Amber [00:00:00]:
Hello and welcome to The Amber Stitt Show. I am your host, Amber Stitt. And today we welcome Brian Pillmore, a financial and banking expert with a big track record, where we're just going to dive into some pretty cool stuff today. So welcome to the show, Brian.
Brian Pillmore [00:00:15]:
Thank you so much. It's great to be here and fun to meet your audience.
Amber [00:00:18]:
Yeah. And I see you've been featured all over the place for, you know, just a few pretty important publications. Did you ever see yourself in this world?
Brian Pillmore [00:00:28]:
Not at all. I mean, I'm just a regular guy from Oklahoma City, but I wanted to know more about banks. I didn't know anything about them 15 years ago.
Amber [00:00:37]:
Okay.
Brian Pillmore [00:00:37]:
And all I knew was that I had a bank account and I had a credit card. That was it. I had no idea. It's not a complex thing. Anybody can understand it.
Amber [00:00:44]:
Well, then perfect. I want to dive into that, make sure that I can comprehend it. Yeah. Because it looks really fancy when I look you up and see some of your articles.
Brian Pillmore [00:00:52]:
It's not fancy, I promise.
Amber [00:00:54]:
Okay. Well, part of what I hope for people, or my clients, when I work with insurance as a financial consultant, is really helping people take control over their lives, pay attention to some of the things they can control. And I'm curious to see, with the work that you've done, it seems like you're innovating the old way and trying to put people on a more efficient way of doing banking. I mean, am I accurate in thinking that? Can we elaborate there?
Brian Pillmore [00:01:18]:
I think what connects banking and insurance at the end of the day, is balance sheets. It might be kind of nerdy to say that, but a balance sheet, all it is what you own and what you owe. And the nice thing about insurance is it helps you to take risk off of your balance sheet and put it on someone else's. And banks, like insurance companies, are actually in the business of taking risk. So when banks take risk, like insurance companies, they have a responsibility to you as the customer. So, yeah, I think we can get into it and understand for your audience, what does that mean? If they're in a relationship with a bank, which they probably are, how do they get the most out of that relationship?
Amber [00:01:57]:
Right. I mean, it's interesting time, too, because my generation, we didn't have these high interest rates and different things that are happening, that we're going to these online banks, and we're doing a high savings account with a high interest rate, cds, that our grandparents would talk about those things. And there's some interesting tools that people are utilizing more than ever, and I think a lot of us have switched online. In your last 10 to 15 years, have you seen the economics of this shift quite a bit?
Brian Pillmore [00:02:24]:
Oh, huge. Especially in the last 12 to 24 months have been seismic. I don't want to be alarmist, but I would say it drives the actual crisis that we're in.
Amber [00:02:34]:
When you talk about what you do, does anyone assume just cryptocurrency in that kind of world? Does anyone just throw you in that category?
Brian Pillmore [00:02:40]:
Sometimes. I don't mind having that discussion. As a guy, that's not really, I'm not really a crypto guy, but I love the concept of the blockchain. And as a computer scientist, I think it's a tremendous thing to have a public ledger. In our business, we're all about transparency and information, and so there's nothing more transparent and informative, but also can also be anonymous than the blockchain.
Amber [00:03:04]:
Okay, let's pause there because I do know what you mean, because of a colleague of mine I've mentioned to you, I think sometimes when people hear blockchain and if they're not interested in these coins, they just kind of shut down and just think, "Oh no, I'm not going to do that. I'm not interested blockchain, though." Okay, and you're talking about ledgers. People that do not like mathematics might turn their brains off. I know some of my clients, even if they hear insurance, they're like, "No, Death, Disability!" What people don't realize is that the blockchain can then, like you say, be anonymous, but things can be fact checked. Is that a good simplified way of saying...
