1 00:00:10,680 --> 00:00:14,400 Speaker 1: Hello, and welcome to another episode of the out Locks podcast. 2 00:00:14,480 --> 00:00:19,439 Speaker 1: I'm Joe, Wasn'tal, And I'm Tracy Allowin. Uh, Tracy. You 3 00:00:19,480 --> 00:00:23,520 Speaker 1: know what I'm really happy about? It could be any 4 00:00:23,600 --> 00:00:30,440 Speaker 1: number of things great, that's true, but specifically I'm happy 5 00:00:30,640 --> 00:00:34,680 Speaker 1: that the tent anniversary of the Lehman Brothers crisis happened 6 00:00:34,720 --> 00:00:37,920 Speaker 1: on a weekend this year because I'm not really that 7 00:00:38,240 --> 00:00:41,280 Speaker 1: I'm not really that crazy about all the anniversary coverage 8 00:00:41,320 --> 00:00:45,760 Speaker 1: and I think, come on, we relive our glory days. No, 9 00:00:46,040 --> 00:00:49,160 Speaker 1: I don't really like reliving it and everyone telling their 10 00:00:49,240 --> 00:00:53,080 Speaker 1: stories over and over again. And I think the a 11 00:00:53,120 --> 00:00:55,280 Speaker 1: lot of the lessons from that time are important and 12 00:00:55,320 --> 00:00:58,080 Speaker 1: we should still talk about them. But I'm just kind 13 00:00:58,120 --> 00:01:00,680 Speaker 1: of a little bit over, like, oh, this is what 14 00:01:00,800 --> 00:01:04,360 Speaker 1: happened that day and all the details from them. Are 15 00:01:04,360 --> 00:01:06,800 Speaker 1: you telling me that we are not going to do 16 00:01:07,040 --> 00:01:11,839 Speaker 1: a Lehman Brothers anniversary podcast. We we are skipping over 17 00:01:11,880 --> 00:01:14,840 Speaker 1: that one. Plus by the time it would even come out, 18 00:01:14,840 --> 00:01:16,839 Speaker 1: because we're talking about this, it would be too late. 19 00:01:17,280 --> 00:01:19,840 Speaker 1: So that I think there are interesting lessons and all 20 00:01:19,920 --> 00:01:23,440 Speaker 1: that from the crisis and the collapse of banks and stuff, 21 00:01:23,840 --> 00:01:26,679 Speaker 1: but I'm just sort of glad that the tenth anniversary 22 00:01:26,720 --> 00:01:29,360 Speaker 1: is over. Do you know what people forget about? That 23 00:01:29,480 --> 00:01:34,080 Speaker 1: was actually arguably scarier than Lehman Brothers collapsing at that time, 24 00:01:34,280 --> 00:01:36,440 Speaker 1: and it happened like I think it was the day 25 00:01:36,560 --> 00:01:39,240 Speaker 1: after Lehman Brothers, or maybe a couple of days after. 26 00:01:41,000 --> 00:01:43,680 Speaker 1: Are you going to say the reserve fund, the money 27 00:01:43,680 --> 00:01:47,200 Speaker 1: market Yes, yes, the money market fund that broke the buck. 28 00:01:47,720 --> 00:01:50,800 Speaker 1: That was huge. People forgot about that right there, and 29 00:01:50,840 --> 00:01:55,760 Speaker 1: that's also the thing that probably got um well every 30 00:01:55,800 --> 00:01:59,760 Speaker 1: ball the mainstream remembers Lehman or Lehman the sort of 31 00:02:00,040 --> 00:02:02,680 Speaker 1: to know people talk about the money market fund that 32 00:02:02,720 --> 00:02:06,960 Speaker 1: broke the book. Anyway. I bring this up because one 33 00:02:07,000 --> 00:02:10,040 Speaker 1: thing that I do think is very relevant, um in 34 00:02:10,160 --> 00:02:14,560 Speaker 1: terms of ten years after, is this general frustration that 35 00:02:14,720 --> 00:02:20,000 Speaker 1: after the financial system was rebuilt post crisis, it basically 36 00:02:20,440 --> 00:02:22,600 Speaker 1: looks the same as it did pre crisis. Like there 37 00:02:22,680 --> 00:02:25,800 Speaker 1: might be less risk and bank balance sheets might be healthier, 38 00:02:25,880 --> 00:02:31,359 Speaker 1: and uh, households aren't. Um so is leveraged to their 39 00:02:31,400 --> 00:02:33,560 Speaker 1: homes as they were in two thousand five, two thousand 40 00:02:33,560 --> 00:02:37,000 Speaker 1: and six. But by and large, we rebuilt the same 41 00:02:37,040 --> 00:02:41,160 Speaker 1: financial system we had before, right, I think you could say, 42 00:02:41,160 --> 00:02:44,560 Speaker 1: there's been some tinkering around the edges, like, for instance, 43 00:02:44,560 --> 00:02:47,120 Speaker 1: you did have money market reform, but certainly when it 44 00:02:47,160 --> 00:02:49,360 Speaker 1: comes to the banks, a lot of the criticism that 45 00:02:49,400 --> 00:02:52,160 Speaker 1: you hear nowadays is that not only did we not 46 00:02:52,320 --> 00:02:57,359 Speaker 1: reform the banks, but the biggest banks have gotten even bigger. Right. 