00:00When you look at the Fed's policy right now, the big question, too, first and foremost, is how much should they cut?
00:08Should they cut more than once this year? Should the president get what he wants and even more than that?
00:12How do you feel about where rates stand today and whether there is indeed pressure on the economy given where rates are?
00:21Those are that's a lot of a lot of questions at once, Shinali, and a lot of very good ones.
00:26If I could, before I get there, I want to put a point on one comment that Katanga made that I think is really important, which is the right way to think about the capital framework for banks is the impact that it has on the real economy in the U.S.
00:41and that it has on Main Street people in particular, because the banks are a derivative of the real economy.
00:48And we play a really important role in money creation and the supply of credit that then supports investment in new job creation and homeownership and a whole variety of other things.
00:58And if you look at the capital impact of Dodd-Frank regulation forward and you just look at the loan-to-deposit ratio for all regulated banks in the U.S. over the course of the past 15 years,
01:14it's declined from like 92 percent to somewhere in the high 67, 68 percent range.
01:21That's $4 trillion of credit that was not created to support homeownership, you know, the proliferation of investment capital equipment to support domestic manufacturing and otherwise.
01:33So I'm quite hopeful that one of the things that's going to come out at out of this look at the Basel rules,
01:39it's going to come out of the look at relook at the stress tests and otherwise is going to be the opportunity for banks to support the real economy,
01:46support people on Main Street a little bit better.
01:48Now, as it relates to interest rates, you know, from my point of view, the Fed's always been focused on the right things.
01:56It's important that we promote full employment.
01:58It's important that we keep prices under control.
02:03And at least based on the way that the numbers are shaping up right now, I think inflation's been a little bit better than anybody expected.
02:09Unemployment has been, you know, much better, I think, than everybody expected.
02:14There were a lot of concerns coming from the academics about the impact of higher interest rates on unemployment.
02:21But the labor supply has been tight.
02:23And the byproduct of that is, you know, my view, and maybe we see a rate cut, maybe we see two, but we're unlikely to see a lot more than that this year.
02:31And that's certainly what we're telling our clients.
02:32So there's a trade underway on Wall Street called the Powell hedge, a concern about the threats to the independence of the Fed.
02:40And part of that means from a lot of investors betting on lower interest rates on the short end, but a steepening, so higher interest rates on the long end.
02:49What's the implication of this, Tim?
02:51Do you see that the tit for tat is having a real world Main Street effect when you think about the future of the Federal Reserve and the pressure that the president is putting on it?
03:00I mean, I think you hit one of the critical points there.
03:06I point out to folks all the time that we're not really a Wall Street bank.
03:10We're a Walnut Street bank.
03:11Walnut Street clearly runs, you know, perpendicular to our building, right behind me.
03:18And the right way to think about the questions around interest rates is the impact that it has on people and on Main Street businesses.
03:27So while the government is funding itself on the front end of the curve right now, most of the things that people care about, whether it's housing, owning a car, you know, financing, education, actually gets priced off of the belly or the long end of the curve.
03:43And the long end of the curve likes stability.
03:46It likes evolutionary change.
03:49And so at least from my point of view, that's what's paramount to the average American is that we ensure that mortgages, mortgage rates stay stable, that they have the ability to plan around it, that education costs stay fixed.
04:02And you don't have a lot of interest rate volatility.
04:04Let's talk a little bit more specifically about your business on Walnut Street.
04:08I want to ask about M&A.
04:10I know that on your earnings call last week, you pointed to a recent acquisition by Huntington Bank as an encouraging sign.
04:17What does that mean for your own strategy as you evaluate the landscape?
04:21Yeah, I think what was encouraging about the acquisition that Huntington announced was the confidence that they expressed that they would get a quick approval.
04:29It's not good for anybody, but in particular, the customers of banks who are involved in mergers or acquisitions for there to be any uncertainty about whether an approval will arrive and how quickly that approval will arrive.
04:43So I did think it was quite encouraging that they expected that they would get a relatively speedy approval.
04:49As it relates to our strategy, we're fortunate.
04:52We have really strong profitability today.
04:54I think we finished the earnings season number one in ROE and number one in efficiency among our peer group and in the upper half in terms of year-over-year revenue growth.
05:04So if there are no acquisitions for fifth-third, things are going to be just fine for shareholders.
05:09But we have the least consolidated banking sector in the world here in the U.S., and banks are the least consolidated sector of any major U.S. industry.
05:18So there is going to be more consolidation over time.
05:20And I actually think that's a good thing for people.
05:23Tim, there's a recent story in American Banker that I appreciated on how why one regional bank is excited about stablecoins.
05:31Now, when the Stablecoin Genius Act was passed in Congress, there was a lot of concern about what it would mean for the regional banking system.
05:39Why are you not afraid?
05:41Why do you think that this is a good solution?
05:42Well, I think you have to wake up every morning when you're in a period of technological change and make a choice between being afraid because the old ways of doing things are going to become less relevant or being excited because you're going to be able to improve the way that you operate or the quality of services that you provide to clients.
06:02So I tell our folks all the time, if you want the future to be interested in you, you've got to be interested in the future.
06:08And we are excited about it.
06:09From my point of view, we run a massive payments operation.
06:13We clear over $17 trillion a year in payments for folks.
06:18And any time there's innovation on payments infrastructure, payments rails, it's a good thing for us because it means we have new services that we can offer to clients.
06:27We can take friction out of their businesses.
06:29And I think the thing I'm most excited about with stablecoins as it relates to our operations is just the ability to clear cross-border payments for folks, you know, who today would have to rely on Fifth Third, referring them to a correspondent bank in many cases, and who would take currency risk, you know, because of the delay in settlement and otherwise.
06:50So it creates an interoperability solution for, you know, multinational payment flows that just doesn't exist for a bank like us today.
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