 Felly yw'r rydyn ni'n fawr o'ch gweithio i chi'n gweithio ar yr hunach a'r gweithio ar y gweithio'r gweithio. Felly â'r dda'n ddiwrnod o'u gwneud ym Mery O'Di, yr adynnu'r gweithio'r gweithio ar IOB, ac rwy'n dechrau'n sylwys i'ch gweithio i gael eu hynny ar y prymysau a'r gweithio'r gweithio'r gweithio'n mynd i chi'n gweithio'r gweithio ar yr adynnu'r gweithio'r gweithio'r gweithio'r gweithio'r gweithio'r gweithio. Rwy'n gweld i'r IIA yw'r pethwyr i'n ddwylo i'r ffysg gydag y special o gyntaf i Carl Tananbaum, a'r gyfnodau i chi'n ddiweddol ffasgliadau ar Al Cardiol, rydyn ni'n gyfnod i'r Mornydd Nôrdd i'n gwybodaeth, Ac maen nhw'n ochr i ddod o'ch gweithio fel Lleon i'r cyflau fel Lleon i'r ddiolch yn arfer. Mae'r drosbeth Cymru ac ymddangos cyfrifio Lleon i'r cyflau'r ddiolch eich bod ymddiolch yn ei wneud i'r cyddiadol. Ymddangos i'r gweithio fel Lleon i'r cyflau. Felly mae'r gweithio'n gallu gweithio'n fyfnwyr o'r OOB, We are a recognised college of UCD offering education programs for financial services professionals and of course we are a membership organization and this year we are celebrating our 125th birthday, yes you heard that right, we are indeed older than the state. We began with over 700 members in our first year in 1898 and today we are Ireland's largest professional membership community with over 32,000 members. So as I said we are absolutely delighted to be partnering with the IIA, those of you of course will be very familiar with the work of the IIA, we very value their work both as a think tank and indeed as a convener of so many events that are so relevant to our audience and we always take very special and important points as we go to the IIA events. At IOB we've been lucky enough to host Carl previously although both of those events were online but we have a huge response to those, it's always a very popular event for us and let me just say now that the IIA are recording this event so we'll be able to see it back and of course give it a wider outing which I'm sure it will have after this event. Now you don't need me to tell you how incredible it is, how much the world has changed since we last did of Carl which was 2021, seems like a short time ago but it's so many lifetimes ago on how the world has changed. At that time we talked about the challenges and opportunities in a post pandemic environment so that's what we were focusing on. Of course nothing could have prepared us for what lay ahead, the tragic events in Ukraine which continue, no sign of abating there, soaring energy and food costs and the highest rate of inflation for many countries in over 30 years. For a financial services organisation this is a really highly uncertain and volatile operating environment and we would have said that with just that amount of information. Then of course we look at last week and we see the collapse of Silicon Valley Bank and I know Carl put a paper out on that on Friday so please go have a look at that, you'll get it through his LinkedIn also. Then of course over the weekend we had the emergency takeover of Credit Suisse and I know that some of you will have been up late in your own organisations dealing with the fallout from all of that. So what does the path ahead look like? Could there be a better time for us to be asking this question? I don't think so. So I'm very excited to hear from Carl in just a moment. After that Dan will facilitate, Dan O'Brien, chief economist with the IIA will facilitate a Q&A and I know I already have questions regardless of even the thing getting kicked off and I'm delighted to say then that we'll close with Alex White at the end who will gather for us some of the points that have been made throughout so thank you for that. So to Carl, in his role as chief economist with Northern Trust, Carl of course briefs clients and colleagues on the economy and business conditions, he prepares the bank's official economic outlook and he participates in forecast surveys. He publishes weekly commentaries and is frequently interviewed by media outlets including the Wall Street Journal, Bloomberg, New York Times and Reuters. Prior to joining Northern Trust, Carl spent four years leading the Federal Reserve's risk section. He was deeply involved in the central bank's response to the 2008 financial crisis, helped to create and conduct its stress testing programme and advised senior Federal Reserve leaders on developments in banking and the financial market. Carl is a member and past chairman of the American Bankers Association Economic Advisory Committee, the National Association for Business Economics, the Conference of Business Economists and the North American Asset Liability Management Association. He also serves on the board of Working in the Schools, a literacy organisation that supports the Chicago public school system. He holds an MBA and a BA in finance and economics from the University of Chicago and apart from all of that record, I know Carl is just a fantastic speaker and presenter. No pressure at all, Carl, but we're absolutely dying to hear from you. You're very welcome. Well, good morning. Let's try that again, shall we? Good morning. It's a bright new day. I am so delighted to see everybody, although I suspect that, like many audiences having seen me virtually and in person, you'll prefer the former from here on out. 2023 is my 40th anniversary in banking, a marker that will become more significant in just a moment. But