47 00:02:57,440 --> 00:03:01,320 Speaker 1: We definitely didn't as a country, as a regulatory system, 48 00:03:01,360 --> 00:03:05,280 Speaker 1: as a financial system, did not use the crisis of 49 00:03:05,320 --> 00:03:08,680 Speaker 1: two thousand a, two thousand nine to think about whether 50 00:03:08,760 --> 00:03:14,280 Speaker 1: there are different models that could be fundamentally safer. We 51 00:03:14,400 --> 00:03:16,640 Speaker 1: essentially just put the you know, the sort of humpty 52 00:03:16,720 --> 00:03:22,480 Speaker 1: dumpty and put it all back together again. Yeah, pretty much. Anyway. 53 00:03:22,520 --> 00:03:25,640 Speaker 1: I bring that up because our guest today, I think 54 00:03:26,000 --> 00:03:30,160 Speaker 1: is is someone who is trying to still push forward 55 00:03:30,280 --> 00:03:33,400 Speaker 1: with a different model of banking. And we're going to 56 00:03:33,480 --> 00:03:38,440 Speaker 1: be talking to Jamie mc andrews. He was a longtime 57 00:03:38,520 --> 00:03:41,360 Speaker 1: veteran of the New York FED and he is the 58 00:03:41,440 --> 00:03:45,400 Speaker 1: founder and CEO of what he hoped will be a 59 00:03:45,440 --> 00:03:49,360 Speaker 1: new type of bank that is much safer for retail 60 00:03:49,480 --> 00:03:54,720 Speaker 1: customers than any currently existing bank. Right. So I'm really 61 00:03:54,720 --> 00:03:59,120 Speaker 1: excited about this conversation because this idea comes up every 62 00:03:59,200 --> 00:04:01,720 Speaker 1: once in a while. As you say, it hasn't really 63 00:04:01,760 --> 00:04:04,880 Speaker 1: gotten much traction just yet. But the notion of a 64 00:04:05,560 --> 00:04:10,200 Speaker 1: narrow banking or full reserve banking, or it's sometimes called 65 00:04:10,240 --> 00:04:13,840 Speaker 1: the Chicago Plan, I think it's a really interesting one, 66 00:04:14,080 --> 00:04:18,280 Speaker 1: and this company is probably the one that's gotten furthest 67 00:04:18,400 --> 00:04:21,680 Speaker 1: along with that idea, although as we're about to discuss, 68 00:04:22,120 --> 00:04:25,440 Speaker 1: there have also been some roadblocks, right, so I don't 69 00:04:25,480 --> 00:04:28,080 Speaker 1: want to get too into the business model of it 70 00:04:28,320 --> 00:04:31,120 Speaker 1: before we bring Jamie on, because of course he'll describe 71 00:04:31,160 --> 00:04:35,440 Speaker 1: it best himself. We should note at the outset of 72 00:04:35,480 --> 00:04:39,120 Speaker 1: this that the bank, which is called the Narrow Bank, 73 00:04:39,160 --> 00:04:41,840 Speaker 1: and we'll listeners will discover why, is not up and 74 00:04:41,920 --> 00:04:44,719 Speaker 1: running yet it doesn't actually exist. It's still getting off 75 00:04:44,760 --> 00:04:49,680 Speaker 1: the ground, and there's currently a lawsuit happening. Narrow Bank 76 00:04:49,839 --> 00:04:54,360 Speaker 1: is suing essentially to have the right to exist currently 77 00:04:54,400 --> 00:04:57,640 Speaker 1: it hasn't been approved to exist, and we can't really 78 00:04:57,680 --> 00:05:01,360 Speaker 1: get into the details of the lawsuit too much because 79 00:05:01,360 --> 00:05:04,960 Speaker 1: it's ongoing. But in our just in our conversation, listeners 80 00:05:05,000 --> 00:05:07,440 Speaker 1: will discover what the goal of the Narrow Bank is 81 00:05:07,920 --> 00:05:11,520 Speaker 1: and the sort of opportunities that it presents as a 82 00:05:11,560 --> 00:05:14,560 Speaker 1: safer model of banking. Yeah, it's going to be good. 83 00:05:14,880 --> 00:05:17,919 Speaker 1: All right, let's bring in Jamie. So Jamie mc andrews. 84 00:05:17,920 --> 00:05:21,000 Speaker 1: Thank thank you very much for joining us. Thanks Joe 85 00:05:21,040 --> 00:05:23,680 Speaker 1: and Tracy. It's it's great to be on odd Lots. 86 00:05:23,680 --> 00:05:26,400 Speaker 1: Thank you. So, what do you describe what the Narrow 87 00:05:26,400 --> 00:05:31,480 Speaker 1: Bank is? Okay, I'll be happy to and just to there. 88 00:05:31,480 --> 00:05:33,440 Speaker 1: There are a couple of things you said in your 89 00:05:33,480 --> 00:05:38,040 Speaker 1: intro that I'd like to clarify. The Narrow Bank does exist. 