In 2008, he was CEO of the largest bank to ever go bankrupt. He’s worried about another seizure –
The banking world almost gave in 13 years ago. Former Washington Mutual CEO fears a new bubble is brewing.
Kerry Killinger was appointed CEO of WaMu in 1990 and was dismissed in September 2008 – just a few weeks before the bank went bankrupt, with a growing number of failed mortgages.
WaMu was one of the major financial firms to collapse during the financial crisis of the past decade, but the savings and loan giant with more than $ 300 billion in assets is still the largest bank failure ever Of the history. WaMu was seized by regulators in September 2008 and sold to JPMorgan Chase for an incendiary selling price of $ 1.9 billion.
Killinger spoke to CNN Business about the similarities and differences between today and 13 years ago.
The global financial crisis has led to a wave of new federal rules designed to strengthen the balance sheets of major banks and ensure that another disaster like 2008 does not happen again.
The good news is that Killinger thinks JPMorgan Chase and other ‘too big to fail’ banks are in much better shape now after laws like Dodd-Frank and the Volcker rule were put in place in the aftermath of the financial crisis. to make the big banks more secure. .
This group of institutions also includes Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley, as well as others that received government bailouts in 2008.
“Regulated banks have a more concentrated market share now, so they need to be more cautious,” Killinger said. “But the health of the industry is great, the profits are good, and the oversight is strong. I’m not too concerned there.”
Subprime lending, the practice of giving mortgages to people with less than trustworthy credit histories, is not as prevalent as it was during the last housing boom. But Killinger is worried about bubbles in many other sectors of the economy that threaten market stability.
“Today’s bubbles are wider and deeper in a variety of categories, not just housing,” Killinger said. “The Fed’s policy of low interest rates and massive asset purchases has worked well to get out of the recession, but if you continue to prolong it, you can have unintended consequences.”
“The economy continues to improve. It is time for the Fed to take the reins of the stimulus back and allow interest rates to rise,” he added.
Killinger and his wife Linda, former vice-president of the Federal Home Loan Bank of Des Moines, wrote a book on the 2008 meltdown titled “Nothing is Too Big to Fail: How the Latest Financial Crisis Informs Today “.
Linda Killinger told CNN Business that she is concerned about the rise of financial technology companies, hedge funds. private equity firms and other so-called shadow banks that have little or no regulation in Washington.
“The non-banking system is a big part of the problem. And there is still a lot of lending from unregulated banks such as online banks and many private companies,” she said.
Big financial firms are taking too much risk again
At least one prominent senator is worried, as are the Killingers, that some financial companies are becoming too heavy again.
For its part, the Fed has recognized some of the growing risks to markets and the economy of keeping rates lower longer and continuing to provide crisis-level stimulus.
In the minutes At its last policy meeting, the central bank acknowledged that “if the economy continues to make rapid progress towards the Committee’s goals, it may be appropriate at some point in future meetings to start discussing an adjustment plan. the pace of asset purchases “.
But Kerry Killinger thinks the Fed needs to do a better job of stress-testing the big banks for their exposure to some of the types of assets that have risen over the past year to ensure they can withstand even more. volatility.
“The Fed made the mistake of underestimating subprime mortgages during the last crisis,” he said, referring to the now infamous comments of the then Fed chairman. Ben Bernanke in May 2007 that “the effect of the subprime mortgage unrest on the larger housing market is likely to be limited.”
“There are growing asset bubbles,” said Kerry Killinger. “The Fed needs to further test the performance of companies if the prices of these assets fall further. If there is a major correction, the impact could be dramatic.”
Big bank executives will also have the opportunity to speak about their views on the economy later this week. The Senate Banking Committee will hold a hearing on Wednesday and the House Financial Services Committee has one scheduled for Thursday.
Jamie Dimon, CEO of JPMorgan Chase, will appear at both hearings, as will the new Citgroup CEO Jane Fraser, Brian Moynihan of BofA, Charles Scharf of Wells Fargo, David Solomon, CEO of Goldman Sachs, and James Gorman of Morgan Stanley.