Brian Pillmore [00:03:38]:
I would just think about it like, if you were to have a conversation between you and your friend on an email and it got passed back and forth, back and forth, back and forth, back and forth, right? Reply, reply, reply, reply. And somehow you could not delete it from your Gmail or Hotmail or Yahoo mail or whatever mail you use, you just couldn't delete it. That's the blockchain. And if that had, instead of a conversation between you and your friend, it was you guys passing $20 every time you bet on whatever your favorite football team is, that's the blockchain.
Amber [00:04:08]:
That's it just right here. Clear. You can't make it $19.99. It's $20, or whatever it is.
Brian Pillmore [00:04:15]:
Yes, exactly. It's recorded for everyone to see, actually. The real power. Yes. I mean, recording financial transactions, it's cool. But the real power of publicly available transparent ledgers that are cryptographically, not to get fancy words, but are actually validated and verified. The power of that is for things besides cryptocurrency. So if I buy an insurance contract with New York Life and all of a sudden the notional value, the death benefit, is recorded every month that I pay my premium.
Brian Pillmore [00:04:47]:
What if it was recorded? Nobody could see that it's Brian Pillmore, but they could see contract number and so on. What if it's a cash value policy? Cash value gets updated every month and I want to sell that to someone. How could I sell it to them? I want to cash in my policy. I could cash it in with the insurance company, in which case they could take ownership of it and terminate it. Or, what if I wanted to sell it to one of these guys that's advertising on the radio? I don't know if those are...they're probably not a good deal, but you get my point.
Amber [00:05:14]:
Yes.
Brian Pillmore [00:05:15]:
What if I want to sell it to one of them, or to my friend Jim that's got extra money, and I need cash? Well, he could record that transaction on the blockchain. That's the power of a publicly available ledger, and I think we're going to see more of that. I think the world is moving to a globalized environment where people expect transparency.
Amber [00:05:33]:
Are banks open to this concept?
Brian Pillmore [00:05:36]:
Absolutely not. Banks love, like, they all have ledgers. They call them core systems if you want, like a weird word. They want to keep their customer base to them. What's funny is most of that information, aside from the consumer stuff's a little bit hidden. But the commercial transactions of banks are available. We're actually opening it up. So whether it's a real estate transaction where the legal entity is recorded on a title and the bank that has a mortgage is recorded, or a revolving line of credit where the bank files a UCC filing, some banks try to mask their filings, so you can't know who filed.
Amber [00:06:13]:
So is it possible..."Inside Job" is on YouTube. I think one of them, there's a couple that explains '07 to '08. Could this prevent potentially bad deals that are happening from bad actors out there in the industry?
Brian Pillmore [00:06:29]:
I think the more transparency, the less malfeasance. Now you could say, hey, some transparency allows some bad actors maybe to act more nefariously. That's always a possibility. But I think in general, the flow of information and more transparency allows people to be more educated, and then it allows companies and firms like yours and mine to think about how do we help our end customers be the most knowledgeable with the information that's available.
Amber [00:06:57]:
Yeah. So let's talk about the company that you own, Visbanking. What are you offering through your business model?
Brian Pillmore [00:07:03]:
Yeah, we offer a bank intelligence and action system. And that sounds really fancy and forms a negative word called BIAS. But we think that we have a bias for action and action using data. First of all, it starts with like a data layer that has billions of records. There's 4700 banks in the US. There's around 5000 credit unions. So it has financial data, people data, and performance history tells you the bad loans that they have.
Brian Pillmore [00:07:31]:
And then on top of that, we build a visualization layer because you and I can't, we can't look at billions of records. Right? We don't have that kind of superpower, but you can see billions of records visually if we put it in a chart, or a graph, or something. And then lastly, we think that information shouldn't just be digested, but should be acted upon. And what we've done is we've put a micro application layer on top. If you're working for a bank, you want to find your next best customer, or you're working for a bank and you need to find talent, maybe a new accountant to open your office in a different city, or you want to understand which banks are going to fail in the next twelve months. We have that kind of data and those applications sitting on top of our data.
Amber [00:08:18]:
Okay, so then you dangle something like that at the very end. What are behavior patterns that outline a bank? That's going to have some issues from...