90 00:05:38,760 --> 00:05:42,640 Speaker 1: It has received what's called it's temporary certificate of authority 91 00:05:42,680 --> 00:05:45,240 Speaker 1: from the Department of Banking in Connecticut, so it's a 92 00:05:45,360 --> 00:05:50,279 Speaker 1: chartered state bank. The dispute with the Federals or Bank 93 00:05:50,400 --> 00:05:55,320 Speaker 1: New York is not about its UH regulatory status or anything. 94 00:05:55,440 --> 00:05:58,600 Speaker 1: It's about whether the Federers or Bank of New York 95 00:05:58,920 --> 00:06:04,119 Speaker 1: will provide TND with an account. So we're simply looking 96 00:06:04,160 --> 00:06:07,360 Speaker 1: for account services from the Felt Reserve, not any regulatory 97 00:06:07,800 --> 00:06:10,680 Speaker 1: approval of any sort. And the other thing is T 98 00:06:10,920 --> 00:06:17,760 Speaker 1: and B is not ensured by the Federal Deposit Insurance Corporations, 99 00:06:17,800 --> 00:06:21,200 Speaker 1: so it won't be dealing directly with retail customers. It's 100 00:06:21,240 --> 00:06:25,000 Speaker 1: it's for institutional investors and so it's just those are 101 00:06:25,000 --> 00:06:27,840 Speaker 1: just a couple, since I wanted to make sure your 102 00:06:27,880 --> 00:06:32,599 Speaker 1: listeners understood. But yes, getting back to the basic question, 103 00:06:32,640 --> 00:06:35,760 Speaker 1: what is t n B. T and B is designed 104 00:06:36,000 --> 00:06:44,159 Speaker 1: to provide institutional investors with very high, are competitive, but 105 00:06:44,440 --> 00:06:52,040 Speaker 1: safe deposit rates. It's specifically designed to perform this function 106 00:06:52,160 --> 00:06:58,359 Speaker 1: because what we've seen since the crisis is that the 107 00:06:58,520 --> 00:07:02,800 Speaker 1: interest on reserves that the FED pays to banks has 108 00:07:02,839 --> 00:07:07,880 Speaker 1: not been passed through very well to bank customers, bank depositors. 109 00:07:08,760 --> 00:07:13,280 Speaker 1: And we designed, my colleagues and I have founded TMB 110 00:07:13,480 --> 00:07:20,800 Speaker 1: designed the bank two perform this specific service, and its 111 00:07:21,240 --> 00:07:26,760 Speaker 1: design features are intended exactly to to get higher deposit 112 00:07:26,840 --> 00:07:32,280 Speaker 1: rates safely two institutional investors. So Jamie, could you maybe 113 00:07:32,600 --> 00:07:36,880 Speaker 1: in a nutshell describe how traditional banking actually works because 114 00:07:36,880 --> 00:07:39,320 Speaker 1: I think that's going to help our listeners kind of 115 00:07:39,400 --> 00:07:43,760 Speaker 1: understand what's different about your bank. So, you know, the 116 00:07:43,760 --> 00:07:46,400 Speaker 1: commercial banks, they get a bunch of interests that's paid 117 00:07:46,600 --> 00:07:48,840 Speaker 1: on the reserves they have at the FED. I think 118 00:07:48,840 --> 00:07:54,520 Speaker 1: it's currently like one point nine something percent. Why did 119 00:07:54,520 --> 00:07:57,840 Speaker 1: they get paid that interest and why are they unable 120 00:07:57,880 --> 00:08:01,960 Speaker 1: to pass most of it onto their customers? Right? Let 121 00:08:02,000 --> 00:08:05,800 Speaker 1: me let me answer that in two steps First, how 122 00:08:05,840 --> 00:08:10,800 Speaker 1: to ordinary banks work. Ordinary banks raise money by issuing 123 00:08:10,840 --> 00:08:15,720 Speaker 1: deposits to customers, and so customers come in, they put 124 00:08:15,800 --> 00:08:19,600 Speaker 1: money into the bank and receive a claim on the bank, 125 00:08:19,640 --> 00:08:22,720 Speaker 1: which is called a deposit, and it's they're able to 126 00:08:22,760 --> 00:08:27,240 Speaker 1: withdraw cents on the dollar at any time. That's the 127 00:08:27,320 --> 00:08:31,200 Speaker 1: unique feature of deposits. And banks have capital as well 128 00:08:31,680 --> 00:08:36,640 Speaker 1: from their founders and perhaps external investors. There's capital on 129 00:08:36,679 --> 00:08:40,040 Speaker 1: the balance sheet, so typically the money in the bank 130 00:08:40,240 --> 00:08:45,200 Speaker 1: comes from depositors and the equity from investors. On the 131 00:08:45,240 --> 00:08:48,320 Speaker 1: other side of the balance sheet, banks keep some funds 132 00:08:48,440 --> 00:08:51,360 Speaker 1: in what are called reserve deposits, and those are usually 133 00:08:51,400 --> 00:08:53,480 Speaker 