Preparing for Black Swan

The effects of the coronavirus are being felt globally, and the potential for long-term economic stress has everyone bracing for uncertainty. The guests joining this week’s show are on the frontlines of the COVID-19 pandemic. Brett King hosts Yobi Benjamin and John Nosta to weigh in on the facts and science surrounding COVID-19. In segment 2, Chris Nichols and Jill Castilla join Jason Henrichs to discuss the financial hardships customers and businesses are facing and the steps financial institutions are taking to ease burdens during these difficult times.

 Brett King: Host

Welcome to Breaking Banks. I am on
with two good pals and two very interesting people that can give us a unique
perspective today on the coronavirus and where this is likely to go, what's
going to happen over the coming weeks, and how long is it going to take before
you get back to some sense of normalicy and maybe a new normal. So joining us
is a renowned health tech expert Jon Noster who's been on the show multiple
times. Jon, welcome back.
Jon Noster: Health Tech Expert:
Always a pleasure, Brett. I wish
we could be on on better terms, but I think this is an important discussion
we're having today.
Brett King

Absolutely. And joining us also is
Yerbi Benjamin. Yerbi has also been on the show a couple of times. Previously
the global CTO for Citibank, he is now partner at PA Consulting and he's
involved with the World Economic Forum and involved in the biotech field and
right now with a company involved in some of the testing around coronavirus. So
Yerbi, welcome back to Breaking Banks.
Yerbi Benjamin: Former Global CTO for Citibank:
Hey. Thank you so much for
inviting me in this very critical time. And Jon, how are you today also?
Jon Noster:
Good. Good. We're all home. We're
experiencing our first day of e-learning with the kids, so we're hunkered down
and we're having school in the house today. So it's interesting.
Brett King:
Yeah. This concept of social
distancing that's come out, you don't have to actually distance yourself with
the technologies we have today, but it does require a rethink. I think one of
the traps is thinking, "Oh great, I get some time off work," when
actually I think what's important is we stay productive, our kids keep
learning, and so forth.
Brett King:
But obviously, things have
escalated a lot in the United States over the weekend. We see Italy still
struggling. The UK is probably about to go where the United States is right
now. You see other economies around the world that some are handling it very
well, some are handling it poorly.
Brett King:
But let's start, Yerbi, with some
of the diagnostic side of things in terms of this. One of the key elements
behind the South Korea's success at handling this, flattening the curve as the
expression has come out now, has been their testing regime. Could you just
explain for people what happens? How do you get from someone who's got the
symptoms to executing a test and then getting the results of that? Because
you've been directly involved in a new startup that has been creating tests for
the coronavirus, right?
Yerbi Benjamin:
Yes, correct. And just as an
anecdote, the tests that we have, we were first responders to Wuhan, China.
When the crisis happened in Wuhan, China, we sent, in fact, I had donated
probably two million tests over to Wuhan, China. And they continued to use
those test kits in China and, likewise, also to Korea.
Yerbi Benjamin:
I think one of the things that we
learned from both China and Korea, in order to flatten the curve as they say,
and now a new term, right, is the need and the absolute need to test everybody.
In a situation where a virus is extremely infectious, and I emphasize that both
of you, Jon and Brett, very infectious, leaving one person untested and having
that possibility of that person get infected actually is not a good thing. Just
leaving a few people untested and the rest of them tested is not good.
Yerbi Benjamin:
And the reason is that the virus,
again, is highly infectious. In Korea, for a very long period of time, there
was only like 20, 25 cases. And then one super spreader, a church member from
the city of Daegu, not just a church, but a cult member of a church decided
that, because they believe in the apocalypse, decided to actually spread the
virus, went over and infected and 16 people, and that 16 people is now
[crosstalk 00:04:13].
Brett King:
It went exponential. Yeah.
Yerbi Benjamin:
It is now 7,000 or some 9,000
right now in South Korea.
Yerbi Benjamin:
And so testing is really important
because you leave one in the herd, as they say, who is not tested, because
there is no herd immunity, it could infect the entire herd. Further, testing
helps you, the population, to identify the sick and the well. And that way, the
sick can self-isolate, and then those who are well can have semi-normal lives.
And what I mean semi-normal, they can be the ones to go out to get your
groceries, the ones to get necessities in life while the others are quarantined
or self-quarantined.
Brett King:
Yeah. Now, Jon [crosstalk
Jon Noster:
And let me chime in.
Brett King:
Jon Noster:
Because I think that that's a
very, very interesting perspective, is that it's not a generic initiative that,
number one, we talk about social distancing or social isolation. Sometimes, I
think people should talk about we're not isolating the individual, we're
isolating the virus, if you will. Maybe that's a more palatable construct. But
testing is the tool that we can modulate isolation as appropriate. So if you're
in the Midwest, if you're in Texas, if you're in an isolated area, the
opportunity to have a more normal life, still on guard, you're not putting your
guard down, may make this a little bit more manageable.
Brett King:
I think part of it is also the
fact that, if you get adequate testing done, you have actually a much better
idea of mortality rates and how many people are going to require urgent medical
care, respirator demand, things like that, because right now the problem in the
United States is we did 77 tests last week, right? Now, it's ramping up
considerably this week. But how do you assess the likelihood of spread if you
can't get a great enough sample size to know how this is going?
