- 19 hours ago
News anchor Sade Baderinwa dishes about the banking crisis and what the future looks like.
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00:00So I would like to introduce our distinguished panelists, Nicole Elam, who is the president
00:09of the National Bankers Association, Bill Braxton, who is the managing director of global
00:15client business at Goldman Sachs, Sean Wooden, who is the partner and chief public pension
00:21strategist at Apollo Global Management and is also the former Connecticut state treasurer,
00:27and our moderator, Ms. Sade Baderenois, who is an Emmy award-winning news anchor at ABC News
00:35and founder of Get Real With Your Dreams, the inside track that has granted nearly half a
00:44million dollars in scholarship money to connect high school students to top professionals in
00:48the media industry. We're looking forward to this conversation. Okay, great. Thank you all so much.
00:53Well, I think we're going to dive right into this topic. You know, we're talking about the
00:56banking crisis and its impact on black investors, venture capitalists, entrepreneurs, and, you
01:02know, what does this future look like now with this, the failed banking system? So, you know,
01:07I actually want to start with you, Nicole. Let's talk about you and what is the difference between
01:13the midsides bank and the larger banks, those regional banks, first of all?
01:17Yeah, that's a, that's a great question. So when Silicon Valley Bank failed and signature bank
01:22failed, most people really didn't understand what it was. They, those banks are truly unlike most banks
01:28in the U.S., and they're certainly unlike most community banks that I represent, and they're different
01:33in two big ways. The first is they're customer-based. These aren't the types of banks that you and I can
01:37just walk into and open up a checking account or go get a mortgage. No, these were the banks of crypto and, and digital assets and, and tech startups,
01:46which are really industries that in a number of ways are considered riskier, right? They're riskier because tech
01:52startups, they don't have a proven track record of success. As a bank, I can't look at your revenue stream and say, yes, you do have an
01:58ability to repay. And so even though these are industries that deserve, obviously, to be banked, they had a high concentration in those
02:06industries that are considered volatile. Another big way that they're different is because of their depositor base. Most banks, 90% of their
02:13depositors are fully FDIC insured, which means that if the bank fails, I'm confident that the FDIC is going to make me
02:20whole again. They were the exact opposite, where 90% of their deposits were uninsured, so that when those banks failed, you
02:27had so many businesses that were looking around wondering if they could make payroll. Now, why does it matter that they had a
02:34very untraditional banking model? The reason why it matters is because when it failed, it called into question the entire
02:42banking system. And it really impacted community banks the most. It started to get people wondering, oh my
02:48goodness, this bank that's down the street that has constantly served me, should I bank with them
02:54continually? Or should I take my money and go to a bank that the federal government has taught me is too
02:59big to fail? And so it really impacted the perception of community banks and whether they were safe. And it
03:05doubled down on this idea that we live in a two-tier banking system of banks that are too big to fail
03:10and everybody else, because most people don't understand the unique features of Silicon Valley
03:16Bank and Signature Bank.
03:17So what impact did their failures have on minority deposit institutions?
03:22The biggest impact that it had was deposit flight, right? I talked about this idea that it caused people
03:29to question whether they could continue to bank at this local community bank that has really been the
03:34ones that's been serving them for over a century. Community banks, particularly black-owned and operated
03:39banks, have been the ones that have said yes to communities of color when other banks said no. And the big
03:44reason why they've been able to do that is because they're not overly relying on algorithms. Algorithms
03:49that we know are full of racial bias. And so the big way that it impacted them is that we saw deposit flight,
03:55particularly in the weeks following the bank failures as people were withdrawing their money and they were
04:01taking it to banks that they saw were too big to fail or that they thought were too big to fail. So that's the biggest way that it was
04:07impacting this deposit flight that we saw. It's since stabilized, but small banks today still have
04:12$305 billion less in deposits today than they did in early March before these bank failures. So it really led to
04:19deposit flight and it led to people questioning should they bank with a community bank or should they take their
04:25funds to banks that are too big to fail?
04:26Yeah. And these are really scary times for entrepreneurs. They are looking for that capital. So when you've got
04:32some businesses that are already living on the margins, you know, they're trying to make payroll, what happens now?