I'm a nostalgic person, and so I was thinking back to that fateful day when I was interviewing to become part of the banking industry. As mentioned, I went to the University of Chicago, which is a liberal arts college. How many of you went to a liberal arts college? OK. So, you know, a liberal arts college is a bastion of higher learning where you go to train your mind in literature, language, history and philosophy in the hope that you'll emerge a well-rounded intellectual who can handle whatever your chosen profession brings your way. What it can also mean is that you spend four years in college and you graduate with virtually no tangible job skills whatsoever. And that was my fate, as well as the headwind of a terrible recession that we were having back then, because we had just had a rapid rise in interest rates and an inverted yield curve that was causing all kinds of financial trouble. So, it was not easy to find that first role. I did see an ad in the newspaper for an analyst at the bank, and I went to city center and had a two-hour discussion with the chap who became my boss. We talked about interest rates, the Federal Reserve, investment theory, and I thought I was giving him all the best answers. And then, at the tag end, he threw a curveball in my direction. He said, Carl, one more thing. What is three times seven? Now, did I mention that I went to a liberal arts college? When you study mathematics at a liberal arts college, you get mathematical theory. You see a lot of Greek letters. You see a lot of proofs, but your multiplication tables atrophy terribly, and that led me to panic, and I said, is it 19? They thanked me for my time, sent me along on my way. It took 40 minutes on the bus ride back to my apartment, but I finally realized I had given the wrong answer, and I was despondent. I trudged in, and Karen was waiting for me. Karen is my wife now, but back then she was my very anxious fiance, I might add, because we were desperately trying to prove to her father that I was a worthwhile individual. As of last fall, we're married 40 years, and my father-in-law still doesn't think that I'm a worthwhile individual, so we needn't have worried. And everybody was pleased when a week later I got a call and was offered the job, and tempting fate I had to ask. I said, Tom, I thought I had spoiled my opportunity at the role by giving you the wrong answer to your last question. I said, Carl, not to worry. You see, we interviewed ten economists, and you came the closest. So, but the first role that I was hired into in banking was in a new discipline that was called asset and liability management. Because interest rates had shot up with such pace, it had revealed imbalances in the composition of assets and liabilities in financial institution balance sheets. And when the yields aren't moving in sync, it can have a terribly damaging impact on profitability. And if you're not able to match cash flows on the two sides of the balance sheet, you can have liquidity troubles. Everybody with me? So this had become a new involvement. The regulators were pressing firms to get better at this. And as the last two weeks unfolded, I was wondering really how much the industry has learned about these types of problems which are age-old. So I'm going to go through some of my materials, but perhaps not all of them, because, well, frankly, I had to tear the whole thing up over the weekend, and it isn't completely reconstructed. But I think these first couple, I think, are going to be most important. And ironically, the title of aftershocks was intended to talk about the continuing recovery that we've had from the pandemic and the war in Ukraine. Little did I know that we'd have an additional shock to discuss as we get together today. So let me give you a few high-level thoughts having lived through a number of banking crises and recognizing some common patterns here. So the institutions that were front and center in the United States were Silicon Valley Bank and here in New York Credit Suisse. Let me say at the outset that the two have almost nothing in common, other than they've been in the headlines. But this illustrates something that's very important, that psychology is a terribly important feature of environments like this. And we can say that people are being irrational, but as we were mentioning before we sat down, markets can stay irrational longer than you can stay solvent, so said Keynes. And we may be in one of those intervals. So the first observation I want to make is that, yes, interest rates have gotten higher, but these have been well-previewed. And as we now know from the headlines, the Silicon Valley Bank was being criticized by its regulators as early as 2021 for its practices in this area of asset liability management, being very vulnerable to runs on the bank interest rate increases. It had plenty of time to try and extract themselves from an uncomfortable position. Instead, they doubled down, affirmed doubling its footings in this course of the last five quarters before its failure. This raises a host of questions. Where were the managers? Where were the supervisors? Where were the markets? Or whoever it was, it was supposed to be exerting discipline on the firm. Once again, in the midst of crisis, we don't have satisfactory answers to any of those. And so some fact-finding as part of the after-action review I think will be very important. But I remember