Brian Pillmore [00:08:27]:
Our data scientists, who are master's degree and PhD level complete nerds. They're amazing. So what we did was we looked at a bunch of metrics because we have like 2500 metrics on every bank. Financial metrics, performance metrics. We didn't pick which metrics were going to predict bank failure. We let the machines pick it, right? And so we went back eleven years.
Brian Pillmore [00:08:49]:
We think that 2008 was a seminal moment. It was a different kind of crisis.
Amber [00:08:54]:
Sure.
Brian Pillmore [00:08:54]:
So we started at 2009 and went to 2020. There were no bank failures in '21, or '22. Okay, so we took an eleven year period and this is kind of getting a little bit nerdy and maybe giving out some secret sauce in case anybody wants to nerd out.
Amber [00:09:09]:
No, but we're talking about if '07, '08 was like, interesting, but I think...
Brian Pillmore [00:09:14]:
It was a different animal. It was kind of a black swan moment. '07, '08, right. So we're probably not, and we can see it this year, we're not seeing the same modes of failure. So '07/'08 eight was a bubble, an asset bubble based on real estate. And in many cases it was led by real estate. And you can watch the movies or read the books about "The Big Short", or whatever you want to geek out on, but that probably isn't going to be the same mode of failure this next time around. But we can study just like banks fail every year.
Brian Pillmore [00:09:49]:
Well, I shouldn't say every year because there were no failures in '21 and '22.
Amber [00:09:52]:
But it's not uncommon.
Brian Pillmore [00:09:54]:
Yeah, but you figure out it helps if government injects five to $6 trillion into the economy, then for some reason, no banks fail. So maybe we'll just do that every year and then we'll have more money than we've ever known what to do. So that didn't happen in '21 or '22. So we study this eleven year period from nine until 2020, and we study every bank failure, not to get too geeky, but you break it into groups.
Amber [00:10:18]:
Sure.
Brian Pillmore [00:10:19]:
And you basically split off a training set and a test set. And we train a machine learning, we actually train three machine learning based models that look at these metrics and then predict the next twelve months. So at least one of our three models predicts bank failures of about 150 banks in the next twelve months. Key indicators. There's seven key ones. They include total assets. So basically, asset growth or decline allowance for loan and lease losses. Think credit reserves at the banks, the highest correlation is with equity capital, or tier one risk capital.
Amber [00:10:58]:
What falls under that basket?
Brian Pillmore [00:10:59]:
It's essentially so banks lend money to people. But where do banks get their money from? $1 out of every $10 at a bank is from the capital of the shareholders of the bank.
Amber [00:11:10]:
Is that math...are you saying, and I've heard this before, that banks loan out 90%, or that's something different?
Brian Pillmore [00:11:15]:
It is kind of correlated to that, but a little different statement. What we're saying is that if you have a bank, let's say like Wells Fargo, a $2 trillion bank, they're going to have $200 billion that's in capital. Let's say that money is shareholder money. What's the other $1.8 trillion? That's other people's money. Most of it's going to be deposits from their customers, and the other bit of it will be borrowings from the government, borrowings from other institutions, and so on. So that's what's on the liabilities side of the balance sheet for a bank is deposits and other borrowings. And then you have equity.
Brian Pillmore [00:11:54]:
That's what's owned. If you own a share in Wells Fargo, stock, that's your money. You're a shareholder of Wells Fargo. And then on the other side of the balance sheet are the assets side, which is mostly going to be loans and then investments in securities, investments in like treasuries, or corporate bonds.
Amber [00:12:11]:
Real estate?
Brian Pillmore [00:12:12]:
Real estate. Yeah, it could be. Most of the time they'll hold some CMBS, so commercial mortgage backed securities of some sort. So it's backed by real estate banks as a percentage of their total balance sheet. They may own some branches, but a lot of them are going to lease that space. Their actual real estate holdings on their own are typically not going to be a very sizable part of their total balance sheet.