1: at the central bank or they can take the form 134 00:08:53,559 --> 00:08:59,200 Speaker 1: of currency and evolved and those allow the bank to 135 00:09:00,000 --> 00:09:05,439 Speaker 1: honor their depositors withdrawal requests very quickly, and with other investments, 136 00:09:05,480 --> 00:09:09,040 Speaker 1: the bank makes loans to households and businesses. So that's 137 00:09:09,080 --> 00:09:14,679 Speaker 1: a typical bank. And so in the conventional bank there's 138 00:09:14,720 --> 00:09:17,520 Speaker 1: only a fraction of their deposits that are held in 139 00:09:17,600 --> 00:09:25,559 Speaker 1: these reserves. And consequently banks have a instability built into them, 140 00:09:25,559 --> 00:09:29,200 Speaker 1: which is that if all depositors withdraw their funds at 141 00:09:29,240 --> 00:09:33,280 Speaker 1: the same time, the bank may have difficulty sourcing enough 142 00:09:33,360 --> 00:09:37,600 Speaker 1: reserves to honor all their depositors withdraw all requests. That 143 00:09:37,640 --> 00:09:40,439 Speaker 1: would be a run on the bank. And if they 144 00:09:40,440 --> 00:09:43,800 Speaker 1: can't borrow against the loans that they've made, they would 145 00:09:43,840 --> 00:09:52,800 Speaker 1: be in difficulty. Now, historically, the Federal Reserve, throughout its 146 00:09:52,880 --> 00:09:57,359 Speaker 1: history has not paid any interest on reserves. The deposits 147 00:09:57,400 --> 00:10:00,640 Speaker 1: of the Federal Reserve were non interest sparing. But in 148 00:10:00,679 --> 00:10:04,160 Speaker 1: two thousand six, the Congress of the United States authorized 149 00:10:04,160 --> 00:10:08,600 Speaker 1: the Federal Reserve to pay interest on reserves. And the 150 00:10:08,600 --> 00:10:12,680 Speaker 1: basic idea behind this was that the Federal Reserve was 151 00:10:12,840 --> 00:10:17,280 Speaker 1: requiring banks to hold reserves and they weren't paying any 152 00:10:17,320 --> 00:10:20,520 Speaker 1: interest on the reserves. So that can be considered the 153 00:10:20,600 --> 00:10:24,480 Speaker 1: type of tax because it was required for the people 154 00:10:24,520 --> 00:10:26,800 Speaker 1: to hold it and they didn't earn any money on it. 155 00:10:27,320 --> 00:10:30,120 Speaker 1: Of course, the Federal Reserve could invest those funds in 156 00:10:30,760 --> 00:10:35,280 Speaker 1: government securities and earn money on it. So the lost 157 00:10:35,360 --> 00:10:39,920 Speaker 1: earnings that people suffered by holding required reserves is the 158 00:10:40,000 --> 00:10:43,720 Speaker 1: type of tax. So Congress agreed with the Federal Reserve 159 00:10:44,160 --> 00:10:47,760 Speaker 1: and the banking industry that there should be payment of 160 00:10:47,880 --> 00:10:53,319 Speaker 1: interest on reserves, just like banks pay interest on deposits, 161 00:10:53,440 --> 00:11:00,040 Speaker 1: and that authority was granted in two thousand six. It 162 00:11:00,040 --> 00:11:02,640 Speaker 1: it was first used in two thousand eight in October 163 00:11:02,679 --> 00:11:05,719 Speaker 1: two thousand eight, where the Federal Reserves paid interest on reserves. 164 00:11:06,720 --> 00:11:10,319 Speaker 1: The other aspect of paying interest on reserves is it's 165 00:11:10,360 --> 00:11:13,640 Speaker 1: a way to for the Federal Reserve to implement its 166 00:11:13,640 --> 00:11:20,200 Speaker 1: monetary policy. It's interest rate target. Again, prior to the 167 00:11:20,240 --> 00:11:22,520 Speaker 1: financial crisis and prior to two thousand and eight, the 168 00:11:22,520 --> 00:11:27,880 Speaker 1: Federal Reserve affected the money market interest rates, the rates 169 00:11:27,920 --> 00:11:30,320 Speaker 1: for example that banks lend to one another called the 170 00:11:30,320 --> 00:11:36,880 Speaker 1: Federal funds rate, by affecting the supply of reserves in 171 00:11:36,920 --> 00:11:39,960 Speaker 1: the market. So if they provide a lot of reserves 172 00:11:40,000 --> 00:11:43,480 Speaker 1: to banks, many banks would have excess reserves and wish 173 00:11:43,559 --> 00:11:46,480 Speaker 1: to lend in that market. That would drive the overnight 174 00:11:46,840 --> 00:11:51,240 Speaker 1: rate down. And on the other hand, if they put 175 00:11:51,320 --> 00:11:54,240 Speaker 1: only few reserves in the market and had a scarcity, 176 00:11:54,600 --> 