“Shark Tank” judge Kevin O’Leary and anchor Poppy Harlow debated bank investments on Monday’s edition of “CNN This Morning” after Silicon Valley Bank’s (SVB) collapse.
Regulators shut down SVB after its stock dropped by 60% on Thursday and 62% in premarket trading Friday following mass customer withdrawals. The Federal Deposit Insurance Corporation (FDIC) took control of the New York-based Signature Bank on Sunday after the Friday collapse. O’Leary said banking should be seen as “highly regulated utilities,” which sends a message to investors to avoid stocks in banking and own bank bonds.
This collapse is the second-largest banking failure in American history standing only behind the 2008 failure of Washington Mutual.
Harlow argued that there is a difference between small and medium-sized banks that were deregulated through legislation passed in 2018. O’Leary said all banks are capable of failing.
“I do want to push back on that because you have to differentiate between the small and medium-sized banks that were given more lax requirements in the 2018 legislation and the big guys, because the big guys closed up on Friday and there’s a flight to safety to J.P. Morgan, to Citigroup etc.”
Watch:
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“That doesn’t mean — you should not assume that just because they’re big, they can’t fail,” O’Leary argued. “Managers make mistakes all the time —”
“No, but they are held to stress test requirements, higher liquidity requirements because of Dodd-Frank, that didn’t diminish for those big ones,” Harlow said.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 prohibited excessive risk-taking that led to the financial crisis of 2008, according to the National Archives. The 2018 legislation rolled back provisions enacted in the Dodd-Frank law for small and medium-sized banks.
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