Amber [00:12:37]:
Okay, I've heard insurance companies have a lot in real estate, bonds, & cash. Less in equities.
Brian Pillmore [00:12:45]:
I think that's true. Typically, insurance companies. Well, it depends on the insurance company. Right. But let's pick the big boys, the New York Life's or Northwestern Mutual's, or whatever your favorite big, top rated insurance company is. They're going to be full up on long dated, as high yielding as possible assets. And what does that mean? Well, they're going to own Class A apartment buildings, Class A office space, big retail centers that are top notch because they're looking to make investments at $100 million at a time. They want those investments to be steady as she goes, and they're not looking to take tremendous amount of risk, but they have a really long investment horizon.
Amber [00:13:28]:
Yeah, that's what we find interesting, is that traditional planning involves heavy stocks and insurance companies and some of the products they offer. I study this a lot just because long-term care, traditionally those are not becoming as popular as a whole life insurance base with some options to not only be LTC, long-term care impaired, but maybe for other uses. But yet they have such a bad rep in the industry, and we're always curious as to why do they want people to be pushed over to institutions only where I feel like the insurance company's portfolios are a little more secure than some of these banks. So I don't know if you have any data to support that but...
Brian Pillmore [00:14:04]:
Yeah, I mean, insurance company's balance sheets are typically more stable in the sense that if you think about a policyholder as a depositor for an insurance company, think about the analogy between, like, banks have depositors, and when you deposit $1,000 in your bank, are you going to leave it there for 5, 10, 20, 30 years? Probably not. Yeah, you're probably going to go to your bank and you're going to ask for that $1,000 next month, and you're going to go and buy something cool from Amazon.com.
Amber [00:14:35]:
People do that? They're not responsible?
Brian Pillmore [00:14:38]:
No, we're not a nation of savers. We are not a nation of savers. But the clients that you may work with that are interested in building long-term value and ensuring long-term risks with an insurance company. If you think of those people as depositors, they're going to send $1,000 premium to the insurance company this month and another premium next month and another next month. Maybe if they have a cash value policy, part of that's going to build cash value, part of it's going to pay risk premium. I think when you look at it that way, insurance companies balance sheets are going to be, I will just call them more stable in the long-term. They still have to have capital. They have to be well capitalized.
Brian Pillmore [00:15:24]:
They are regulated by insurance commissioners across the country, but it's a different kind of risk. Most of them, if they're well rated, they're not managing liquidity. I mean, they're managing liquidity because they have policy claims day in and day out, but they're not managing liquidity the same way a bank is today.
Amber [00:15:41]:
That was probably a wild card for me to throw at you. Like you said, you're studying data for some of the banks here, so you're not trying to fear monger. You're just saying data is data. We study the variables, the pieces of information.
Brian Pillmore [00:15:55]:
When I say 150 bank failures, I'm not saying that the FDIC is going to come into 150 banks on a Friday and close them down and open on a Monday. What I'm saying is my model predicts such an amount of stress with a given bank, with about 150 banks, that those banks are actually going to do something. What does that mean? They're going to be forced to sell their portfolio. They're going to be forced to merge with somebody that they didn't want to merge with. They're going to be forced, as we saw earlier this year, we saw some banks actually decide to just liquidate, close down. And then there are going to be the cases where the FDIC shows up on a Friday and reopens the bank under a different name on a Monday and does a receivership, and we're in a banking crisis, and people should be aware of the bank that they're doing business with.
Amber [00:16:43]:
With some of the conferences I go to, there was, I don't remember his name, but I think he's well renowned economist. They were saying that potentially interest rates could go back down when they start to fall. That's an indication that the recession would be coming because of the correction there, but it probably would go back down to 3%. So I feel like with media, there's so much noise. Are we there yet? But I think like you're saying it wasn't like this bubble that was just like, oh my gosh, there's been things happening, but they're not as like knee jerk, but there's indications of correction.
Brian Pillmore [00:17:13]:
Let's talk about the root cause of what got us to where we are today. If it makes sense.