00:11:56,920 Speaker 1: there would be very few lenders of reserves and other 177 00:11:56,960 --> 00:11:59,400 Speaker 1: banks would be short of reserves and that would drive 178 00:11:59,480 --> 00:12:03,440 Speaker 1: the overnight interest rate up. But with the financial crisis, 179 00:12:03,480 --> 00:12:07,280 Speaker 1: the Federal Reserve had many excess reserves in the market 180 00:12:07,880 --> 00:12:12,000 Speaker 1: and so the interest rate would be zero on those 181 00:12:12,600 --> 00:12:16,400 Speaker 1: except for the fact that the Federal reserve achieved the 182 00:12:16,440 --> 00:12:19,840 Speaker 1: ability to pay interest on them. Once they were paying 183 00:12:19,920 --> 00:12:23,040 Speaker 1: interest on reserves, then banks had a new source of 184 00:12:23,120 --> 00:12:27,920 Speaker 1: demand for reserves because the reserves would earn this interest rate, 185 00:12:28,120 --> 00:12:31,840 Speaker 1: and so banks, theoretically in a competitive market, would be 186 00:12:31,880 --> 00:12:36,160 Speaker 1: happy to pay depositors to put funds into their bank 187 00:12:37,080 --> 00:12:41,360 Speaker 1: and then earn the interest at the Federal Reserve. That 188 00:12:41,360 --> 00:12:44,560 Speaker 1: would tend to drive deposit rates and overnight interest rates 189 00:12:44,679 --> 00:12:48,280 Speaker 1: up towards the interest on access reserves. So it's become 190 00:12:48,280 --> 00:12:52,600 Speaker 1: a monetary policy tool in the wake of the very 191 00:12:52,679 --> 00:12:56,200 Speaker 1: large levels of reserves that the FIT has held, that 192 00:12:56,240 --> 00:13:00,480 Speaker 1: the FED has created since the crisis. So I'm mentioned 193 00:13:00,520 --> 00:13:04,640 Speaker 1: at the beginning that you, prior to having founded the 194 00:13:04,800 --> 00:13:08,400 Speaker 1: Narrow Bank, you were at the New York Federal Reserve, 195 00:13:09,160 --> 00:13:11,559 Speaker 1: and this idea of launching a new bank, if I've 196 00:13:12,000 --> 00:13:16,160 Speaker 1: read properly, came out of research that you did while 197 00:13:16,280 --> 00:13:19,920 Speaker 1: at the New York Fed about essentially this question, which 198 00:13:20,000 --> 00:13:26,320 Speaker 1: is why aren't depositors at retail facing banks getting higher 199 00:13:26,440 --> 00:13:29,720 Speaker 1: rates when the banks are able to collect higher rates 200 00:13:29,800 --> 00:13:34,959 Speaker 1: from their reserves. That's that's about right, Joe. The there 201 00:13:35,040 --> 00:13:39,240 Speaker 1: was a lot of concern um throughout the whole financial 202 00:13:39,280 --> 00:13:42,600 Speaker 1: system that after two thousand eight, when banks were earning 203 00:13:42,640 --> 00:13:48,800 Speaker 1: interest on reserves, the overnight rate was not very close 204 00:13:48,800 --> 00:13:51,520 Speaker 1: to the interest on reserves. It was lying well below 205 00:13:51,559 --> 00:13:54,400 Speaker 1: the interston reserves ten or fifteen basis points are a 206 00:13:54,480 --> 00:13:57,000 Speaker 1: tenth more than a tenth of a percent, which is 207 00:13:57,160 --> 00:14:01,120 Speaker 1: prisingly large amount. Things are little bit better today, but 208 00:14:01,240 --> 00:14:05,560 Speaker 1: for several years the banks were paying rates on overnight 209 00:14:05,679 --> 00:14:09,840 Speaker 1: funds that were very low compared to what they could 210 00:14:09,840 --> 00:14:13,079 Speaker 1: earn on reserves, and it was a puzzle for economists 211 00:14:13,240 --> 00:14:21,840 Speaker 1: to determine why isn't the competition for large deposits driving 212 00:14:21,840 --> 00:14:25,240 Speaker 1: the interest rate up towards the interest on reserves, And 213 00:14:25,280 --> 00:14:31,440 Speaker 1: there have been several economic explanations for that. Darryl Duffy 214 00:14:32,040 --> 00:14:36,960 Speaker 1: and colleagues have explained that there's the market for UH 215 00:14:37,080 --> 00:14:41,640 Speaker 1: federal funds and other overnight loans is the search um model. 