Brett King:
So Yerbi-
Jon Noster:
Brett King,
I'm sorry, Jon. You go ahead.
Jon Noster:
No. Right now, you have to make
assumptions, and you have to make assumptions almost that there's a presumptive
positive until we get testing. And for me, this whole flat the curve is very,
very interesting. But every single visual that I've seen for flatten the curve
has been a cartoon. And it's nice that the art director decides to say that the
healthcare capacity is about halfway up that peak curve without protective
measures. But for me, I'm very, very interested in how we balance healthcare
capacity in light of what we see is a tremendous threat as more and more people
get infected. So that's what I've been working on.
That being said, guys, to me, I
take some optimism in the fact that Korea maxed out, or at least what are they,
at 8,000, 8,500 cases now? Look at Singapore. South Korea is not as draconian
as Wuhan.
Brett King:
There are economies that have done
pretty well. Hong Kong, Taiwan, Singapore have all done pretty well, but they
have the experience of dealing with SARS, right?
Jon Noster:
And they also have a fairly
monolithic culture.
Yerbi Benjamin:
That's important.
Jon Noster:
And I think that when you look at
... Right? You look at America as the rebellious, independent, do it my way
kind of thing, which is a defining feature of perhaps entrepreneurial success.
Brett King:
But it's failing us this time.
Jon Noster:
But in this instance, it's deadly.
Brett King:
Yerbi Benjamin:
That is a very good observation. I
was in Korea actually during the outbreak, and believe it or not, I was also in
Taiwan and I was also in Singapore during outbreak. And I can tell you, when
you observe the citizens of these three countries I had mentioned and I was
physically there, I would say this. They are far more disciplined than America.
Far more disciplined. Everybody in the entire country was wearing a mask.
Everyone, no exception, number one.
Number two, the government was
actively disinfecting every single surface. The reason, by the way, of this
disinfecting every single surface is that the virus is so virulent that it can
stay on surfaces outside the human body, on a table, on a plate, or a bus, a
subway, taxi for up ... Well, there are two researches. One research put out by
the CDC said it could stay on the surface, a plastic surface, up to nine days.
NIH research led by NIH, UCLA, and Princeton University, it can stay on plastic
up to three days.
It doesn't even matter which is
correct. What matters is this virus can live for quite a long time outside the
human body on an external surface.
Jon Noster:
Yerbi Benjamin:
And that's a defining feature of
this virus that makes it extremely dangerous. And what requires humans to go
and change their entire way of movement and how they touch things, door knobs,
gas station pumps, [crosstalk 00:09:31].
Brett King:
Shaking hands.
Jon Noster:
Et cetera, et cetera.
Brett King:
Yeah, exactly. Jon?
Jon Noster:
I wonder if wearing a mask is a
badge of solidarity and less a highly effective immunological epidemiological
Yerbi Benjamin:
I think they're both. [crosstalk
00:09:47]. They're both.
Jon Noster:
Yerbi Benjamin:
I think they're both, because if
you are sick, the purpose of a mask is not to prevent people from infecting
you. The purpose of a mask is prevent you from infecting others.
Brett King:
Right. But if you wait until you
know you're sick, it's already too late because of the incubation period and
the way this virus works. But of course, we've run out of masks in most of
these countries, as we have toilet paper in New York City. So I don't quite get
But this nature of us to be able
to absorb this at a community level, this really does speak to it is a little
bit of the psychology of the nation, but part of it is also the trust in the
government, trust in science. And we've seen this being eroded as part of a
political strategy. Brexit did the same. The whole populace movement was
generally a don't trust government. And at the same time, we've had the
conservative arms, particularly in Britain and the United States, Australia,
some countries like this that have been reluctant to embrace the whole climate
science thing.
So you've got these two things
attacking this culture of you should trust the scientists, what they're saying,
and trust government to do the right thing here. And that seems to have slowed
down deployment in places like the United States, where even Donald Trump
initially was calling this a hoax by the Democrats in the early stages.
But of course, the reality of this now is it's sinking in and people are having to act. So Yerbi, what would you
say from a strategic perspective if you were advising the current administration?
And I know you've been working with California state, New York City, and so
forth. Does it come back to these basics, isolating people, getting people
masks, cleaning surfaces, and of course, most importantly, doing as much
testing as possible?
Yerbi Benjamin:
Well, this is the real world. And
believe you me, I'm not a fan of politics. Therefore, I rarely publicly speak
of my political positions because it tends to alienate half of my friends and I
like to keep my friends.
But I'm just going to have to say
the truth over here. There are politicians who do press conferences every day,
showing cars lined up where people are getting tested, executives behind them,
blah, blah, blah, blah, blah. You know what? That doesn't solve the problem.
I've heard, for example, that we are going to remove all regulations related to
this so that we can move technology and solutions out.
And yet when you go down one
level, the people who actually had to execute-
Brett King:
Yerbi Benjamin:
... in order to help, they're all
terrified of doing so.
Brett King:
Yeah. We've seen that in the
banking industry as well as you've started to see changes take place. You have
someone come out and say, "Yeah, we're going to embrace FinTech." And
when it comes to a simple thing like removing a requirement for a physical
signature, you can put a law in place, you can have the head of a department
come out and say, "We're good to go. You don't need a signature anymore,"
and then you've got the examiners and the guys at the grassroots level still
going to banks, "No, you need a signature."