04:39Now it's even tougher. I think the biggest thing that's coming out of this is that not only with the Fed increasing interest rates are you seeing the cost of capital going up, now you're seeing less capital available. And we all know that
04:46entrepreneurs and black business owners already have less access to capital and if there's less capital available, we're going to be struggling even more. And so that's one of the things that's really coming out of it. And it's in an early stage, but it's going to get worse.
05:05You know, I saw one quote by Kelly Burton, who is the CEO of Black Innovation Alliance. And she says, when our economy catches a cold, the black community catches the flu.
05:21Catches COVID.
05:23Yeah, no. And I argue that this so-called banking crisis, like for the black community, it was already a crisis.
05:34And the crisis existed before SVP went under. And when you when you look at, you know, Bill just talked about the challenges with the access to capital, we all know about that historic systemic pervasive.
05:50And even when Silicon Valley Bank was flying high, broadly speaking, in the traditional banking sector, those challenges still existed.
05:58And so with that going under, it's undermined the system and perhaps created more of a regional banking crisis in the traditional sense. And it's exacerbating the existing inequities.
06:12When people get nervous, you know, as a state treasurer, you know, we look at the markets and when there was volatility in the marketplace, you see a flight to safety.
06:21And so you're seeing that in two ways. One, Nicole just talked about it with and let me clarify a flight to safety or you see and a flight to perceived safety.
06:34Because there is a difference. But in the case of Nicole, a flight away from a number of the community banks, because maybe the too big to fail banks are safer.
06:45But it's perception when you see it in terms of access to capital in which our community has already been challenged.
06:51You see, OK, these other institutions, majority institutions, entrepreneurs, they look safer, right, when that is not borne out statistically by the numbers.
07:03I would always shock my colleagues across the country.
07:06And I was the president of the National Association of State Treasurers when I would tell them and we talk about diversity.
07:11And I would tell them that out of my top ten private equity VC funds in my portfolio, four of them are diverse managers, really.
07:23Right. And that's based purely on performance.
07:26And so I think we have to look broadly at these challenges and not like so be so focused on Silicon Valley Bank and what happened and look up broader at the existing systemic challenges in the traditional banking system that predated it.
07:43And the fact that they've got a cold and now we've got the flu and worse.
07:48You know, I also want to bring up, you know, these small businesses.
07:53And I really want to talk about the importance of SVB because it is the nation's 16th largest bank.
07:59It's a 40 year institution based in California.
08:02They had nearly $175 billion in customer deposits.
08:06This is the second largest bank failure in U.S. history.
08:10We could not look at this lightly.
08:12And besides that, also, SVB was was crucial when it came to minority businesses.
08:19They were the ones that were there.
08:20They were the ones that were establishing businesses.
08:22They were the ones who were helping to build contacts.
08:25So what does this mean?
08:26Because that that that is a huge presence now gone.
08:30It so so it's it's there still.
08:37The system actually stepped in and preserved preserved the bank.
08:41And so SVB was significant.
08:43I'm really speaking about more of the relationships and really helping to build that ecosystem for other minority business.
08:49And that's why I was just about to say it was significant because it was unique in the landscape for the black VC entrepreneur ecosystem.
08:57So it was unique in a landscape where we're a lot of barriers.
09:02There's they were a friendly oasis to engage with.
09:05Right.
09:06And did a lot of business.
09:07So in that way, it's a big impact.
09:10But but but I caution from the from the crisis.
09:14It's a crisis and an impact on our community in a banking system.
09:18To me, there was a management failure there rather than a systemic banking system failure.
09:27And that created confidence issues.
09:29And 15 years ago, it would have taken weeks to bring that under with most people banking online and on their phones.
09:39It took hours for the flight of capital and the confidence to have that impact in the entrepreneur community.
09:46People could not prepare for it in a traditional way.
09:49And to be clear, it was more of a risk management failure than a traditional management failure.
09:54Yes.
09:55The way they manage their their assets.
09:56But it goes to this idea of perception versus fact.
09:59Right.