Amber [00:17:18]:
Yeah.
Brian Pillmore [00:17:18]:
If we go back to '08, what led us there was an asset bubble that popped, right? And valuations of real estate specifically in certain markets were overblown and the bubble kind of popped and then there were people that were underwater on mortgages and there were people that took out loans that didn't have the income to back it up, and so on. Yeah, this is different. So in this case, we had the government infuse 5 to 6 trillion of money. You can just look at the M2 money supply on the FRED website. You can see the amount of money that was injected into the economy. All of that ended up on banks balance sheets. What did banks do with it? When banks have money, the first place that they look to go with it is to lend it out.
Brian Pillmore [00:17:58]:
But there wasn't a tremendous boom in economic activity where there were lots of people coming to them and saying, "Hey, give me another loan." Actually, the opposite was happening. Consumers had more money in their pocket from stimulus. Companies, were getting PPP loans and then having them forgiven. So company balance sheets delevered. There's more cash in people's pockets than ever. So banks didn't have loan demand, so instead the banks ended up buying bonds. When you buy bonds, you can buy short duration bonds, meaning that the government, or the company you're buying a bond from is going to repay you your interest and principal in a short period of time. Or you can buy long dated bonds.
Brian Pillmore [00:18:39]:
In the case of one of the banks that failed, which is indicative here, Silicon Valley Bank, in October of '22, they had an average duration, meaning this is how long their bond portfolio was of 6.6 years. So that's average duration. So if they wanted to collect half of the money that they had essentially lent out on these bonds, they would collect that half of the money in 6.6 years. That's a really long time.
Amber [00:19:05]:
Okay.
Brian Pillmore [00:19:05]:
And so their depositors came to them and said, "Hey, we want our deposits back." And so they had a traditional run. So their bank was illiquid. What does that mean? Okay, that means when someone asks for their money, you don't have enough cash to give them.
Amber [00:19:22]:
Isn't that common with banks in general?
Brian Pillmore [00:19:24]:
Banks are typically illiquid in the sense that they're taking short term deposits and making longer term loans, but typically not that far dated. They manage their liquidity day in and day out, and they typically have enough cash and short term borrowings that they can generate enough cash in a pinch to give you back your money.
Amber [00:19:43]:
So you think they just made a mistake offering a product type that just...
Brian Pillmore [00:19:47]:
For Silicon Valley Bank it's puzzling. These guys were, they were, quote unquote, the smartest guys in the room, the smartest girls in the room. It's puzzling. A bank of that size and that sophistication. They should have had a very sophisticated asset liability management. They were searching for yield, so-called searching for love in all the wrong places. They were searching for yield in all the long dated places. The only way that they could get any interest returned on their money, because they had so much excess liquidity, their treasurer and CFO decided to go very long on the bond curve.
Brian Pillmore [00:20:23]:
That was the only way that they could get any yield.
Amber [00:20:25]:
But that was lower interest rate environment, wasn't it?
Brian Pillmore [00:20:29]:
Much lower interest rate environment. And then as interest rates increase, the bond price, if you own a bond today that's priced at 3% and the prevailing interest rates go to 6%, you still hold a bond at 3%. That bond, if you wanted to sell it tomorrow, it's going to be worth less. Why? Because it's inversely related to the interest rates, right? Long way to say that, their bond portfolio was way underwater. They were illiquid. There was no way that they could cash people out. They had $46 billion requested by depositors in about an eleven, or twelve hour period.
Amber [00:21:12]:
And again, did you tell us why?
Brian Pillmore [00:21:16]:
Did the depositors want their money back? Because all their depositors were friends with one another. They all drank at the same cocktail parties.
Amber [00:21:23]:
And they...
Brian Pillmore [00:21:24]:
All those depositors were venture capital backed companies or venture capital funds at Silicon Valley Bank. And they all lived within 20 miles of each other in Silicon Valley. And so they went to the cocktail party and said, "Hey, I just got my money out of Silicon Valley Bank. How about you?" And the guy said, "What? I need to get my money out." And he said, "Yeah, you probably should." And then he made a phone call or played on his app and asked for his billion back.