216 00:14:41,640 --> 00:14:43,640 Speaker 1: It's and over the counter market where people have to 217 00:14:43,640 --> 00:14:47,280 Speaker 1: go out and find a counterparty, and that is less 218 00:14:47,280 --> 00:14:51,560 Speaker 1: than perfect competition. With colleagues, I did research that pointed 219 00:14:51,560 --> 00:14:57,240 Speaker 1: out that there's monitoring and credit exposure risks and for 220 00:14:57,280 --> 00:15:01,760 Speaker 1: that reason, lenders one to expose themselves only to a 221 00:15:01,760 --> 00:15:05,880 Speaker 1: few banks, and that grants those banks essentially a monopsony 222 00:15:05,960 --> 00:15:11,200 Speaker 1: power over the lenders, and Morton Beck can bethically have 223 00:15:11,280 --> 00:15:14,440 Speaker 1: another theory having to do with the bargaining. The nature 224 00:15:14,440 --> 00:15:18,280 Speaker 1: of the bargaining between two parties over time leads to 225 00:15:18,920 --> 00:15:22,680 Speaker 1: less than perfect competition. So it was recognized that there 226 00:15:22,760 --> 00:15:27,359 Speaker 1: was less than perfect competition for these large deposits to banks, 227 00:15:27,480 --> 00:15:30,480 Speaker 1: and so the Federal Reserve undertook a lot of work 228 00:15:30,560 --> 00:15:38,920 Speaker 1: to improve the competition in the market. Ultimately, the Federal 229 00:15:39,000 --> 00:15:44,000 Speaker 1: Reserve chose to create its own narrow bank, you might say, 230 00:15:44,080 --> 00:15:48,400 Speaker 1: the overnight reverse from Purchase Agreement facility that serves about 231 00:15:48,440 --> 00:15:51,760 Speaker 1: a hundred and sixty non banks. It's designed as a 232 00:15:52,800 --> 00:15:56,280 Speaker 1: open market operation, and it legally fits that description, but 233 00:15:56,720 --> 00:16:01,080 Speaker 1: it was designed to the economically element to an account. 234 00:16:01,800 --> 00:16:05,760 Speaker 1: Essentially that these hundred and sixty money market mutual funds, 235 00:16:05,840 --> 00:16:12,200 Speaker 1: broker dealers, federal home loan banks can deposit money at 236 00:16:12,200 --> 00:16:17,320 Speaker 1: the Federal Reserve overnight and receive an interest rate the 237 00:16:17,520 --> 00:16:23,400 Speaker 1: It's designed as a as a repo transaction, but the 238 00:16:23,440 --> 00:16:27,880 Speaker 1: proffering of this collateral really doesn't improve the credit quality 239 00:16:28,040 --> 00:16:32,000 Speaker 1: that the participants in that facility received because the Federal 240 00:16:32,000 --> 00:16:39,359 Speaker 1: Reserve Bank is already extremely highly credit worthy, and the 241 00:16:39,400 --> 00:16:44,160 Speaker 1: participants don't rehapomplicate the securities in the in the program. 242 00:16:44,240 --> 00:16:48,320 Speaker 1: So it's essentially an account that those people, those those 243 00:16:48,400 --> 00:16:51,520 Speaker 1: hundred and sixty institutions have at the Federal Reserve. And 244 00:16:51,560 --> 00:16:56,120 Speaker 1: that was the way that the FED was able to 245 00:16:56,240 --> 00:16:59,440 Speaker 1: narrow the range of interest rates overnight so that those 246 00:16:59,680 --> 00:17:04,320 Speaker 1: large participants in the money market would surely be able 247 00:17:04,359 --> 00:17:07,159 Speaker 1: to enjoy an interest rate at least as high as 248 00:17:07,200 --> 00:17:09,439 Speaker 1: what the FED was paying, and they could go to 249 00:17:09,480 --> 00:17:13,440 Speaker 1: their private counterparties and say, hey, I'm getting this interest 250 00:17:13,520 --> 00:17:15,639 Speaker 1: rate at the Fed. You have to pay me more 251 00:17:15,880 --> 00:17:21,520 Speaker 1: if you'd like my lending into into your institution. And 252 00:17:21,760 --> 00:17:24,440 Speaker 1: that has um from the feeds point of view. There's 253 00:17:24,440 --> 00:17:26,600 Speaker 1: a lot of work on that that has been uh 254 00:17:26,880 --> 00:17:31,280 Speaker 1: successful in the sense that the overnight interest rate has 255 00:17:31,320 --> 00:17:35,919 Speaker 1: remained above that level in the that they pay in 256 00:17:35,960 --> 00:17:40,919 Speaker 1: the overnight reverse repurchase agreement facility. Right, So we're talking 257 00:17:40,920 --> 00:17:43,760 Speaker 1: about a couple of things here. One of them is 258 00:17:43,800 --> 00:17:46,960 Speaker 1: how commercial banks operate. One of them is how money 259 00:17:46,960 --> 00:17:49,320 Speaker 1: market funds operate, and the other one is how they 260 00:17:49,359 --> 00:17:52,359 Speaker 1: all sort of interconnect with the Federal Reserve and the 261 00:17:52,359 --> 00:17:57,800 Speaker 1: FEDS monetary policy. Where would the narrow bank sit in 262 