Jon Noster:
Yeah. I think we have to point the
finger at both sides of the political arena in many instances because the year
of terms [crosstalk 00:13:35].
Brett King:
It's a systemic failure for sure,
Jon Noster:
It is. It's systemic. And to claim
that whatever leadership or candidate is incompetent is not really, from my
perspective, building what are the two fundamental words here.
Brett King:
It's not healthy.
Jon Noster:
And that is it's unity and trust,
that unity is the prevailing dynamic and trust is what is going to be so
difficult, because add another layer to that, and we talked about it
extensively with regard to testing, and that's surveillance. Surveillance is
the tack, is the strategy, right? And that could be taking people's
temperatures. It could be testing. There's a lot of things.
Jon Noster:
But in our world of [inaudible
00:14:18], society, a Big Brother society has a lot of intrinsic problems. So
that's the other side of this.
Brett King:
Yerbi Benjamin:
Well [crosstalk 00:14:25].
Jon Noster:
I think it's problematic for some
Yerbi Benjamin:
Hey, Jon. Allow me to cite a very,
very specific example, okay?
Jon Noster:
Mm-hmm (affirmative).
Yerbi Benjamin:
Because the real world examples
are, so I am trying to work with a group in New York and a group in California
to implement pop-up labs, pop-up laboratories in the street.
Jon Noster:
Yes. Great.
Yerbi Benjamin:
Okay? In the streets.
Jon Noster:
The drive-through. Yeah.
Yerbi Benjamin:
So we can test as many people as
we can. In order to do that, I have to get an exemption from the FDA. It's
called a CLIA waiver. CLIA, without going through great explanation, is how you
license laboratories. But we're not trying to license an entire laboratory.
We're seeking a very discreet exemption, and that discreet exemption is to
exempt us from having to require a doctor, a nurse, a pathologist [crosstalk
Brett King:
In the collection of the tests.
In the collection-
Jon Noster:
Yerbi Benjamin:
In the collection and testing for
corona. I need a CLIA waiver. If I had a CLIA waiver, I can put today, today,
thousands upon thousands of pop-up laboratories all over the country.
Yerbi Benjamin:
And then the other thing that's
difficult is that this country actually has massive testing capabilities. The
federal government has provided thousands of universities here with what you
call PCR machines, real time PCR machines. These machines are idle. They are
idle because they are not being used, and the reason why they're not being used
is because they have to be operated within a CLIA environment. If we can marshal
our forces and consolidate all these unused testing capacity in the entire
United States, it is my real belief that we can execute on this testing
everybody [inaudible 00:16:30].
Brett King:
That's crazy.
Jon Noster:
Where does that impediment lie
right now?
Yerbi Benjamin:
The Food and Drug Administration.
The Food and Drug Administration can wave a magic wand and say, "We are
going to lift the CLIA requirement, specific only to the testing of the
coronavirus." And you know what? We could quadruple, quintuple, I don't
even know, all our capabilities.
Yerbi Benjamin:
Also, there's a scientific issue
here, and I just want to give you guys ... I apologize. I'm taking a little bit
of time.
Jon Noster:
No, no. It's fine.
Brett King:
This is what it's for.
Yerbi Benjamin:
So in the testing regimen, without
going through all the science, these PCR machines have what's called a plate.
To describe to you what a plate is on radio, it's like an egg shell, right?
That has 96 wells. And in those 96 wells, you put your samples in in order to
go and test and do the actual PCR test.
Yerbi Benjamin:
Well, the CDC in their infinite
wisdom decided that they're going to tell labs, "You need to use a four
well system." In other words, you need to use four wells in order to
diagnose a single individual. That is categorically not needed, not required.
But what is the net effect? Almost every large scale PCR machine has 96 wells
on each plate. Effectively, that says you can only process 24 individuals
rather than 96. Our protocol, we decided we're going to use a single well
system so we can process 96 individuals simultaneously so that essentially our
system quadruples the capacity of testing.
Brett King:
And how long does it take to get a
positive or negative result, Yerbi?
You're talking about an hour and a
Brett King,
Yerbi Benjamin:
It's not that long. But if in an
hour and a half you can only process 24 instead of 96, there goes your
Brett King:
Yeah. Yeah. Now Jon, coming back
to the cultural elements, how do we get the US to mitigate risk at this point
using the tools we have, given the cultural nuances here compared with, say,
South Korea, Taiwan, and Singapore?
Jon Noster:
Well, you're my financial guru,
Brett, so I go to you. And it comes down to this notion [crosstalk 00:19:05].
Brett King:
And you're my health guru, which
is why you're on the show, right?
Jon Noster:
So what's it all come down to?
Death and taxes, right? I'm sure you've used that expression in many instances,
right? Death and taxes, or the correlate to that is fear and greed. And to me,
we are seeing the first time a convergence of true risk of death.
Brett King:
Jon Noster:
That you could look at a one percent
mortality. We're looking at projections of 300,000 [crosstalk 00:19:29].
Brett King:
Not a manufactured fear. Real
[crosstalk 00:19:32].
Jon Noster:
No. Real.
Brett King:
... real numbers.
Jon Noster:
A quantifiable fear.
Brett King:
Jon Noster:
And then add to that, look what's
going on on the revenue side with the Fed, with stimulus, and interest rates.
So for me [crosstalk 00:19:45].