Amber [00:21:52]:
I've heard that there's indicators historically that can predict certain behaviors. At this point in time, a lot of the traditional indicators are not making sense like they used to. Do you know what I'm saying?
Brian Pillmore [00:22:06]:
Yeah. I saw a website that showed a real...what did they call it? They called it the "real rate of unemployment". I had a friend that worked for the Bureau of Labor and Statistics, and 20 years ago, I would go and hang out with my friends in Washington, DC. I lived 2 hours south in Virginia.
Amber [00:22:23]:
Okay.
Brian Pillmore [00:22:23]:
I would drive up there on the weekends, and we would have a good time, and I would always give her a hard time about whatever the latest stat was. She actually worked on the producer price index.
Amber [00:22:32]:
Sure. Because you see things and it can be...
Brian Pillmore [00:22:37]:
I said, "Sarah, come on, that's not real." And so I gave her a hard time about, like, that's not what I'm seeing in the business that I work in. That's not what I'm seeing in prices in the marketplace. You're like, hey, they have, like, seasonally adjusted figures, right, for employment, unemployment, or for consumer price index, or whatever. So I saw a website where there's a group that's basically taking the same numerator. They believe the numerator, and a lot of these stats is accurate, but the denominator is being adjusted. So unemployment, for instance, here's how many people claimed unemployment, but then divided by the denominator is something like how many people are actively in the workforce, or something. Well, instead of that denominator being that, these guys took the denominator as all the 18 to 65 year-old population in the United States and made that the denominator.
Brian Pillmore [00:23:32]:
So I think there's something to be said for getting your data or doing your own homework from a trusted source. I'm not some conspiracy theorist, but it's not a conspiracy if it's true.
Amber [00:23:44]:
You're collecting. You're compiling data. It's not like...
Brian Pillmore [00:23:49]:
Yeah, if you have your own data. And today there's so much data available that it's interesting. I have a friend that's doing biotechnology projects, and the government publishes the genome of every bacteria that they have sequenced the DNA for. And so he downloads that data and works on it. There's a lot of data available, and the bar is lower than ever for people that want to do their own homework.
Amber [00:24:14]:
Yeah. And this is just a side note. I've met with some people and recorded with them, and what I'm hearing is, it's like people, they hear blockchain. And the reason I was saying that at the very beginning, blockchain people just go, "Oh, it's bad. Things are bad. ChatGPT is bad. This information is bad." It's interesting where people can just mentally shut down from it.
Amber [00:24:33]:
But if you get some data, even in business, and it was like a result you didn't love, somebody said that, what was somebody else's data? Start collecting it and don't be mad about it. But seeing how can you improve? Or, was there something missing on your website? Was there something in the process to look at some of the negatives, to figure that out just in life, and it can be useful. And that's just really, I think what.
Brian Pillmore [00:24:54]:
We're talking about, like the opposite approach, is just stick your head in the sand and "ignorance is bliss", but it's really not. And I think sometimes opportunities are hidden in the data, if you're willing to look for them.
Amber [00:25:08]:
Absolutely.
Brian Pillmore [00:25:08]:
Maybe insurance data. And you've looked at LTC policies versus cash value. What I always talk to my insurance guy about is I try to understand what the overhead and what the premium risk pricing is that's embedded in the policy. So I really nerd out on this subject.
Amber [00:25:07]:
Well, I could just imagine the guy that's working with you, he's probably like, "Oh, let me go check on that. I don't have those answers for you."
Brian Pillmore [00:25:35]:
They don't! Well, typically it's embedded in the, like, illustration. When you get the illustration, it's embedded in there.