10:00It's perception that is really having the biggest impact on what's going on, because, you know, as as Sean mentioned, they're continuing to be served.
10:08And I would say over the last three years, you've seen a growth in various funds that serve that community.
10:13Never before have you seen so many new funds that have been created to help tech startups, because it is very hard for startups to get capital because, again, they don't have a proven track record of success.
10:24So you're taking a risk on them.
10:25So not only do you have banks that have been created to serve them that are still here, but you also have so many more funds that have been created to serve them.
10:33But the perception problem that goes against facts is the is the biggest issue.
10:38And Sean, you mentioned earlier, we have a conversation about this, that this whole issue of this bank failure is is than banking, that this actually impacts many other sectors of the economy.
10:50Can you explain that?
10:51Yeah, I think this is this is a microcosm of what happens generally in our economy when there is stress on the system as it relates to the black community.
11:02Right. So every facet, the consumer. Right.
11:05Inflation going up access to capital credit card.
11:10It impacts those on the margins. Right.
11:13Those with the lowest cash reserves. Right.
11:15Typically young, typically black and brown, you know, a few categories.
11:19And so you're going to see this ripple effect throughout our economy with businesses.
11:24And but the going to be born in every sector by the young, the black and brown.
11:32And you name you name the the career or what hat you put on it.
11:37But it will be a broad impact.
11:40And I think that's that's what we're going to see.
11:43And we're just at the beginning of it because we, you know, the consensus, you know, the economists is that we're going to see negative GDP growth.
11:51Right. We have defaults on loans going up.
11:56So we're in a beginning of a default cycle.
11:59We have real estate market, commercial real estate market under tremendous stress.
12:05And we have not seen the impact of that yet through the system.
12:08And so so there the fear factor is going to go up tremendously and it's creeping up now.
12:15And so I think we're really at the beginning of this cycle where we and we need to get to we need to be faster than we have been in the past.
12:25And that's why these conversations are so important as to get to what do we need to do to protect our community with what we know that's coming down the pipe.
12:33And Bill, maybe you can add to the conversation because now what's happening since you're at Goldman Sachs,
12:39the Apollo's and Goldman Sachs of the world are picking up the market share because banks have had to retreat.
12:45Is that what you're already beginning to see?
12:47Well, we've seen a proliferation of of external capital sources outside of the banks.
12:54Really for the last five to 10 years, you've seen private credit lenders like Apollo, like Goldman pick up the slack in certain areas.
13:01And the truth is the areas that we generally operate in are the larger mega companies.
13:06And so when we're talking about startups and we're talking about VCs, it creates an opportunity for external lenders outside of banks to jump in.
13:16But the truth is a lot of these larger institutions like ourselves are focusing on some of the larger companies that can no longer go to the banks that are too big to fail.
13:28We do have strategies and funds from smaller lenders like we have a strategy that we're in the process of launching right now that'll that'll pick up some of that slack.
13:37But that's a small, small portion compared to the size of the banking industry.
13:42But I want to say we have a better strategy.
13:47But this this is an important point because we're focused on the banking sector.
13:51But just to put this in context.
13:53Right.
13:54The you know, they asked Billy the kid, you know, why do you rob banks?
13:57He said, because that's where the money is.
13:59And so to put this in context at credit in Japan, 90 percent of credit is delivered to the marketplace through traditional banking in Europe.
14:11It's 70 percent of credit in the U.S.
14:14It's only 20 percent of credit.
14:17And so we really do need to look at the broader capital markets and the black private equity VC ecosystem.
14:27And how to better access that 80 percent market share in the U.S.
14:33in order to really drive growth in our community.
14:36You know, I want to pivot for a moment because front and center today is the Supreme Court's decision about affirmative action.
14:43Clearly, this is going to have a ripple effect across not just education, but in finance and banking.
14:50Can you talk about the effects that you think that we'll likely see?
14:55I am glad you asked that question.
14:57I've been struggling all morning.
14:58How do we have this conversation without talking about that decision?
15:02The this is just the beginning.
15:06This decision is just the beginning that's going to ripple through to corporate America and all of these things that we're talking about.
