Up next remarks from bank of america Ceo Brian Moynihan on the state of the economy in the us financial system. Other topics include capitalism and crypto currency as well as banking trends among millennials and jens hes, this is hosted by the city club of cleveland. Good afternoon, we are devoted conversations of consequence that help democracy thrive. It is thursday, june 29th. Im the chief executive here, daniel moulthrop. Im here to introduce our speaker, brian moynihan, ceo of bank of america. The country and world grapple with the aftermath of the pandemic, inflation, supplychain disruptions, the Banking Industry has felt its share of volatility. In march, several small to midsize banks failed leading to a chain of events we refer to as the 2023 banking crisis. On top of this, the widespread calls for increased equity, access to economic opportunity, increasing reliance on emerging technologies, evidence the world of banking and finance is changing quite a bit. Brian moynihan became ceo of bank of america in january 2010. Feels like a century ago, honestly. That was a long time ago. Bank of america is the secondlargest bank in the us. You wonder what is the first, its jpmorgan chase. You lead a team of approximately 215,000 employees dedicated to making Financial Lives better for people, companies of all sizes, Institutional Investors across the us and around the world. We are grateful to have him here today to get his perspective on the economy, industry and global trends. If you are part of our live stream audience during the second half of the program you can get a question and by texting it to 330540 onefifty 794, you can tweak your question at the city club and we will work it into the program. Please join me in welcoming brian moynihan. [applause] a pleasure to be here in cleveland. It is great to be here, good to see the city. Welcome back to ohio. Brian was born in marietta. Lets start by talking about where the economy is right now. As you see it with a lot more data than the rest of us see it. Bank of America Research team run by Candace Brown is the best in the world and they continue to look at the situation and pretty consistent for year and a half that there will be a mild recession. The question is when will that occur . They have continually pushed that out a little bit. Most recently they moved two quarters of recession, the first 2 quarters to next year from the third, fourth, first 3 quarters. It is a mild recession. Happens a few quarters out. That has been the thing, keep a peek keep predicting if you quarters out and it keeps pushing out. That comes down to we could talk about what you see in the data, what consumers are doing, employment levels are strong. Any possibly there wont be a recession if we keep pushing it out . Interesting question, people ask what will feel like. Inflation already makes consumers feel different, higher Interest Rates make consumers feel different. The belief is two things had to happen to get inflation under control, you had to raise Interest Rates, you had to pool some money out of the system and both are being accomplished and they are having the impact people want, housing slows down, car purchases slowdown, everything moves quickly and takes time to get through but the interesting thing is consumers are still spending. If you look at our consumers, you spent 4. 5 trillion a year on debit cards, writing checks, cash on the atm etc. That goes out at the end of the un you look from 20 one to 22 a group of 9. 5 . If you look at it yeartodate is 5 and if you look at it in the month of june so far it is 4 , and that is more consistent with where it was in 1819 with more Interest Rates and slowing down the economy, taking a monetary combination out so the consumer change in activity is an indicator that the effect of the rate of different factors. Thats a hard thing, American Consumer likes to spend money, travel, do a lot of good things. Employees at level 3 unemployment, hard to slow them down, that means inflation should get under control. There was a lot of excess liquidity for consumers during post pandemic. If you listen to experts, the 30 drop in the economy in covid for the quarter and the next quarter was down double digits and basically came back and almost recovered. It was very needed to put a lot of work fast because you didnt know what the next quarter would look like. It is hard to remember all the things that came into the economy. Host is emotionally triggering. Guest then you got away the way through 20 and the economy is opening up, still high unemployment, things that were very serious and an uncertain pathway to what would happen next. If you look back, we knew that. We knew none of that. Masks were to thing. The first 3 or 4 weeks. Everything was moved by hands. We didnt know, what we think we know now we didnt know. What happened as they kept throwing things at it. What next . In early 20 one, two big stimulus and if you look backwards, all that stimulus far exceeds the whole. The economic whole is a pothole. We didnt just fill the pothole. We went host it looks like and overcorrection. s guest it is hard to criticize because we didnt know but that drove inflation but feds on the other side say even our consumer accounts when you look today for customers at the beginning of 20 that had 5000 in account, average 3500 at that time, 13,000. So they spend it down and it moved down a little last year and backup so that an indicator that what is happening will take longer to get through the system so the slowing down, the spending now, student loan payments, a lot of things drag the core Interest Rate environment and secondly the fed taking money out of the Banking System by raising rates to the point the direct ownership thats why it is coming back down. Host it sounds like a pretty resilient economy managed by fairly capable people. It is extremely resilient economy because of what america is. Its entrepreneurship, capitalism, profitmaking and all of that creates a lot of activity that is sizable, we are 3. 