Amber [00:25:41]:
Well, and that's what we try to look at. Okay, what is that? And then let's compare that to after your fees from an advisory account, after taxes, in what tax bracket, and what opportunities did you lose by leaving something for too long and weighing that out? And it could be a mix of things. A lot of insurance advisors have multiple policies depending upon their phase, definitely because of certain things that they're doing versus just the one. And it perplexes people that that can happen.
Brian Pillmore [00:26:11]:
Well, I'm sure your team and your customers have the advantage of having someone that's super knowledgeable on different options and finds something that fits them instead of being like a one trick pony.
Amber [00:26:23]:
Well, to your point, we have a lot of people that will say, "Okay, MoneyGuide, Pro Risk Allies, E-money," and they put the data and the variables in and a pair of planners will kick out the plan. We also consider, what are the variables we don't know about yet because the technology hasn't been developed. So we can't just go off of everything that the numbers are spitting out statistically. And so maybe you can argue that with me. But we also want to talk about what do you want and what are some of the opportunities from a personal side of things where you can have some velocity of money, too. So a mix of that and not just say, "Okay, the software said this, let's do this," our teams don't do that.
Brian Pillmore [00:26:59]:
Life isn't a straight path. I mean, I always say, I joke about human resource. Human resources would be a great department to join if we weren't for the people, right? We live real lives and life is not a straight path. And so you make different decisions or different things happen to you. And looking at a static illustration without doing scenario planning.
Amber [00:27:22]:
And that's where you look at what are your goals and what are some of the things you want to achieve, because money...
Brian Pillmore [00:27:27]:
You probably have seen some things as an insurance professional that most people don't think about happening. Right. You don't want to think about happening and you don't want to fear monger people.
Amber [00:27:37]:
But physician clients that say, "Do I have to do this now or can I just wait for a couple of months?" I say, "Oh, my gosh, anytime you leave the house, or you run errands, there could be pathology, and now you're ineligible." Yeah, it's pretty wild. But Monte Carlo analysis, stress testing that a lot of advisors use that's great. But what about the things that we can't predict? So let's build some guardrails on making sure that we're being reasonable and we have invested in ourselves being accountable to where, you know, participate in what's happening. And so let's kind of head to some key tips that you can share with everybody. If there's indications, and we've been talking about this thing that could happen for a long time, you said make sure you know who you're banking with. Are there any tips that just help people see things? Just a reasonable way I should be paying attention to this and apply it to my life.
Amber [00:28:29]:
We see the drawdowns occur all the time. What are some things people should be doing from your perspective?
Brian Pillmore [00:28:34]:
Yeah. I think the first is to understand how deposit insurance works in the industry.
Amber [00:28:39]:
Okay.
Brian Pillmore [00:28:40]:
If you happen to be one of those ultra savers and you just have $500,000 sitting in one bank account at one bank, you ought to split that into two. Right? FDIC insurance goes up to $250,00 per borrower, per bank.
Amber [00:28:55]:
Per borrower, per bank, OK.
Brian Pillmore [00:28:58]:
And you don't have to necessarily, if you just love that bank, you need to go to your bank and ask them about IntraFi. IntraFi is what used to be the old CDARS system. And so you talk to that bank and say, hey, I want to have a CD that's actually in another bank. It'll still be just at your bank, you'll still get one statement, you don't have to move the money. But what they're going to do is they're going to split your money two ways, five ways, ten ways...Different account number? It'll actually be the same account number. It happens kind of behind the scenes. It's a system that works in, they call it correspondent banking.
Brian Pillmore [00:29:36]:
So there's a bunch of banks that are on this network and they all participate out. Okay, so that's the first thing I would say, make sure that you're not exceeding the FDIC insurance limits at your bank. The second thing I would say is if you can, your average listener probably isn't going to plunk down a bunch of money and subscribe to my service, which would give them everything that they want to know about a bank. But just go to the, just go to the FFIEC website, or just type into a Google search "call report" and whatever your bank's name is, you'll go to the FFIEC website and download their call report. And it's going to seem a little bit intimidating because it's going to be like 20 pages on a PDF report. But nonetheless, I want you to go in and look at the income statement first and it'll show them the year to date income statement. Don't get intimidated. Just scroll all the way to the bottom of the income statement and look for net income.
