the books and by- it’s hard to enforce the rules because there are so many rules, do you want to create more and more rules when you can’t enforce the one you already have? Part of me feels like we need to get a simpler, more coherent set of rules so the bank regulators can actually enforce them and they know what the important rules are.

MARGARET BRENNAN: But the bank regulators here are at the Fed. That’s what we’re talking about here.

COHN: They’re at the Fed and at the States. Remember–

MARGARET BRENNAN: That’s true.

COHN: –we have state regulated banks and federally regulated banks.

MARGARET BRENNAN: Well, that’s a big conversation for California since they just had two banks–

COHN: It is.

MARGARET BRENNAN: –have some big problems. But Fed Chairman Powell is going to face questions from the press midweek.

COHN: Yes.

MARGARET BRENNAN: They- he gives a press conference around the decision on interest rates that he is expected to be making. Do you think these banking problems are going to interfere with his plan?

COHN: I don’t think these problems are going to interfere with his plans. I actually think they’re helpful to his plans.

MARGARET BRENNAN: Because they’re slowing the economy?

COHN: Exactly. What the- what the chair has been trying to do is slow the economy down. He’s been trying to tamp down inflation. Inflation is too many goods chasing too few products. And part of the chasing has been the easy availability of credit. Now that we’ve seen deposits lose- the- leave the system and we’ve seen banks in tighter financial position, they are not offering loans as easily as they were before and the loans have become more expensive. So people are borrowing less money, they have less access to credit, so their ability to purchase is going down. Purchasing power is waning in the United States, which is exactly what the chairman’s been trying to do by raising interest rates. So he’s in essence, getting enormous amount of help out of this banking crisis, not what he wanted to see happen in any way, shape or form, but the unintended consequence is very helpful to slowing down the economy and tamping down inflation.

MARGARET BRENNAN: So does it up the odds of a recession being more than mild?

COHN: It probably ups the odds. Yes. I mean, it definitely ups the odds. It takes control out of the Fed. The Fed is no longer in total control of slowing down the economy. They’ve now got the banking industry playing along with them. But as we’ve seen in the economic data recently, the consumer in the United States still is in relatively good shape. They are starting to run out of savings. The money that they got during COVID, we put an enormous amount of stimulus into consumers bank accounts and that administrations, both administrations, every every administration put enormous amount of stimulus in the bank accounts. We see from the savings data that’s starting to to wear down. It’s starting to run off. So is that runs off further and further. The economy would become more credit dependent to keep thriving. So I think we will see a slowdown. And I still think we’re in a relatively decent shape. We may have a recession, but I still. I think we could muddle through the bottom here without a real deep recession.

MARGARET BRENNAN: The chair of the House Financial Services Committee, Congressman McHenry, called the Fed’s report a self-serving justification of Democrats long held priorities. He may be venting. It doesn’t look like Congress is doing anything to change regulation or laws related to banking. There was an FDIC report on the collapse of Signature Bank, which blamed bad management, but it also said regulators just didn’t have enough staff. In New York. I mean, there’s some pretty damaging bits of information in here. If you put aside the politics, the regulators don’t have enough staff. They didn’t act. So who are they being held accountable by unless it’s Chair Powell?

COHN: Well, it is Chair Powell. And I think- I think when the chairman goes to Congress and remember, he testifies in front of both the House and the Senate a couple of times a year. Historically, all of the questions have been on monetary policy. I think we’re going to start seeing a lot more questions on the regulatory and the regulatory policy. How is regulation working? Are they keeping up to what they need to do? Do they have proper staff or there are issues that are going by that are not being covered? This is a huge finding. I mean, this is a bit of a seismic moment because we believe in the United States and I think the US population believes that the banks where they deposit their hard earned money are well regulated. And we have found out this week in the Fed’s own report that these banks are not well regulated, and they admitted it themselves. I ran a regulated bank. I know that if we would have ever told our regulator that we did not have a enough people to regulate ourselves, they would have shut us down. So we cannot be in a position where the regulators themselves say we do not have enough staff to regulate you properly.

MARGARET BRENNAN: You ran one of the biggest banks. Gary, we’ve got to leave it there. We’ll be back in a moment.

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