Brett King:
But the markets hate uncertainty.
So right now, we're seeing the markets being devastated by this uncertainty.
Once we know where this is going, and that's a matter of statistics and time,
and once we have a new normal, I do expect the markets to slowly return to some
sense of normalcy. But that could take many months. But sorry. Go ahead.
Jon Noster:
First of all, it's canceled versus
deferred. For many people who have canceled a vacation, we'll still take that
vacation, for orders that are put on hold. So for me, it's a little bit than
just a monolithic perspective on that. That's why I tend to be a little bit
more optimistic, and probably similar on your perspective.
Jon Noster:
But for me, one of the things I
want to talk about is the flip side to testing. And most of the information
that I see now is about test, test, test, and certainly the epidemiological
information is critical to evaluating local hotspots and driving social
isolation and distancing. But I think we've got to look at opportunities for
therapy now, and we're seeing a lot of very interesting opportunities from
immuno oncology type therapies, such as NK or natural killer cells, that are
interesting existing immunotherapies now that might show some [crosstalk
Brett King:
Like mass doses of vitamin C and
vitamin D, for example?
Jon Noster:
Those, the vitamin Cs and stuff
like that, I'm not ... I'm talking about real FDA approved therapies, ranging
from things like Gleevec, believe it or not. The vaccine, first vaccine, went
into testing today. So I think it's important that we recognize that
therapeutic intervention. And it doesn't have to be a new drug. It could be
quantifying how we manage [crosstalk 00:21:31].
Yerbi Benjamin:
Which drug works. Yeah.
Jon Noster:
Yeah. Look, what we see now is
something called a cytokine storm. Cytokines are inflammatory markers. And that
seems to be driving a lot of the bad outcomes, that people have this sort of
inflammatory reaction that are, of course, principally in the lungs and
sometimes in the heart. And that's really hard to manage even if you have the
tools, even if you have a ventilator. So I think it's important that we
recognize that therapeutic initiatives have to be part of this dynamic. It's
all test, test, test. And I even noticed a few people on Twitter get a little
angry that it's spending all our resources on testing without looking at
therapeutics. Obviously, the landing the runway for therapeutics is a little
bit longer.
Brett King:
Let's now put the future hat on
here and let's look at six to eight weeks. Now, Jon, I know you've been doing a
lot of math on this, but where do you guys think we'll be, first of all on a
US-centric basis, but on a global basis in terms of the fear factor and that
general feeling like we're bringing things under control in a couple of months?
Where do you think we'll be at? Yerbi, do you want to kick off?
Yerbi Benjamin:
Oh my God. In the next couple of
months? Oh my God. Statistics and the data that I have from CDC China and KCDC,
Korea CDC, basically tells me that the nature of our society, the nature of how
people work and operate here, I am terrified and severely unhappy to tell your
audience that we may be the first country to hit the multi hundred-thousand
deaths type scenario. The discipline in this country is breaking down as a
people and we need to stand together and we need to go take care of each other.
We really do. And-
Brett King:
And this view, I've had this
conversation numerous times on social media, that the US Constitution
guarantees the right of an individual, not the society at large. And I think
that, at the heart of the US, one of the things that's most interesting is this
view of personal rights, like the Second Amendment as an example.
Brett King:
But in this case, we have to be
species first. We have to be crowd focused. We have to be focused on each
other. Very high social requirement to come together to be effective at this.
And Yerbi, you're drawing attention to the fact that culturally that's really,
really difficult in the United States.
Yerbi Benjamin:
Yeah, it's very difficult. We have
people here who are part of, let's say, a movement that says, "Government,
keep out of my life."
Brett King:
Only organizations capable of
doing this at scale is government. You just can't be left to private industry
obviously. It involves laws and all sorts of ...
Yerbi Benjamin:
I plead to our national leaders to
go, and I don't know if this will ever get to anything, but I will make a
specific plea here. President Trump, we hope you're having a good day. We are
asking you to direct the Food and Drug Administration to lift what is called
the CLIA rules for laboratories. The CLIA rules and requirements have to be
waived for laboratories, and only specifically to the coronavirus. If you could
lift that, Mr. President, we would have the opportunity to free up thousands of
labs that are not authorized to do this.
Yerbi Benjamin:
My company is making free to use
our protocols and we are willing to train thousands of lab people by doing it
through YouTube and Vimeo and to teach them how to use these protocols
properly. It's also an opportunity to give jobs to people, hundreds and
thousands of whom do not have jobs today because of the crisis.
Brett King:
Yeah. That's pretty interesting.
Jon, you want to wrap this up?
Jon Noster:
Yeah. I think that if we look at
100,000 deaths, in my modeling, and I've been doing a lot of wacky modeling
here, I go higher than that. But again, I tend to remain optimistic based upon
what I think are emerging trends that are powerful.
Jon Noster:
So if we look at 100,000 deaths at
this primary peak, the virus will resurface, it'll come back, we'll be able to
manage it a little bit. But I'm looking at this outbreak. So 100,000 is, oh, I
don't know, you want to put it in scale to flu, to seasonal flu at 15,000,
20,000, maybe upwards of 30,000. So that's a factor of three to five. It's
Brett King,
Right. But it is happening a
little bit more rapidly than we're used to with the flu [crosstalk 00:26:49].
