- Key insight: Strict post-2008 regulations and ultra-low rates pushed lending away from traditional banks into nonbanks.
- What's at stake: Rising interest rates and shifts in policy under the Trump administration will bring deposit stability to banks.
- Expert quote: "When depositors get nervous and they decide it's time to run, and there's a liquidity crunch, that's when FDIC insurance and bank capital are critically important." —KBW's CEO Tom Michaud
When Tom Michaud first walked through the doors of Keefe, Bruyette & Woods 40 years ago, he was a credit analyst and KBW was a modest boutique firm with just 75 employees.
"We always thought we were the little firm that could," he said.
Fast-forward and Michaud has been KBW's CEO for 15 years and a witness to four decades of monumental shifts in American finance. He navigated the post-2008 regulatory fallout that drove lending to nonbanks, guided the firm through its 2013 merger with Stifel Financial, and testified before Congress in the wake of the 2023 regional banking crisis about deposit-insurance reform.
One of the lessons of the failure of Silicon Valley Bank and others, Michaud said, was "how a bank run becomes contagious almost every time."
"When depositors get nervous and they decide it's time to run, and there's a liquidity crunch, that's when FDIC insurance and bank capital are critically important."
In a wide-ranging interview, Michaud also reflects on the resilience of his firm and the financial services industry following the Sept. 11 terrorist attacks, which claimed the lives of 67 of the firm's employees.
The Q&A has been edited for length and clarity.
Q. What's your view of the economy?
Michaud: The long-term view, I think, is that the era of zero-interest rates and low interest rates is probably behind us. You had two forces: Washington being angry about the global financial crisis and hamstringing banks, and monetary policymakers delivering near-zero interest rates. And the confluence of both of those forces stood up the nonbanking sector. As interest rates go up, the focus is turning to deposits.
The magic of the banking system is driven by two things: deposit funding and payments.
If you want to receive and send money, you do it inside a bank, and you have a high degree of safety, knowing that the bank has been highly examined and supervised and has capital behind it. I believe this has been a critical part of the U.S. economic success.
If you want my perception of what's happening today in the economy, we're in a moment in time, in August of 2026, where I think the economy continues to be strong. It's robust.
That's what we hear from the banks. There's strong loan growth.
Q. Given this backdrop, do you think it's a great environment for banks, but not for nonbanks?
Michaud: There will be winners and losers in both categories. In a fair competition, I really like the banks chances. They have strong supervision and FDIC insurance for their deposits. Banks have over 100 years of history and culture, they've got record amounts of capital, multi-decade record amounts of capital.
Q. After the regional banking crisis in 2023, you testified before Congress about Silicon Valley Bank and you talked about why deposits are so important.
Michaud: What we saw in the Silicon Valley Bank failure is that with digital deposits and banking by phone, there's a bank run that can happen almost overnight. Digitally. It used to be, you could watch a line in front of the branch. Now it could happen overnight.
Deposits are the magic of the banking system for a variety of reasons. First of all, I think it's the multiplier. Most banks lever their capital 12-to-1 and when you have this capital you are able to lever the capital by gathering deposits and making loans. And more than half of the jobs in America are in small businesses.
The big banks have most of the nation's deposits, but they don't make most of the nation's small-business loans. When you look at what happened during COVID, when the U.S. government needed to get money into small businesses to help people survive the pandemic, the regional banks delivered more than 50% of the COVID assistance from the government. The smaller banks had the relationships to make this happen.
The other factor is safety and soundness. When things are great, people don't worry about safety and soundness. But when depositors get nervous and they decide it's time to run, and there's a liquidity crunch, that's when FDIC insurance and bank capital is critically important.
That's why I think it is so important to modernize deposit insurance.
Q. What do you suggest they do?
Michaud: That they raise the limits of deposit insurance for operating accounts. These are the payroll accounts of small businesses. If America ever gets to the point where it believes it needs to leave its money in the biggest banks for safety, that's going to be bad for small business. It's going to lose the local connectivity that made community and regional banks so successful for so many years. The big banks need competition. If we end up eventually with an oligopoly, it would not be good.
Q. Is deposit insurance reform going to happen?
Michaud: I'm nervous. I'm cautious about it.
Q. Do you see any other lessons from the SVB crisis?
Michaud: I think the lesson is we need deposit insurance reform. And the lesson there is that interest rate risk is one of the supreme risks inside a bank, and that's what was missed by the regulators and unfortunately by management. And also I believe one of the lessons is how a bank run becomes contagious almost every time.
It started with Silicon Valley Bank, and then it rolled to Signature Bank, and then it rolled to First Republic. And frankly, if [President Biden] hadn't declared an emergency exemption and insured all of the deposits, it would have kept going, in my opinion. The market was testing where the boundary was going to be to stop it.
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Q. On that note, do you see the market testing where the boundary is now?
Michaud: No. But there is another lesson following the failure of Silicon Valley. The lesson is that held-to-maturity accounting for bonds was not the safe harbor that everybody thought it was.
What I found most interesting, a couple of weeks ago when the Situational [Awareness] hedge fund had a margin call [and to raise cash it sold the bulk of its leveraged public stock portfolio] to investment firm Citadel. If you go back to the long-term credit crisis, the Federal Reserve had to call the banks to buy those securities. It goes to show you the rise of private credit.
I do think at the end of the day, if you really need an institution of last resort for support, it will end up being the banks. In a crisis, which I hope doesn't happen, we have a banking system that will help us with stability. And I think in the last 12 to 18 months, Europe has realized that banks have fallen too far behind the big global banks, and that's why they're now encouraging consolidation and some deregulation. Europe is now realizing that their banking system has been too constrained as well.
Q. Let me switch here and talk about something difficult, which is 9/11. Can you talk about its impact on KBW and the financial services industry more broadly?
Michaud: It may have been 25 years, but this story continues to evolve. The impact is still unfolding. The story is not over being told. It's the story of resilience, and I think it's also a story of what happened afterwards, how firms like ours and others recovered.
It's incredible when I look back, how steep the hill was that we had to climb. We wanted to rebuild the firm so we could help support the families of the victims. These were our friends and colleagues, and in a couple of cases, family members. We didn't want the firm to end that way when the terrorists flew planes into the building and ended KBW. We didn't want, frankly, the terrorists to win, and we also didn't want all of these folks' life work to end on that day.
The financial system bent but it did not break. It's another example of all the circuit breakers and support mechanisms that were in place to stabilize our economy. I think it speaks to how wise previous policymakers were to establish this. We do have the leading financial system in the world.