7 unemployment or whatever. Thats all time low levels. We rarely spend below this level. Its not resilience. Its because this country attracts capital and activity. Host the crisis earlier this year. How did that look from your point of view, from your vantage. As ceo of an euros Financial Institution . Guest when the rate structure went up so fast and they couldnt sustain, thats not unusual because those of you who are as old as i am go back and remember voter crisis, the dot. Com crisis, the fallen angels crisis, marge, needs failed in 2000, there are always things that happen, the rate rise went to levels that were very different than people experienced. 2008 to 201718, the rate structure was 0. They thought they had overshot or bouncing back so the idea of 5 fed funds rate caught people with Business Models that were consistent, that is what people saw. You werent sure how far this would go but once you got by the first few weeks, a group stepped in to help, things took place, sales took place, people took a look at it. We still have the question what the economy looks like, will there be a deep recession or shallow recession. Host three quarters ahead. Guest by tomorrow the question will come up. We just got the stress test results for the industry yesterday but if you look at it, what it says, 900 billion of capital, the loss was 130 billion, if you look across 30 banks, that is against multiple capital. Its a pretty impressive thing. That scenario is basic unemployment up to 10,000 overnight. Home prices down 20 , 30 or Something Like that. These factors, bond prices dropping by 300 basis points. And yet the ability of the industry to withstand that is demonstrated by this testing but the real ability was demonstrated by the fact that we are where we are when we had the massive movement, huge monetary buildup and huge monetary take outcome Interest Rates rising fast. The intended outcome, to shrink the size of the Banking Industry so it cant lend as much. That took place, the theoretical test. Thats a pretty good outcome. Guest the theoretical test these models, nothing compared to what we have all been through. Host the model will show you the framers and outcomes. Guest to the crisis earlier this year you mentioned the best Research Team on the planet that is predicting this two quarter recession next year. Did they predict failures of some of these other Smaller Banks . I dont think anybody, nobody really, when things change, look under the mattress, you try to figure out what this change will cost to the system. Our chief risk officer, that happens, wheres the collateral damage. I didnt see a lot of people have that. Thats because the rate of change because the uniqueness of the system. That is why it hasnt gone elsewhere and we will see it play out but right now, people forget that if you go back from the 80s to now, there have been 2000 bank failures. They are businesses which sometimes it works and sometimes it doesnt work. Large ones have failed. The bank of new england in 1991, different republic in texas, the time frames, you go through, there have been large like you are naming the players from the 1948 indians. Host i was a reds fan growing up. I was very fortunate, the glory years. I was a cleveland fan at the time. Host for the benefit of our radio audience, we are talking with reds fan brian moynihan. He also happens to be the ceo of bank of america. In the wake coming up here, the Little League days. I remember coming up three hours, four hours up here, to watch a doubleheader and drive back. It was always april and may, it was always cold but it was always a lot of fun, baseball was a good day. Host the same field where larry doby played. Guest i think he hit two homeruns. I think he did. Host i want to ask about housing, the Banking Industrys role in supporting the Housing Market both around Housing Production which is a challenge right now, housing affordability, mortgage lending and in particular in a market like cleveland where i want to point out a couple things, bank of america opened the two branches in Greater Cleveland that are low to moderate income neighborhoods, really meaningful. I should point out bank of americas city Club Programming closed out, but what do you think the bank can do to provide more access to that kind of homeownership opportunities with low to moderate income families that are looking for the 50,000 house or the 100,000 house . Guest a couple things. One thing we come to a market like cleveland and have 12 Financial Centers going to 15. That is representative of different businesses coming, bringing everything, all the businesses to cleveland because before, we had commercial banking, Private Banking and that was like a lot of space but by complete historical accident we had a company somewhere along the road, a thousand banks got consolidated, we didnt purchase companies that had things in the buckets. Just by pure accident, there was no reason, get done with all that and it is time to do that but when we do that what we want to see is what we have in places Like Washington dc, charlotte or la or boston or where, you build up with a balance towards all the customers you serve and that means 4000 branches we have, 30 , in cleveland the same percentage just because that is how you do that. I was at the branching carnegie and 79 food, i went into the community him it was important to the city and those are good things. So talk about it. If you look across all the cities, im on the ceo groups of different cities, talk to people, housing stock, availability, affordability, whatever the particular issue is a