00:17:57,880 --> 00:18:02,320 Speaker 1: that ecosystem and what would its relationship be like with 263 00:18:02,520 --> 00:18:07,040 Speaker 1: the Fed? And UM, I guess large institutional depositors because 264 00:18:07,160 --> 00:18:11,440 Speaker 1: you said you're not really targeting retail, that's right. So 265 00:18:12,680 --> 00:18:16,600 Speaker 1: my colleagues and I at TNB have felt that there 266 00:18:16,680 --> 00:18:22,960 Speaker 1: was a market opportunity to create a special purpose um 267 00:18:23,160 --> 00:18:26,840 Speaker 1: ultra safe, low cost and focus competitor to inner that 268 00:18:27,760 --> 00:18:33,440 Speaker 1: market for large deposits. And we asked ourselves what would 269 00:18:33,520 --> 00:18:37,040 Speaker 1: be required to enter that market because we're hoping to 270 00:18:37,800 --> 00:18:41,720 Speaker 1: attract very large deposits. And the first answer that we 271 00:18:41,840 --> 00:18:45,600 Speaker 1: came to is the bank would have to be very 272 00:18:45,760 --> 00:18:49,760 Speaker 1: very safe because we're competing with the largest banks in 273 00:18:49,800 --> 00:18:53,040 Speaker 1: the world, many of whom are perceived to be too 274 00:18:53,040 --> 00:18:57,240 Speaker 1: big to fail. So in other words, those banks are 275 00:18:57,280 --> 00:19:01,240 Speaker 1: considered to have a government guaranteed by by many depositors. 276 00:19:02,240 --> 00:19:06,879 Speaker 1: And so the only way to create a DiNovo bank 277 00:19:07,480 --> 00:19:12,160 Speaker 1: that is very very safe is to designed the bank 278 00:19:12,240 --> 00:19:17,640 Speaker 1: on a hundred reserve basis, and that is possible now 279 00:19:18,240 --> 00:19:23,320 Speaker 1: in contrast to back in historical times, because reserves pay interest. 280 00:19:24,160 --> 00:19:28,240 Speaker 1: And so it was the change by the Congress in 281 00:19:28,320 --> 00:19:30,359 Speaker 1: two thousand and six that allow the fellow reserved to 282 00:19:30,400 --> 00:19:35,560 Speaker 1: pay interest. That created this market opportunity. A bank could 283 00:19:35,640 --> 00:19:40,640 Speaker 1: be designed on a hundred percent reserve basis and there 284 00:19:40,680 --> 00:19:43,000 Speaker 1: therefore would be extremely safe and it would have the 285 00:19:43,040 --> 00:19:47,960 Speaker 1: hope of attracting depositors. And then because it was a 286 00:19:48,359 --> 00:19:52,320 Speaker 1: percent reserves, it would be a very low cost bank 287 00:19:52,400 --> 00:19:56,119 Speaker 1: in terms of operating costs. The assets carry no financial risks, 288 00:19:57,160 --> 00:20:00,480 Speaker 1: costly insurance from the fdi C is not needed, and 289 00:20:00,680 --> 00:20:04,800 Speaker 1: so the bank would be a low cost competitor in 290 00:20:04,880 --> 00:20:08,800 Speaker 1: that market. It's important to note that foreign banking organizations 291 00:20:08,800 --> 00:20:13,040 Speaker 1: that take in wholesale deposits also do not carry the 292 00:20:13,080 --> 00:20:16,480 Speaker 1: insurance of the fdi C, so in essence, the bank 293 00:20:16,600 --> 00:20:21,600 Speaker 1: had to match that competition. But by designing the bank 294 00:20:22,240 --> 00:20:27,280 Speaker 1: this way, then we would have a low cost operation 295 00:20:27,440 --> 00:20:30,840 Speaker 1: that could pass on the interest on reserves earned from 296 00:20:30,840 --> 00:20:34,560 Speaker 1: the federal reserve to large institutional depositors. And we thought 297 00:20:34,640 --> 00:20:38,240 Speaker 1: that would be a market opportunity that would be able 298 00:20:38,280 --> 00:20:41,520 Speaker 1: to compete with those very largest banks in the nation 299 00:20:41,560 --> 00:20:44,600 Speaker 1: who enjoy the ability to attract deposits at very low 300 00:20:44,720 --> 00:20:47,680 Speaker 1: rates because of their perceived safety. I think this is 301 00:20:47,760 --> 00:20:50,440 Speaker 1: really the key thing here that we've got to which 302 00:20:50,480 --> 00:20:52,400 Speaker 1: is your business model, And I just want to make 303 00:20:52,440 --> 00:20:57,080 Speaker 1: sure people understand it. If right now I'm an institution, 304 00:20:57,480 --> 00:21:01,040 Speaker 1: and let's say I have, uh, you know, a bunch 305 00:21:01,080 --> 00:21:03,359 Speaker 1: of money, ten million dollars in cash I want to 306 00:21:03,480 --> 