15:15And in the aftermath of George Floyd, there are lots of lots of awareness, lots of capital commitments being made in terms of to be deployed to black owned businesses, vendors, investors and so forth.
15:32And I even led an effort, you know, like 18 of the leading financial services institutions, including Goldman Sachs to focus on that.
15:41I believe so.
15:42I believe so.
15:43One, we know a lot of those commitments and I'm not speaking about what what I was involved in, but broadly speaking, have not been delivered on yet.
15:50Two, I believe that what's happened with the Supreme Court today is going to accelerate a pullback on some of that will be legitimate fears about using race, saying race, talking about race.
16:07Some of it will be just another excuse to have the status quo prevail.
16:14And you kind of touched on that.
16:16It's going to come across multiple industries.
16:19But if you look at the industry that we're in, asset management, we already have a small number of black and brown asset managers.
16:28I think that the total number of assets that are managed by black and brown professionals is less than one percent of the entire marketplace.
16:35So if it's if the Supreme Court says that affirmative action is is no longer a cause, it's actually going to impact the hiring practices of asset managers.
16:47It's going to impact the hiring practices of tech companies.
16:50It's going to impact the hiring practice, the admissions of certain schools.
16:55I have a daughter that's applying to college as we speak.
16:57So this is this is dear and true to me.
17:00The industry that I'm in, it's dear and true to me.
17:03I want to expand our numbers, not retract our numbers.
17:06And this decision is going to have a very negative impact across the board, asset management, tech companies, consumer, everything across the board.
17:16Nicole, I think the only thing that I would add is that it's really a call to action to make systemic changes.
17:21Right. We know that the data doesn't suggest that we live in a race neutral environment.
17:25We know that black entrepreneurs are two times more likely to be denied for a small business loan, even if they have the same credit profile as their white counterparts.
17:32We know they're two to three times more likely to be unbanked and underbanked.
17:35We know that they have a higher risk of climate across flood, fire, wind, chemical pollutants.
17:40So the data doesn't lie.
17:42So the data the data doesn't suggest that we live in this race neutral environment.
17:46But I think it's a call to action for us to be more systemic in our thinking.
17:49This is not a check writing exercise for philanthropy.
17:52But this is an opportunity for them to think about how can we do underwriting differently systemically looking at our policies and procedures internally.
17:59If we're at a big bank, how are we doing our lending practices?
18:03Are there barriers in place that makes it difficult for people to get mortgages and small business loans?
18:07All of these types of things.
18:08I think we need to be internal and look systemically at what policies and procedures that we can change and obviously public policy things that we can do as well.
18:16But this is a moment of systemic change.
18:18And those are the things that we need to be fighting for, not the fringes.
18:22Absolutely.
18:23Was there anything else you wanted to add?
18:25I'd say the only saving grace, going back to my service as treasurer, is that every investment decision I made, it had to be with being a fiduciary front and center.
18:39And some people got confused about how forward I was about diversity, equity, and inclusion.
18:46But that was based on data.
18:48And so the only saving grace is that there are numbers.
18:52We have a number of successful entrepreneurs out there.
18:56We have a number of successful investors and VC fund managers.
19:00And to use that data to hopefully break through the wall of bias because the bias has been so strong that people actually think they're protecting assets by not investing or doing business with black and brown communities.
19:18When I argue you're not meeting your fiduciary duties if your lens is so narrow that you're ignoring performance and opportunity.
19:25Right.
19:26So.
19:27You're leaving GDP on the table.
19:29Go ahead, Nicole.
19:31Yeah.
19:32You're leaving GDP on the table.
19:33Right.
19:34We know that when you have diversity in the boardrooms that those companies perform better.
19:37We know that if you were to add more entrepreneurs of color to the table, then GDP grows.
19:42If you were to address income and wealth disparities, GDP grows.
19:46So you're leaving money on the table when you don't focus on diversity.
19:50I am getting a wrap.
19:51So it looks like we have run out of time.
19:53Thank you all.
19:54I still want to talk.
19:55Bill Braxton, Sean Wood, and Nicole Elam.
19:58Thank you so much.
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