Jon Noster:
It is. It is. And to me, that's
healthcare capacity. But I got to look at it in terms of a pragmatist, as a
survivalist, that those are horrible losses, but they're sustainable both from
clinical, social, and economic perspective. If you just look at it in the
context of flu, right? That is a [crosstalk 00:27:06].
Brett King:
This is the new normal that I was
talking about. We may get to a point where we just say, "Listen, we're not
meaningfully going to change that number, the percentage term, but we can
Institute some new cultures, some new behaviors that reduce the likelihood of
spread." but when it comes to this at a societal level, can we absorb this
level of mortality rate from this virus? And I think we will have to soldier
Jon Noster:
And you know what? I think that is
soldier on. You're right. But also as a tech guy, I think we're seeing the
emergence or the coming of age of things like telemedicine as functional
modalities that can change the face of healthcare. And that's important because
we could shift the cost structure of a broken system now. So for me, maybe it's
a silver lining in a very, very, very, very pessimistic kind of world view. But
I think we're seeing fundamental changes.
Brett King:
Healthcare reform has to come out
of this. It has to. I can't see [crosstalk 00:28:10].
Jon Noster:
... the inflection.
Brett King:
Yeah, absolutely.
Jon Noster:
Human inflection point. But that
being said, I still look at Korea, I look at Singapore. This is something that
can be done.
Brett King:
Jon Noster:
And you can't look at the United
States as monolithic, and it's a big mistake that United States might be like
the EU or might be like the East a little bit in the sense that we have regions
and we have hot spots and we may be able to isolate them. And draconian
measures are not out of the question. I think we may go there and do real
hardcore lockdowns and mobilize the military if that's what we have to do.
Brett King:
Well, I think on that basis, guys,
thank you very much for joining us on the show today. I think we all agree that
things will get tougher in the US for a period of time, but at some point we
will get through this and we will-
Jon Noster:
I agree. I agree.
Brett King:
... come to accept some level of
permanent change to the way we think about society, the way it works, how
healthcare should be embedded in society, and how we look after ourselves
collectively as a species rather than as individuals or even as nations. Would
you agree that this information sharing, while globalism gets a bad name, the
technology that enables us to cooperate across borders becomes even more
critical for something like this event, yeah?
Yerbi Benjamin:
Yeah. In my goodbye, can I make
one more plea?
Brett King:
Yerbi Benjamin:
Please, Mr. President, we
[crosstalk 00:29:34].
Brett King:
I'm flattered that you think Trump
listens to my radio show, but go ahead.
Yerbi Benjamin:
He may. You never know who
listens, right? You never know. But I think I would like to go and request the
President of the United States again to please give us a CLIA waiver, and
number two, please make sure, Mr. President, that you direct your Medicare
director to increase the payments for testing. Right now, they set it at $36.
The raw cost of this test is closer to $80 when you combine the kit and the
actual testing.
Brett King:
Yerbi Benjamin:
The labs that are commercial labs
today will go bankrupt, and in fact I predict they will walk away from the
table unless we fix the Medicare reimbursement rates. Thank you very much,
Brett. Thank you, Jon.
Brett King:
Yep. Thank you. Jon, thanks for
being on.
Jon Noster:
That's being fixed as we speak in
a lot of ways, so there's a lot of good work being done. Brett, always a
pleasure, my friend.
Brett King,
Well, thanks, guys.
Yerbi Benjamin:
Thank you for [crosstalk
Brett King:
Thanks for joining us on Breaking Banks. All right. Hey, guys.
After the break, Jason's going to cover off some of the specific initiatives
that banks and other FinTech startups are doing to mitigate the challenges of
coronavirus over the coming weeks and months. You're listening to Breaking
Banks. We'll be right back after this break.
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And coming up next, more Breaking

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Jason Henrichs, Host:
Joining me today are two founders of our Alloy Labs Alliance.
Chris Nichols, chief strategy officer at CenterState Bank based in the south east
of the United States and Jill Castilla CEO of Citizens Edmond Bank in Oklahoma.
Now I guess I shouldn't be surprised that the two of you are leading the charge
in many ways in how financial institutions, particularly community banks are
responding in the wake of a black swan event and more accurately, I should be
describing this as a bevy of black swans, that is a technical term for a group
of black swans is... A group of swans is a bevy in case you didn't know that.
Jason Henrichs:
So in addition to the health implications, local economies are
bracing for changes in expenditures and the stock market is experiencing the
double whammy of economic uncertainty and an oil trade war. Jill no surprise.
The oil economy is pretty big in Oklahoma. You have a major dependence there
both on the oil and gas production, but the supporting services. So you're
probably feeling the impact of this trifecta sooner than many other communities
are. What's the situation on the ground in terms of what you're hearing from
your customers and what are you seeing as all of this is beginning to unfold?
Jill Castilla, CEO of Citizens Edmond Bank:
So it's surprisingly optimistic. We are not seeing a rage of fear
or any chaotic behavior. We were waiting for today because it's the Friday
before spring break, a payday, a Friday, so you would usually see a really
hectic lobby and I thought that might accelerate it and elevate it to another
level. And we really haven't seen that. Oklahoma has been through so much in
our history that we can roll with the punches pretty well. But we are hearing
that our small businesses are struggling. We have events that have been
canceled and we are anticipating this being... I think some of this will be
short term effect and I think that's a collective perspective that I'm hearing
is that we think we'll have the short term impact from a virus scare and it's
some of the responses to it and if it infiltrates our community in any way.