Ben Bernanke saying to all of us at the Fed, especially during the darkest days, first let's fix the problem and then we'll fix the blame. So I know that the editorials have already been pointing fingers at one or the other. We just need to get the situation stabilized so that we can assess who is responsible and, if anything, what needs to be done about it. Secondly, the irony I find in Silicon Valley Bank is that it was known as a leading lender to early stage firms located in Northern California. Northern Trust has a large wealth business and we have offices not only in San Francisco, but Melisa, you don't know if you know this, we have an office in Silicon Valley. I can tell you it is not much to look at, but I am told it is the most expensive property in all of the Northern Trust empire. And mind you, we have properties in Hong Kong and Beijing and other world capitals, Zurich, which are very expensive. This is the most expensive because of the land that lies underneath it. One of the first things I did was called ahead of our operations in that area and they know the bank very, very well. The leaders were known as heroes because they were willing to stick their necks out for companies whose balance sheets weren't fully formed. And I suppose the first headlines were well, they were high flyers with technology and they fell with technology and that would be true, but not for the reasons you might expect. They did not go under because they were financing cryptocurrencies or ventures that were unstable. They failed because of a very old fashioned reason. They had a run on the bank. And the very same companies that they had financed again at the early stages were not loyal to them when the yogurt hit the fan. There is no loyalty and liquidity I guess we have found. And also they had a very concentrated base that was largely uninsured and therefore fertile for reversal anytime the news turned poor. So I know that a lot of the headlines will talk about the modernism and yes social media was certainly an ingredient that accelerated the demise. But the fundamentals that they experienced were ones that we could have seen in banking 150 years ago, not just last century. I noted about psychology. How many of you have had some behavioral science or psychology or behavioral economics? All right, very good. So at the University of Chicago they teach very classical economics. And the first thing that they threw at us when we walked into the lecture hall as freshmen was, we're going to assume that people behave rationally. I want you all to think privately about your holiday table. And if your family is anything like mine, rationality is a neighborhood that is visited only infrequently. So I had some questions about this from the very first. And over time it's clear, especially during times like this, that there isn't the highest level of analysis being applied to circumstances. Happily over the last 20 years or so, we've invited in to the economic tent people who look at behavior and have found yes we are in fact a rational but in some very predictable ways. When we are confronted with the possibility that our money is not safe after having thought it safe, that is a very upsetting notion. And whereas we had anchored, and it's a term from psychology that we've anchored on a certain set of facts, if we have to pull up that anchor, it's a very confusing and upsetting process. And then trying to get the anchor into the new spot, you want to make sure that's really in the firm seabed. Rumor is traveling faster than fact and sometimes human beings during times like this rush to judgments. We'll take a complicated problem such as what other banks are out there like Credit Suisse or Silicon Valley Bank. And instead of doing a nuanced analysis, we'll say okay well who else has lots of deposits above the insurance ceiling or who else has been in the headlines and all of a sudden there's guilt by associations. Everybody with me. This kind of heuristic behavior can go on for a long time before you can calm people down. So let's just be aware that while things are a little more settled seemingly this morning, that this could fly off the handle again before it finally settles down. Next, if there's a benefit of having gone through so many crises, many enlarged during the course of the last 15 years, it's that we have learned how to deal with them. And the playbook that central banks and governments have for trying to restore order in financial markets is a lot more well populated than it was in 2007. We know that extending broader insurance to deposits can help keep them in place. We know that lending against good collateral in an aggressive way by the central bank can buy time and forestall the failure of organizations and markets. The correct public statements and more importantly international collaboration because of the global banking markets that we're in is essentially critical. You saw over the weekend that the swap lines between central banks first established in 2008 have been renewed as they have at periodic intervals during times of financial stress because so many of the large banks here in Ireland and Europe in the United States do business all over. And they will need liquidity that's denominated in a variety of different currencies in order to survive. Is everybody with me? So the collaboration that's been built since 2008 among central banks is a strength that's been