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00:00HE IS A PROFESSOR OF FINANCE AT THE COLUMBIA BUSINESS SCHOOL. NO ONE I KNOW LINKS FINANCIAL DYNAMICS INTO MACRO ECONOMICS LIKE CHARLES CALOMIRIS DOES. WHERE HAVE YOU BEEN? GREECE FOR STARTERS? CHARLES: DON'T BLAME ME FOR THAT. I AM A BOOKISH GUY. I HANG OUT IN THE LIBRARY IN THE OFFICE. TOM: WHAT I AM SEEING RIGHT NOW IS A MAJOR DISEASE. I AM SEEING REALLY TOP-FLIGHT MACROECONOMISTS IGNORE THE COMMERCIAL BANKING SYSTEM WHEN THEY DO THEIR ANALYSIS OF NEGATIVE INTEREST RATES. WHAT IS GOING TO BE THE DAMAGE OF THAT APPROACH? CHARLES: WE ARE ALREADY SEEING IT. WE ARE SEEING HUGE PROBLEMS FOR BANK EQUITY, BUT THOSE PROBLEMS FOR BANK EQUITY VALUES TRANSLATE INTO LOW BANK LENDING. IT IS THAT CONNECTION THAT I HAVE BEEN EMPHASIZING TO MY FRIENDS IN CENTRAL BANKS. I HAVE A BIG SURPRISE FOR YOU. WHEN I CALLED THEM ON IT, GUESS WHAT THEY SAY -- "YOU ARE RIGHT, WE KNOW THAT." THE LOW INTEREST RATE ENVIRONMENT IS HURTING BANK LENDING, "BUT WE HAVE A BIG ADVANTAGE FROM IT. DEPRECIATING THE DOLLAR." THEY THINK OTHER CENTRAL BANKS WILL NOT COUNTER THEIR MOVES, WHICH WILL X OUT ANY DEPRECIATION OF THE DOLLAR. SINCE WHEN ARE WE INVOLVED IN ANY DEPRECIATION AS AN EXERCISE TO THE CENTRAL BANKS? I CANNOT EVEN BELIEVE THE IDIOCY OF WHAT IS HAPPENING. TOM: BRING UP THE DEUTSCHE BANK CHART. WHAT WE DO ALWAYS IN THE MEDIA IS LOOK AT THE Y AXIS. SLOPE MATTERS. YOU HAVE THE ACKERMAN BOOM IN GREEN. A SET OF LOWER HIGHS, AND THE UGLINESS OF DEUTSCHE BANK. CHARLIE, YOUR RESEARCH IS ON THE X AXIS. WHAT WE HAVE HERE IS A CHRONIC CONTINENTAL EUROPE THAT CANNOT CLEAR ITS MARKET. WHAT WILL BE THE CATALYST TO SEE U.S. BEHAVIOR IN EUROPEAN BANKING? CHARLIE: DEUTSCHE BANK IS GETTING ZINGED FROM EVERY POSSIBLE DIRECTION. THE LOW INTEREST RATE ENVIRONMENT, THE FACT THAT IT'S HOLD STRATEGY WAS , IN INVESTMENT BANKING, DESTROYED BY INFLATION AND THE AMERICAN ECONOMY, IT IS A TRIFECTA FOR THEM. WHAT IS GOING TO TURN IT AROUND? IT IS HARD TO SAY. MONETARY POLICY WILL HELP DEUTSCHE BANK LIKE EVERYONE ELSE, BUT ALSO A LITTLE BIT MORE SENSIBLE REGULATORY ENVIRONMENT. I DO NOT MEAN LOWER CAPITAL REQUIREMENTS. TOM: QUARTER AFTER QUARTER, HOW DOES JOHN CRYAN CLEAR THE X AXIS TO A BETTER BANK? CHARLIE: THE REGULATORS ARE PRESSURING BANKS TO LAY OFF ASSETS AND LINES OF BUSINESS. I DO NOT THINK THAT IS A TRIP TO FIT -- TO GREATER VALUE CREATION . I ACTUALLY BELIEVE UNIVERSAL BANKING CREATES VALUE. ULTIMATELY, THANKS OUR PARTNERS WITH THE STATE. IF THE STATE DECIDES THEY WANT TO KILL YOU, YOU ARE IN TROUBLE. IT IS SORT OF LIKE, HOW DO YOU MAKE A MARRIAGE WORK WHEN YOU ARE MARRIED TO SOMEONE WHO IS INSANE? FRANCINE: WE WOULD NOT KNOW ANYTHING ABOUT IT. TOM: HOW DO YOU SAVE A MARRIAGE OF SOMEONE IS INSANE? HE WAS LOOKING AT ME WHEN HE SAID THAT. CHARLIE: HOW CAN A BANK SUCCEED WHEN MARRIED TO THE STATE, AND THE STATE IS INSANE? FRANCINE: CHARLES, WHO IS INSANE? REGULATORS, CENTRAL BANKS? CHARLES: IT IS SORT OF ALL OF THE ABOVE. IT IS NOT SO MUCH THE PROBLEM OF STRICT PRUDENTIAL REGULATION, IT IS THE MICROMANAGEMENT OF BANKS. DEUTSCHE BANK IS UNDER CONTINUING FIRE, AS OTHER BANKS ARE, FROM BEING PROSECUTED FOR WHATEVER SINS THE REGULATORS THINK THEY MIGHT HAVE COMMITTED. IT IS A CONSTANT NO-WIN SITUATION. THE CENTRAL BANKS ARE A MAJOR DRAG ON THE BANKS.

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Calomiris: Central Banks' Negative Rates 'Idiocy'

Columbia Business School Professor Charles Calomiris examines what he terms 'idiocy' in central banks' approach to negative interest rates and how the policy impacts the banking industry. He speaks on "Bloomberg Surveillance." (Source: Bloomberg)

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