Jill Castilla:
But then we all know that it's probably more of a longer term situation
with the oil prices, even though it may be a temporary situation with the
influx of supply. We know that we have lower oil prices than what we have
historically had and so it will have a lasting impact on our economy and
there's lots of discussion about it. Everyone knows that we're Oklahomans,
we're here together. As long as, I think I mentioned to you, that as long as
the sharknado doesn't come through, I think we've got this.
Jason Henrichs:
Yeah. Well as long as we don't hear sirens in the background while
recording. Chris, Florida has another set of vulnerable populations in their
small business. One is the impact on tourism and Disney's closed as of now
through I believe March. And you've got a whole host of businesses that support
tourism and that population. As well as a large aging population so how's
CenterState thinking about the rapidly evolving needs of customers, both those
commercial customers as well as changes that you might need to make for an
aging population.
Chris Nichols, CenterState Bank:
Sure. Yeah. So absolutely Florida is getting hit hard by the
coronavirus COVID-19. Obviously our first and foremost focus has been on our
employees and you could... One of the lessons, stark lessons that we've learned
is you can do a whole lot of tabletop exercises, a whole lot of writing your
pandemic plan, but until you actually put it into action, it's probably worth
half of what you think it is.
Chris Nichols:
So kudos all the banks that have already had a plan, what we're
finding out though is that there's a lot of things that we just haven't thought
through, second and third order equations. When they have that employee
quarantine, when they have them go back to work. Just do we have enough VPN
capacity and laptops to go around and do we have enough support staff? So
that's been our real focus to start is, of course making sure the employee is
safe, hand washing, all that, travel restrictions, work from home. Now we have
the second order equations and then the third order equations of what to do
with HIPAA regulations when an employee's spouse has been tested positive. What
to do with customers that walk in that are visibly sick and how you escort them
out. And we don't have any training on that and we never... Many banks never
really thought about that so that's been the bulk of our time.
Chris Nichols:
Customers, as you mentioned, we are actively monitoring our credit
portfolio, trying to reach out to almost every customer that we think could
possibly be affected. Reaching out, making sure we have open lines of
communication, asking them about their credit, are their lines sufficient
enough? And then working with those households that may need a little extra
help and we haven't quite gotten down to the details about what that really
looks like, but right now, this past week has just been one of communication.
Jason Henrichs:
Jill due to the extra step when it comes to communication, really
partnering with your local community in reaching out via social media and
others to even put your phone number out there and saying, "If you need
help and need to talk we're here and we're here to partner with you." What
other steps has Citizens of Edmond taken? What's the uptake of that kind of
outreach been for you?
Jill Castilla:
Yeah, it's really interesting to hear Chris speak, such a much
larger institution and yet here with a one office situation like we have here
in Citizens. We're doing the same things. So those open lines of communication,
whether it's internally brainstorming, really a pandemic plan in the making. We
had one as part of our business continuity plan, but when we opened it up and
like, "Okay, here we've got the guide," and you really found that was
quite elementary and really was based upon a pandemic is here and that you're
dealing with the implications of a sick population and not this kind of
build-up to a potential pandemic or a pandemic that hasn't reached you yet.
Jill Castilla:
So I think being open with customers and making sure that they
feel like that you're accessible and transparent and not just during business
hours and to really portray that the bank is open for business, that we're here
to help, that we are... We started thinking about, and having these
brainstorming sessions very similar to what Chris described about three and a
half weeks ago.
Jill Castilla:
So before anything happened on American soil and that really
prepared us so that we could be in a technology position to be able to support
customers remotely, which then makes you more confident being able to put yourself
out there and be accessible because we know that no matter where this
progresses that the bank will be able to support customers, whether it's in the
lobby or just through a drive through or completely remotely.
Jill Castilla:
And then so putting the cell phone out there, I've done that
before in anti-crisis situations or if there was a sense of uncertainty or even
when something new has developed nationally or in the state and everyone's so
respectful in how they interact with me with that. So I don't get like a
thousand text messages, I've just gotten a couple and they've all been very
relevant. So I also have a lot of confidence in knowing that people use that in
an inappropriate way.
Jason Henrichs:
So speaking of updating the business continuity plan, something
you both highlighted, Chris, I love that COVID-19 playbook that you put on the
CenterState blog, and I bring it up to listeners all the time. If you don't
read Chris's blog, you absolutely should. And we created a short link. If a
listener was to go to, bb as in breaking banks, SWAN in all caps. So
BBSWAN, all caps, you can get a link to Chris's blog where he puts out
a ton of great information. I'm curious, when did you guys start developing the
playbook? It's a great situational supplement to that typical business
continuity plan. Is this kind of how you were thinking about your internal plan
Chris Nichols:
Yeah, I think the playbook was kind of our mental thought process
as we were thinking through some of the issues pertaining to this one, this
particular attack, a novel virus had no one has immunity to hitting all at once
and not really knowing what the profile looks like, like we do the flu. And the
knee jerk reaction to start with is, "Oh this is just like the flu."
As we thought through it, we quickly realized, "It's not." And then,
"What do we do about that?"