different issue. That issue is typically development on the one hand and 30,000 units short, just dont have the units. Other places the units you have arent to the purpose and then not in the right location so theres always work so how do we play that . Three big things. One is the regular business which we do all types of things. Agents qualified, general mortgage and everything so you are doing that and that is standard credit, 20 down payment and what goes for the programs. Then you have in a specialized program, what weve learned over the years, specialized programs especially for homebuyers is we need to work with agencies in local communities to identify and counsel the buyers because buying a home is a big step in the worst thing about buying a home is not having a workout line and that is where we work, thats a 15 billion commitment we use the we will do again and do several things like that every year with a bunch of different agencies and those programs will be available in this market and be available. The third element is development, 5 million of housing develop and work a year, Loan Monitoring development all sort of in that vein. Stuff done in the regular commercial real estate business and that business goes on and has a role and we have lack of equity, Developers Take more risk really in parts of the city so we put up equity fund to get equity to develop faster and those are good programs our team can figure out how to do so it takes all of that type of stuff. Youve got to do it well and to take specialized programs and developing of unit stuff and takes putting developers in times the otherwise might not be able to do it. I want to go to a bigger question. In your annual report, headline says we are capitalists at bank of america which seems selfevident to me but not everybody. Why did you have to call that out in the annual report in that way . I get asked the question a lot at congressional testimony, by both sides of the aisle, are you capitalist which is a funny question if you are running a bank. Our sole purpose in life is to help everybody participate in capitalism, individuals, companies. Hourly workers, small companies, big companies, Capital Market participants. Why are they asking the question . The debate is about how you do capitalism, stakeholder capitalism and all these things. The reality is capitalism is the only system that is going to solve the problems we are trying to solve. Thats the thing everyone is trying to work on. If you are going to have an energy transition, governments dont have the money, you cant regulate it because its very hard, it is across every place in the world. Where are you going to get the money to do it . Do have the Oil Companies do it . No Energy Companies do it . By showing those, having equity come in . The lending . So talk about more funding, people say you are not a capitalist, youre doing that to be green, im doing it because one hundred 50 million last year, 150 billion last year. If you look and we disclose the tax benefits from that are worth 3 quarters of 1 billion, pretty interesting. Host congress is enacting tax benefits to do these deals and you dont do the deals you are leaving money on the table. Are bad capitalist. Guest thats the debate. I think week on the i am getting old, but we as people have been around a while, have to show what is behind us, but Major Companies who are Strong Companies who can do great things can do it in a way society benefits and it is the same purpose. Jim collins, a great business writer, all the books he did in 1986, talked about that purpose. If you go back and talk about stakeholder capitalism, people say how can you what do you think of this . Its a pretty good thing to do great things for the climate. Do great things for our teammates mode do great things for our shareholders, oh yeah. Great things for our communities, that is stakeholder capitalism. How can you say that the bad . Host Milton Friedman said it was bad. Guest he says more than that. You have to deliver profits and purpose, not profits for purpose. So the manifesto, which everybody, that was really, he and milton have an intellectual debate what to say but coming forward a bunch of years, Major Companies trying to run their business in a way that they are doing what is right which is showing how capitalism will solve the problem by driving them. Think about 190 countries signed on to Sustainable Development. Not many countries in the world past that. A total split they want from the system. The point is if you look at that, 6 trillion a year, theres a lot. Charity is wonderful. 500 million in charity, in the city, that had been around for years. It is 1 trillion, cant to do it and good things, account and stuff. Governments are on the floor but 1 trillion structural deficit. When you think about it. Where does it come from . All these Business People are employing good people, investing money, doing it in a way that the livers the profits of a need plus pays attention to what else they do. That is our purpose in doing right by clients. Thats hard to argue about. That is how we run our company and have responsible growth, four companies in the us and 108 billion, theres only four out of all the companies to give you a sense. You can do it and those other companies do the same thing. The idea of doing both, when you do that, 6 trillion can be found. If you do that, the Oil Companies use their expertise to figure out how to change the way to put gas in place of call by thinking through trans formation. That is important. You got to work with these companies. That is the debate. You help Companies Make the transition for that element or how do we help do great things for employees. 26,000 a year. It is an economic teammate who works for 50 years in our company. Host got to hire 200,000 people, a person