Crypto Bank ‘Crisis of Confidence’

This is an audio transcript Briefing for FT news podcast episode: ‘“Crisis of confidence” of crypto banks

Marc Filippino
Good morning from the Financial Times. Today is Friday, January 6, and this is your FT News Briefing.

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The US jobs report came out today and the Federal Reserve’s higher interest rates seem to be working. And the crypto sector keeps getting dumped while it’s already in decline. In addition, our business columnist Pilita Clark noted that it is becoming increasingly difficult to call a business because they are giving up their phone numbers. I guess the upside is that there is no more music on hold. I’m Marc Filippino and here’s the news you need to start your day.

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The Bureau of Labor Statistics jobs data is due out today, and estimates show that the rate of US job growth will slow for the second month in a row in December. So, more jobs, but not as much as a month earlier. That suggests the Federal Reserve’s interest rate hike is working as the central bank tries to tackle inflation. But the bottom line is that the US economy is still strong. The FT’s Colby Smith explains what this means for the Fed as it considers its next interest rate decision in a few weeks.

Colby Smith
So the jobs report is one of the biggest types of data the Fed looks at. And that in addition to data on inflation that we also receive on a monthly basis. What they will really be looking for is further evidence that wage growth, in particular, is starting to slow to any degree here. In essence, the inflation problem they are currently struggling with is the fact that price pressures have shifted away from the goods side of the economy. So for things like furniture and appliances, those costs have come down quite a bit. But on the service side of the economy – think about dining out, getting a haircut – those types of activities, prices are still pretty high and that has a lot to do with the fact that the labor market is still pretty strong. Companies are hiring, they have roles to fill, and as long as that is the case, it will be quite difficult for the Fed to reduce demand enough to bring inflation under control.

Marc Filippino
So Colby, can the Fed still engineer what’s called a soft landing, actually lower inflation without pushing the US economy into recession?

Colby Smith
So a soft landing isn’t completely out of the question, but the odds of that decrease significantly the longer the Fed keeps interest rates elevated and, of course, the more the Fed eventually pushes the interest rate. So what Fed officials have signaled is that they are likely to raise the key policy rate above 5 percent at some point this year, and they expect that to bring the unemployment rate up to about 4.6 percent. Now, that’s on the low side. If you talk to economists across Wall Street and academia, we’re seeing, you know, expectations of an unemployment rate that could be higher than, say, 5.5 percent. But the Fed said it is not trying to cause a recession. They don’t think, you know, that one has to happen for inflation to go down. But the more resilient the economy and the more persistent these price pressures are, the more likely a recession will occur this year.

Marc Filippino
Colby Smith is the FT’s US economics editor.

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American bank Silvergate saw its share price drop by more than 40 percent yesterday. Reason? A report came out that showed clients withdrew $8 billion in deposits from a crypto-focused bank at the end of last year. This forced Silvergate to sell assets if that news wasn’t bad enough for the crypto community. Lender Genesis also announced yesterday that it was laying off 30 percent of its staff. On top of that, the New York attorney general is suing the founder of another crypto lender, Celsius. To help unpack this. I’m joined by Nikou Asgari from the FT. Hi Nikou.

Nikou Asgari
Hi Marc.

Marc Filippino
So, Nikou, we’ve seen several crypto lenders and players go bankrupt in the last year, BlockFi, Three Arrows Capital, and Celsius, which I just mentioned. But what does it mean that Silvergate has suffered such a big blow?

Nikou Asgari
Well, all the ones you listed are all crypto natives as people call them, sort of key crypto companies, while Silvergate, which is listed on the New York Stock Exchange, is a member bank of the Federal Reserve and is regulated like any other typical bank in the US. It actually started as a tiny community lender, and over the past few years has grown into lending and specializing in crypto companies. And this big hit is coming, as you know, you’ve seen the collapse of FTX and now the arrest of Sam Bankman-Fried and that institutional clients, people who would deposit money with them, are actually withdrawing, as you said, their deposits worth 8 billion dollars and saying, we don’t really want our money anywhere near crypto, anywhere near this industry, and just get it out of the company.