Chris Nichols:
We didn't use the term flattening the curve but now we are but how
do we flatten the curve and slow this down? And so the playbook was starting
with, what is the actual risk? And as we canceled meetings every meeting has a
value that we were very good at CenterState at trying determine how many people
we allocate to any given meeting, what the value is, what the objectives are.
Chris Nichols:
And so it played in our framework. But when you don't know the
true risk of transmission for example we wanted to err on the side of caution
so canceling meetings, canceling, locking down some of our headquarters and
things like that to protect our employees were all part of that. And then we
thought about, "Okay, what happens to the rest of the balance sheet?"
As you mentioned, several black swan events when we saw volatility spike up.
Volatility normally is measured with the number of 10. When it spikes up to 15
we get nervous.
Chris Nichols:
We're at 70 now. So as that kept going up it caused a whole lot of
other chain reactions within our bank from liquidity planning, so being able to
make sure we had access to liquidity, taking extra steps. We noticed some of
our customers drawing down on their liquidity lines or at least thinking about
it. So we wanted that communication going. And then what that means for the
rest of our balance sheet, from asset prices to commercial real estate to our
customer's credit.
Chris Nichols:
And then general interest rate risk in total nothing more than
starting off with making sure that everyone knew that we're going to have to
change our budget as a result of the shape of the yield curve, all below 1% at
one point and the possibility of negative rights, particularly around the
tenure area.
Chris Nichols:
So as we thought through those process, we then come up with a
variety of other plans and action teams. We have a great pandemic committee
that meets every day and hourly and in many cases, and then each committee
around there, ALCO et cetera, all feeds off that and handles their part.
Jason Henrichs:
Now are they meeting in the same room or are you starting to
leverage a lot more technology in even how you're managing internal
communications and meetings?
Chris Nichols:
Yeah. Good point. We started to meet all in the same room until we
all talked about working from home and what that means. And so as we work from
home we'll definitely leverage our video conferencing. I think we did our first
four or five hour video conference yesterday with breaks in between. So it was
just like an all day meeting. So brushing up on that, brushing up on the use
of... We use Teems here but you know some banks use Slack. That's been real
helpful to augment email, more texting obviously going on. So we've had to
resort to a variety of other technologies just for internal use as well as
campaigns externally, how to get more of our customers now immediately on
online banking and mobile banking. So that's been a big push as well.
Jason Henrichs:
Jill as a single branch, the benefit is easy to lock down and say,
"Here it is," but also opens up single point of failure.
Technologically what have you been doing to supplement what you have going on
Jill Castilla:
Yeah, so we have it... We're hitting it from multiple different
ways. We are, even though we're one location, we have a co-working set up for
our team already so everyone has a surface. We have really great VPN access. We
hadn't ever had a test where everybody was basically using that at the same
time, which we broke that a little bit in the early days of this. But the
remote capacity to be able to support has been a lifesaver for us as something
we invested in several years ago have tested, have gotten acceptance from the
team to work in that fashion. So we have about 16 staff members that are
working on-site.
Jill Castilla:
That includes our drive through, our call center and our teller
staff. So we have a staff of 55, so about two thirds of our staff is working
off-site. And some of those are individuals that have never worked off-site
before, so it's developing structure for them. And then we also deployed, two
years ago an off-site remotely accessible cash facility that small businesses
can access to deposit large sums of cash, withdraw large sums of cash and get
access to real coin and deposit vault coin.
Jill Castilla:
And we were planning to deploy that in our downtown Edmond
location and we are now rushing to get that completed. So that should be up and
running by the end of next week. So if we get to a situation that customers
need to have the ability to access cash without bank intervention, then they
will be able to do that with their phone as we're registering customers to be
able to have that [inaudible 00:14:16] of accessibility.
Jill Castilla:
And we also have a drive through in which doesn't have face to
face interaction with customers. And so we have developed processes so that
they have greater protection and deposits that are received and that we are
diverting customers to utilize that drive through more. We also have ITMs
deployed around the branch as well as in our remote location. And we've been,
not only utilizing those ITMs some more, but then working with the vendor to
expand the ability to use that in different ways. And also to be able to
support customers with video teleconferencing to open accounts, to modify
accounts remotely so that we're not having to have them come inside the branch
to conduct those types of transactions.
Jill Castilla:
And then just developing outside of the technology realm, the
structure around ensuring that we are able to protect our staff as much as
possible, those that are on-site and we've shut down, like we have a robotic
coffee machine, we shut it down, we have a community lobby, our coworking
space, we've implemented more social distancing roles for the coworking space
that we provide to our customers, but the technology has really allowed us to
have a lot more flexibility by making those investments early than trying to
rush and do it now.
Jason Henrichs:
Yeah. The investment in technology is definitely playing out and
Chris, you and all of CenterState are consummate planners and able to keep
multiple balls up in the air simultaneously. I've got to think that you and
your team through this entire process right now are simultaneously updating
your future planning, technology stack as you're approaching pain points and
things like this. What has surfaced for you that you think about going forward?
What are you going to double down on or what investments did you make that
you're like, "Wow, didn't realize that was going to be so important. I'm
glad we have that. We need to do more of X or Y."
Chris Nichols:
Yeah. Unfortunately it's mostly the former. It's all the projects
that we put off that we wish we didn't because we didn't have the resources.
Now more auto enrollment to mobile banking is one that we've been trying.