drawn on here. We may need to go a little bit further than we have already. I'm certainly hoping that we don't. But if we do, there's certainly levels above the policy support that have been given that we can turn to in the hope that this ends up being a tempest and a teapot and not a broader financial crisis. And then finally I have to say going into Friday I was much more concerned about Europe than I was the United States. Credit Suisse is an organization that has been failing in slow motion for five years. And by the way, does anybody here work for Credit Suisse? I should have asked beforehand. And by the way, the views I'm expressing today are my own and not necessarily those of Northern Trust Company. But I think it's been in the headlines. Almost any time you have a section of finance that is causing problems, you find that Credit Suisse is involved with it. Family offices, private equity, they just have not covered themselves with glory. So the supervisors have been finding a way to try and manage through that crisis. And in a sense this may have given the motivation and the means to do what needed to be done. The resolution reached over the weekend is certainly not very friendly to Credit Suisse shareholders. But ultimately what might emerge is a much stronger organization that has much better risk management and compliance practices. I was also worried because Switzerland is a small country with two very large banks. So their central bank is probably not large enough on its own to provide the needed support should that sad episode have gone much further. So at least the outlines of what's been agreed, while painful to some, are probably very good for the broad market. And I'm hoping that we don't see a next man-up sort of contagion as investors look at other European banks and wonder if they're in for the same fate. Now the next thing I want to touch on, this may be one of the last, is that all of this happened during an interval of crucial central bank meetings. How many of you have worked for central banks? I'm sure quite a few. I was only there for four years and my partners at Northern Trust still think that I caused the financial crisis. You want to talk about heuristics. They say, well, gee Carl, you went there in 2008. But for the 11th time, Melissa, I was there to help shore things up. I was doing my best. And often I was the only person that had actually worked in a bank that was in those rooms where decisions were being made on the basis of what banks do or don't do. Before I left the Fed, I gave a presentation to the effect that what supervisors think they know about banks and what banks think they know about supervisors is mostly wrong. And so when I went back to Northern Trust, I've tried to stay balanced between the two. But financial stability is essential for economic performance. I'll say that again. Financial stability is essential for economic performance. So whatever other goals the central bank has for inflation or employment or currency and mandates vary around the world, none of that's possible if the financial markets are in a state of volatility. So usually that is handled quietly. Usually that is handled with what central bankers refer to as macro prudential approaches. Primarily the supervision of individual firms and occasionally markets in which they interact with one another. But at times like this where the threat from the banking sector could feed over into the general economy, this has to become a consideration. Among those groups are setting interest rates in the various countries. Because if in fact this becomes something that could put the economy into recession, it has to be considered by markets. During the course of just the last week plus, you'll see what markets have thought about policy for the European Central Bank and the upper left panel. If I were to show you the maps for the Bank of England and the Federal Reserve, both of which will be meeting this week. The re-evaluation of the landscape that they'll be working with and how they might react to it with interest rates has undergone a seismic change. Madam Lagarde had promised us 50 basis points and that's what she gave us. Along with a paragraph that's not a potential for financial instability. But I think that the markets are assuming that what we've just been through, even if it's curtailed today, is going to be a headwind for economic activity. Because even though most banks have survived, they're likely to be much more conservative in the way that they operate. They'll probably be asked to hold on to more liquidity, which means that there will be less money going out into the economy for lending. They'll probably be spending quite a bit more time with their supervisors, which I can tell you that bankers love doing. I mean, we roll out the red carpet for our supervisors. There's fresh coffee. There's the pastries from Valentino's that they're just top notch. In any event, that is going to take their eye off the ball and make it a little bit more difficult to provide the credit that may be needed during the challenging next several quarters. And this is captured in the chart in the lower left. Whenever bank share prices are under stress, they tend to get more conservative. And I think it's fair to say that at the moment, bank share prices are still under a little bit of stress. Now, the hard thing is with inflation still higher than we like it. How do you