Marc Filippino
So it sounds like with the Silvergate report, the crypto crisis has really crossed the threshold from niche industry to mainstream finance. The bank’s chief executive, Alan Lane, said the attack on the bank took place during a “moment of crisis of confidence”. Do you think this crisis will last?

Nikou Asgari
Well, I think it’s the first week of January and we’re talking about banking cryptocurrency crises. I don’t think it’s going away anytime soon. We have to see what happens with SBF, obviously, and FTX and Alameda going through bankruptcy and all the waves of that. And I think this is just one of many to come.

Marc Filippino
So let’s take a step back for a moment. We have Congress considering the collapse of FTX. We just saw the New York attorney general sue the founder of the bankrupt crypto lender Celsius. Will regulators continue to hunt down people in the crypto space?

Nikou Asgari
Oh, absolutely. I think since the collapse of FTX late last year, regulators have really stepped up their scrutiny of cryptocurrencies, whether it’s exchanges, lenders or banks like Silvergate. At the end of the day, ordinary customers usually really lose out from all this collapse.

Marc Filippino
Nikou Asgari is the FT’s digital markets correspondent. Thank you, Niko.

Nikou Asgari
Thank you.

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Marc Filippino
Okay, we’re all starting to relax from the holidays. Maybe you’re turning off the lights, polishing off the last of the holiday cookies, or trying to return those precious gifts you received that just didn’t hit the mark. You have an invoice in hand ready to go. But when you try to look up the company’s phone number, it just doesn’t exist. And we’re not talking about getting to the person. First we’re just talking about finding the right phone number. Many companies have removed customer support numbers from their websites or buried them so deep that they are almost impossible to find. FT business columnist Pilita Clark noticed this and wrote about it recently. He’s joining me now. Hi, Pilita.

Philita Clark
Hi Marc.

Marc Filippino
Alright. So Pilita, who are you trying to reach, why did you write about this?

Philita Clark
Well, actually, I was trying to get hold of a corporate headshot photographer for a column I ran last week. So I started looking around and came across a site that looked great. But not only could I not actually find a phone number, but this photography studio put a sign on their website that said, “We have removed our phone number. This is because we have noticed that users prefer to chat online via email or by filling out the form below.” And I must say that mentally I did not react well to it. (laughs) And then he very glumly went looking for another one, found another studio that not only had a phone number posted, but had someone who picked up the phone very readily and it’s just so hard to find a phone number very often. And I know I’m not alone in this, so I thought I’d write about it.

Marc Filippino
Why do you think this is so? Did I and my fellow millennials kill this too?

Philita Clark
Well, first of all, someone needs to write a PhD on this, because, try as I might, I couldn’t find a definitive answer to this. Although a lot of people agreed with me that it seemed that during the pandemic, when many companies really had to improve their digital services very, very quickly because there was basically no other way to easily communicate with people or they didn’t When people in the office didn’t answer landlines phones or for any other reason, they actually ended up deciding that it was better, maybe cheaper, more cost effective to have online forms or just do away with the phone number. You know, people are basically more expensive, or so it seems. But I’ve always thought that it’s actually really easy to measure the cost of bodies and employees and it’s really hard to measure the loss of revenue that you suffer when you know you’re someone like me who goes to a rival because they choose pick up the phone and you only have an online form.

Marc Filippino
Pilita Clark is a business columnist for the FT. Thank you very much for this conversation, Pilita

Philita Clark
A real pleasure, Marc. Thank you.

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Marc Filippino
You can read more about all these stories at FT.com. This was your daily briefing for FT news. Be sure to check back next week for the latest business news. The FT News Briefing was produced by Sonja Hutson, Fiona Symon and myself, Marc Filippino. Our editor is Jess Smith. This week we had help from David da Silva, Michael Lell and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is Global Head of Audio and our theme song is Metaphor Music.

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