Brian Pillmore [00:30:32]:
Make sure your bank is profitable. And if they're not profitable year to date, go back and look at last year. So first thing in banking, profitability, the second thing I want them to do is scroll down to the end of the balance sheet still in the same document and look at equity. And they're going to look at equity and they're going to take that equity and compare it to the total assets. Simple metric. Take that equity, plug it into a calculator, divide it by...and then go up a little bit to total assets. Divide it by that. And that number should be call it 8%, or above.
Amber [00:31:08]:
E over A, equity over assets.
Brian Pillmore [00:31:11]:
Yeah. And there's a little bit more math there to get into. But at the end of the day, that's a good rough estimate to look at. Is your bank well capitalized? You can get a lot more nerdy with it. And if someone is really concerned, they can always email me and say, "Is my bank going to fail" and just put the name of the bank in it. And I'll probably just reply like, yes or no, but don't hold me to it.
Amber [00:31:34]:
Right. Legal disclosure.
Brian Pillmore [00:31:36]:
Yeah.
Amber [00:31:36]:
So if you have like a Wells Fargo, US Bank, one of those, is it just look at them as a collective nation of banks, or city/state?
Brian Pillmore [00:31:44]:
I would say for the top ten banks in the country, this is kind of sad, but those banks have so much scrutiny on them. We call those the national banks. And then the next stage is the super regional banks. They have so much scrutiny on them, they're all well capitalized and highly regulated. They fall into that category of too big to fail. And so if you're doing business with them, barring some black swan event, which the government would likely bail them out of anyways, like they did with Silicon Valley, they're too big to fail.
Amber [00:32:15]:
Okay.
Brian Pillmore [00:32:15]:
And Silicon Valley grew from 50 billion in assets in 2018 to 250 billion in assets at the beginning of '23. So they grew 5X in four years.
Amber [00:32:29]:
Do you think that has something to do with where they were at, though? It was the amount of wealthy that were there.
Brian Pillmore [00:32:34]:
Yeah, they were in Silicon Valley. There was a huge venture capital boom, and there was a lot of undeployed cash at these venture capital backed companies and VC funds.
Amber [00:32:44]:
Well, I appreciate all of this. I think it's helpful. It's perfect for the beginning of the year to just take a look. Seriously, what are my goals? But yeah, we talk about risk management doesn't have to be a product, it's just getting organized and having conversations about things. "Hey, how many savings accounts we have?" None. Let's start one. "But where and mom and dad live where? How many kids do we have? Siblings?" Just have conversations about if there is an issue, a black swan, or whatever. What's the game plan? Figure out a game plan, because something is going to happen that you might not love.
Amber [00:33:18]:
So figure out a plan while you're healthy and well. "Take action today" is my mantra of just take little steps towards something. Yeah, I really appreciate the work that you do and explaining it to us, and I think you've made it very simple. More simple than...
Brian Pillmore [00:33:30]:
It's a simple thing. Pretty much everything that banks do is simple. They just use fancy terms to explain it.
Amber [00:33:36]:
Well, awesome. We're going to have to do some vocab on the screen or something to keep up with some of the things we have to look out for. But we'll link up your information and you could say right now, best ways to find you.
Brian Pillmore [00:33:47]:
Yeah, best way to find me is on LinkedIn. I write five days a week on the banking space and then our own website, visbanking.com.
Amber [00:33:54]:
Awesome. Well, thanks so much for all the information. And thank you, Amber. We'll be proactive, I promise.
Brian Pillmore [00:33:58]:
No sweat. We'll talk anytime you want. Have a good afternoon.
Amber [00:33:53]:
Thank you for joining us on today's episode of The Amber Stitt Show. For more information about the podcast, books, articles, and more, please visit me at: www.AmberStitt.com until next week, enjoy your journey at home, and at work. Thank you for listening!