operate as a central bank? Do you take your foot off the break a little bit to allow for the possibility, knowing that that could allow inflation to become even more deeply embedded than it is already? Or do you plough ahead and risk upsetting the markets, upsetting the banking system? And so I would hate to be a policymaker just at the moment. Personally, I think the Bank of England is going to hold. I think the Fed will probably increase rates by 25 basis points, but I think the discussions around both of those decisions is going to be active. And I would not rule out that there would be a dissent at one or both of those meetings in light of the circumstances. So, just to conclude on the crisis, I think there is a great deal to discuss and talk about their angles that are apparent and some that may emerge in the coming days and weeks that will certainly want to be cognizant of. In light of all of this, I'm probably not going to say much, and I was all prepared to talk about inflation, which is on the way down, but potentially not as fast as we would like. Europe has it much worse than we do in the United States, which isn't easy, primarily because of two things. Number one, the sourcing of food is much more dependent on Eastern Europe than it is in the United States. How many of you shop regularly for groceries? Every aisle is a new depth of pain, isn't it? And I know that we can do some substitution as consumers always do to get away from the worst of it, but it's kind of hard. I mean, there's only so many things you can do with dried beans, and only so often that you should probably eat them. But I joke about a serious subject because the other thing that I think is critical, and I hope I have this here somewhere, is that unlike the United States, we have a situation in Europe where each movement in interest rates has a very direct impact on those of you who own homes. In America, we're the only country that has a 30-year fixed-rate mortgage that can be refinanced downward without cost at any time, a vestige of the depression. Here in Europe, the mortgage model is much more likely to be variable in rate or require refinancing at regular intervals a year or two years. So as central banks raise their rates, it has had a multiplicative effect on monthly payments. How many of you have seen your payments double or worse? See, nobody wants to admit this. How many of you have a friend that has seen your payments double or worse? And it varies from country to country as shown here, but having spent last week in the United Kingdom, this is a very painful thing for them. And so, as we think about central bank policy and inflation, you have to say, ask yourself how impactful is all of this being on the average household, and I would say in Europe it's been much more powerful than it has been in the United States. We may never... Oh, one other thing. And this is where I'll pause and we can take your questions. But the rising interest rate environment is making societies very uncomfortable. We shouldn't forget that as recently as what was it, 18 months ago, still about one-third of the sovereign debt in the world was trading at negative interest rates. Doesn't that seem like forever? So let's think about that. Governments were paying their... their citizens or citizens were paying their governments for the privilege of keeping their money safe. Having a bigger deficit actually was better for fiscal policy. Today we have rates that are in positive territory and it's causing a lot of friction in governments because debt has expanded tremendously since the pandemic. And projections from here forward are a little unsettling. How many of you like a scary movie every now and then? Like a little fright? If you want a scary movie, go to YouTube, get some organ music and a minor key and read your national budget report. Because of demographics, because of inflation, the cost of providing service to a population is going up rather quickly. And as a result, if you don't want higher taxes and low taxes have been the hallmark here in Ireland of lowering business here, you're going to have to figure out how to get the... And every time that I go to a national capital, and I know Melissa, you were in Washington, isn't that a strange place? So I'm just a simple fella from the middle of the United States. I'm born and raised in Chicago. And so things have to make sense to us. But when I go to Washington or some other national capitals, it's almost like you go into one of those halls of the Funhouse Mirrors. And everything gets warped. Everything you think you understood, no, no, no, you're thinking about it the wrong way. We can cut taxes, we can spend all we want, and the budget will balance over time. You know, the arithmetic that I was taught in third grade does not apply in national parliaments. And what scares me is that people truly believe this. And so we're going to have fiscal friction around the world. And one of the things that we're watching very closely, obviously, is later this summer in the United States, we're going to run into the debt ceiling. And it's feeling to me like we're going to run into it at about 40 miles an hour with repercussions in global markets. So in any event, I realize just now that I probably haven't given you that much that's uplifting, but better to be aware of what's coming around the corner than not. With that, let's take your questions, have a chat.