Crypto bank’s ‘crisis of confidence’

This is an audio transcript of the FT News Briefing podcast episode: ‘Crypto bank’s ‘crisis of confidence’’

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

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A US jobs report is out today and it looks like the Federal Reserve’s higher interest rates are working. And the crypto sector keeps getting kicked while it’s already down. Plus, our business columnist Pilita Clark has noticed that it’s getting harder to call a company because they’re ditching their phone numbers. I guess the upside to that is no more hold music. I’m Marc Filippino and here’s the news you need to start your day.

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Jobs data from the Bureau of Labor Statistics are set to come out today, and estimates show that the rate of US jobs growth in December will have slowed for a second straight month. So more jobs, but not as much as the month before. It suggests that the Federal Reserve’s interest rate rises are 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 that 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 kind of data points that the Fed looks at. That in addition to the inflation data that we get on a monthly basis as well. What they’re really going to be looking for is further evidence that wage growth, in particular, is starting to slow by any magnitude here. Essentially, the inflation problem that they’re grappling with at the moment is the fact that price pressures have moved from the goods side of the economy. So for things like furniture and appliances, those costs have come down quite considerably. But on the services side of the economy — think of dining out, of getting your haircut — those kinds of activities, prices are still quite elevated and that has a lot to do with the fact that the labour market remains quite strong. Companies are hiring, they have roles to fill and so long as that is the case, it’s going to be quite difficult for the Fed to damp demand sufficiently to get inflation under control.

Marc Filippino
So Colby, can the Fed still engineer what’s called a soft landing, basically bring down inflation without tipping the US economy into a recession?

Colby Smith
So a soft landing isn’t totally off the table but the odds of it decline considerably the longer the Fed holds rates at an elevated level and the higher, of course, it pushes the Fed funds rate in the end. So what Fed officials have signalled is that they’re likely to increase the benchmark policy rate above 5 per cent at some point this year, and they expect that to lead the unemployment rate up to about 4.6 per cent. Now, that’s on the low side. If you talk to economists across Wall Street and across academia as well, we see, you know, expectations of the unemployment rate perhaps eclipsing 5.5 per cent, let’s say. But the Fed has said they’re not trying to engineer a recession. They don’t think, you know, one needs to occur in order for inflation to come down. But the more resilient the economy is and the more persistent these price pressures are, the greater the likelihood that a recession is forthcoming this year.

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

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The US bank Silvergate saw its share price drop more than 40 per cent yesterday. The reason? A report came out that showed clients pulled $8bn in deposits from the crypto focused bank late last year. It forced Silvergate to sell assets if that news wasn’t bad enough for the crypto community. The lender Genesis also announced yesterday it’s laying off 30 per cent of its staff. And 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 the FT’s Nikou Asgari. Hi, Nikou.

Nikou Asgari
Hi, Marc.

Marc Filippino
So, Nikou, we’ve seen a few crypto lenders and players go bankrupt this past year, BlockFi, Three Arrows Capital and Celsius, which I just mentioned. But what does it mean that Silvergate took such a big hit?

Nikou Asgari
Well, all those ones that you listed all crypto native as people call them, sort of core crypto companies, whereas Silvergate, it’s a listed on the New York Stock Exchange, is a Federal Reserve member bank regulated as any other typical bank in the US. It started really as a tiny community lender and over the past few years it’s grown into lending out and specialising for crypto companies. And this huge hit comes, as you know, you’ve seen the collapse of FTX and now the arrest of Sam Bankman-Fried and that institutional clients, the people that would be depositing money with them, are actually pulling, as you said, $8bn worth of their deposits and saying, actually we don’t want our money anywhere near crypto, anywhere near this industry, and just yanking it from the company.

Marc Filippino
So it sounds like with the Silvergate Report, the crypto crisis really crossed the threshold from niche industry to mainstream finance. And the bank’s chief executive, Alan Lane, said this bank run happened during a, “crisis of confidence moment”. Do you think that crisis is going to keep going?

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

Marc Filippino
So let’s take a step back for a second. We have Congress looking into the collapse of FTX. We just saw the attorney-general in New York sue the founder of the bankrupt crypto lender Celsius. Are regulators going to keep going after people in the crypto space?

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

Marc Filippino
Nikou Asgari is the FT’s digital markets correspondent. Thanks, Nikou.

Nikou Asgari
Thank you.

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Marc Filippino
OK, so we’re all starting to unwind from the holiday season. Maybe you’re taking down your lights, polishing off the last of your holiday cookies, or trying to return those thoughtful gifts that you got that just didn’t hit the mark. You’ve got your receipt 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 through to a human. We’re just talking about finding an actual phone number in the first place. A lot of companies have removed customer support numbers from their websites or buried them so deep they’re pretty much impossible to find. FT business columnist Pilita Clark noticed this and wrote about it recently. She joins me now. Hi, Pilita.

Pilita Clark
Hi, Marc.

Marc Filippino
All right. So Pilita, who are you trying to reach that caused you to write about this?

Pilita Clark
Well, actually, I was trying to reach a corporate headshot photographer for a column I did the other week. So I started looking around and I came across a site that looked great. But not only could I not actually find a phone number, this particular photographic studio had put a sign on their website saying, “We have removed our telephone number. It’s because we’ve noticed customers prefer to chat online via email or by filling in the form below.” And I have to say, I didn’t respond well to that mentally. (laughter) And then very grumpily went looking for another one, found another studio that not only had a phone number prominently displayed, but had someone who picked up the phone very readily and just find it so hard to find the phone number very often. And I know I’m not alone in that, so I thought I would write about it.

Marc Filippino
Why do you think that’s the case? Is it me and the rest of my millennials kill this, too?

Pilita Clark
Well, first of all, someone needs to write a PhD on this, because, try as I might, I couldn’t find a sort of definitive answer to this. Although a lot of people did agree with me that it seemed that during the pandemic, when a lot of businesses really had to improve their digital services very, very quickly because they basically there was no other way of communicating with people easily or they had didn’t have people in the office answering landlines or for whatever reason, they did actually end up deciding that it was better, perhaps cheaper, more cost efficient to have online forms or just to do away with a phone number. You know, basically humans are more expensive, or at least they appear to be that way. But I’ve always thought that actually it’s really easy to measure the cost of a body and an employee and really difficult to measure the loss of revenue that you suffer when you know you’re someone like me who goes to a rival because they pick up the phone and you just have an online form.

Marc Filippino
Pilita Clark is a business columnist for the FT. Thanks so much for this conversation, Pilita

Pilita Clark
Real pleasure, Marc. Thank you.

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Marc Filippino
You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back next week for the latest business news. The FT News Briefing is produced by Sonja Hutson, Fiona Symon and me, Marc Filippino. Our editor is Jess Smith. We had help this week from David da Silva, Michael Lello, and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the global head of audio, and our theme song is by Metaphor Music.