Automatic authentication for example, verifying your ID is a project we sat
around the other day brainstorming, "How can we clean our currency? How
can we give our customers confidence that the currency they're getting is
corona free?" And so we looked at ultrasound and ultraviolet lights and it
became a logistical nightmare trying to figure this out at the branch level.
Chris Nichols:
And I thought, "We just spent a lot of time thinking about
this." I wish we just would've had... enhanced our payment platform like
the original plan. So electronic payments has been one, moving away from cash
and checks for example, has been one that I think, we're going to come to
the... we've came to the realization hopefully I'm going to be advocating for
more investments there.
Chris Nichols:
As Jill said on the ITM side, that's an investment that we made
partially. So we have a limited number of machines. We probably should have a
lot more for times like this going forward. And then the list goes on but a
better online account opening. We're just in process of rolling it out. It
would have been great had we made that decision a little faster way back when,
last year and we would've already had it. It was the original plan and so I
wish we would have stuck to that because that would've been fantastic to have
our upgraded system right now. And same thing with loans and a bunch of other
Jason Henrichs:
You know, this came up with one of the other Alloy members today
was... So one of the other member banks of Alloy Labs had highlighted their discussions
around cloud because it's the point you made Jill, you'd never fully tested,
what if everyone tried to get into the VPN simultaneously? They came to this
conclusion, Chris, like you, they've put off this cloud discussion, put off
cloud and now they're having more lines put in right now. They're realizing
that the number of people who didn't have access to high speed that needed it
to fully move a contact center, remote distributed wasn't there. When you think
architecturally, is this going to have architectural implications when you
think about... it might not be another pandemic, but you both live in places
that get hurricanes and tornadoes, hopefully never Sharknados. How do you think
technologically, does this drive even more digital and more cloud based
services for you?
Chris Nichols:
Sure, absolutely. We've been migrating to the cloud for some time.
This only underscores the fact that we don't need to touch our servers. We
don't need to have everyone in one operation center dealing with that. And
then, like you said, virtual expansion on a drop of a dime, load balancing, et
cetera all play in to a more modern architecture as well as pulling software
out that's not just based on someone's machine or some server somewhere but
distributed so everyone can not only get to it, but also we can make native
code changes on the fly for the sake of improvement and not have to worry about
reinstalling machine in different locations, et cetera. So our overall
architecture, quick API management, et cetera, integration engines, things like
that, data centers all just play right into more decentralized process for our
employees and faster customer service.
Jason Henrichs:
And it's interesting, Jill, to think about how you had this as a
competitive advantage already that by necessity of having a team of 50
employees, you already had to make sure that people could do remote access
because you don't have a huge center with a lot of redundancy of internal
employees. Do you think you're going to continue down that path? Are there
things you want to enhance when you think about, "We have this one benefit
but this is what's going to take it to the next level for us."
Jill Castilla:
Yeah, for us and even though this had been quite proven out when
it came to like loan officers and business development, customer facing, me,
senior leadership, we all could VPN easily and knew that we had great access
from home, but as we started doing the support more from our call center and
our operation staff that we hadn't tested previously that had always been
on-site, we did start seeing some weaknesses and that there wasn't universally
accessibility to high speed WiFi or internet. So that did present some problem
points for us that we're going to continue to explore, but it also had us looking
at the facility differently. So whenever you're in this type of environment and
you don't have customer meetings occurring, you do have now with conference
rooms and training spaces that may previously would have been set aside for
some other use that now you can spread out staff physically if they are needing
to come inside the branch to conduct their business rather than to do that at
Jill Castilla:
We rapidly, like about three and a half weeks ago when we found
that we had some shortfalls on some of our surface availability because we have
surfaces for all our staff but not everybody wanted surfaces. And so a lot of
them had desktops, small desktops and so we ordered more services at that time
so that we can ensure that really we would have universally available remote
devices for staff.
Jill Castilla:
We did some things too where we put together a little home working
kit so everyone got their surface, the monitor and some other equipment to
support them in their homeworking, that I think if we would have planned this
ahead of time and we would have had some of those kits ready to go to be able
to take and leave. Some of the hindrances that we've run into, if we run into a
situation where you don't have correspondent bank support to conduct wires and
the Fed is not super redundant in their ability to facilitate wires. And so if
we're needing to call in wires, they've told us that they could get overrun
pretty easily and not to rely on that as a contingency source. So I think that
there's some work that we need to do with Fed and even some of our
correspondent banks to ensure that we have proper redundancy when maybe the
systems all work, but there's not this staffing to be able to put support the
certain activities.
Jason Henrichs:
Yeah, absolutely. And I think you really summarize well the second
and third order effects that Chris talked about. Was hearing from another Alloy
Labs member today, something very similar where they're moving to this remote
support model and where it used to be 48 hours for their supplier to get
laptops and such to them. They're now telling them it's more like a 45 day
timeline to get that kind of support. And meanwhile the customer demands are
going through the roof. Their mortgage business is going through the roof. With
rates being so low, right? It becomes that bevy of black swans, both good and
bad occurring.
Jason Henrichs:
So thank you Jill Castilla. If you don't follow her on Twitter,
you should. Chris Nichols at CenterState Bank, follow him on Twitter. Definitely
read his blog posts. You can find it in the show notes if you go to
I know things are very busy for both of you right now, so thanks for taking the
time to share your learnings with the rest of the community.