00:21:07,439 Speaker 1: put somewhere right now, I would probably go to some big, 307 00:21:07,480 --> 00:21:11,840 Speaker 1: two big to fail bank, and their assets would be 308 00:21:11,880 --> 00:21:15,239 Speaker 1: a mix of things including, uh, some things that are 309 00:21:15,320 --> 00:21:18,520 Speaker 1: very safe and other things which are riskier. And they 310 00:21:18,520 --> 00:21:21,800 Speaker 1: wouldn't feel particularly compelled to pass on a competitive rate 311 00:21:21,840 --> 00:21:24,080 Speaker 1: to me because they know I don't have any options, 312 00:21:24,200 --> 00:21:26,960 Speaker 1: and I would just be choosing from other too big 313 00:21:27,000 --> 00:21:30,520 Speaker 1: to fail banks. But your argument is you can create 314 00:21:30,560 --> 00:21:34,280 Speaker 1: the safest possible bank in the world. Because I give 315 00:21:34,320 --> 00:21:37,840 Speaker 1: you my ten million dollars I deposited with you. You 316 00:21:37,880 --> 00:21:41,359 Speaker 1: will automatically that turns into ten million dollars worth of 317 00:21:41,400 --> 00:21:44,080 Speaker 1: assets for you, because you put that ten million dollars 318 00:21:44,760 --> 00:21:47,439 Speaker 1: in a FED account and that's the safest money in 319 00:21:47,480 --> 00:21:50,000 Speaker 1: the world. And you don't have any other costs because 320 00:21:50,000 --> 00:21:52,679 Speaker 1: you don't have a bunch of loan officers and credit 321 00:21:52,720 --> 00:21:55,400 Speaker 1: people because that's not your business, and you don't have 322 00:21:55,440 --> 00:21:58,200 Speaker 1: the fdi C fees, and you just pass that straight 323 00:21:58,240 --> 00:22:00,640 Speaker 1: onto me. And even though you're not un too big 324 00:22:00,640 --> 00:22:02,720 Speaker 1: to fail, I don't have to worry about any of 325 00:22:02,760 --> 00:22:05,760 Speaker 1: your asset quality because it's the highest quality money in 326 00:22:05,800 --> 00:22:12,520 Speaker 1: the world. Weld Joe. That's that's a good description. So, um, 327 00:22:12,560 --> 00:22:15,800 Speaker 1: how does that differ from a money market fund, Because, 328 00:22:15,840 --> 00:22:19,800 Speaker 1: of course, if I am a large institutional customer, one 329 00:22:19,800 --> 00:22:21,080 Speaker 1: of the things that I would do if I have 330 00:22:21,119 --> 00:22:23,480 Speaker 1: a bunch of extra money is maybe park it in 331 00:22:23,560 --> 00:22:26,920 Speaker 1: a fund that invests in things that are usually considered 332 00:22:27,400 --> 00:22:31,040 Speaker 1: quite safe, like US treasuries or commercial paper or something 333 00:22:31,080 --> 00:22:36,000 Speaker 1: like that. So how is this difference. Well, for the 334 00:22:36,040 --> 00:22:41,800 Speaker 1: government only funds, H. Tracy, I think you're. I think you're. 335 00:22:44,200 --> 00:22:47,879 Speaker 1: There is a lot of similarity between the two types 336 00:22:47,920 --> 00:22:52,760 Speaker 1: of institutions. Some of the differences are the TNB has capital, 337 00:22:53,320 --> 00:22:59,840 Speaker 1: and it will have capital to help support the re 338 00:23:00,080 --> 00:23:05,439 Speaker 1: payment of depositors claims. Money market mutual funds don't have 339 00:23:05,480 --> 00:23:08,679 Speaker 1: any capital. The second thing is the nature of the 340 00:23:08,760 --> 00:23:11,639 Speaker 1: assets that are being invested in by the two types 341 00:23:11,680 --> 00:23:16,080 Speaker 1: of institutions. Government only money market funds invest in US 342 00:23:16,119 --> 00:23:21,080 Speaker 1: obligations T and B will invest in Federal Reserve deposits. 343 00:23:21,160 --> 00:23:25,439 Speaker 1: There's a difference in the liquidity of those two types 344 00:23:25,480 --> 00:23:29,600 Speaker 1: of assets. There are bid ask spreads, and there's maturity 345 00:23:29,960 --> 00:23:34,000 Speaker 1: transformation that's going on in money market mutual funds. Of course, 346 00:23:34,040 --> 00:23:40,280 Speaker 1: that maturity transformation caused extraordinary problems, as you pointed out 347 00:23:40,280 --> 00:23:43,679 Speaker 1: at the outset of your of this podcast, when the 348 00:23:43,720 --> 00:23:46,960 Speaker 1: Reserve Primary Fund, which was was a prime fund not 349 00:23:47,040 --> 00:23:51,560 Speaker 1: a government only fund, um broke the buck because they 350 00:23:51,560 --> 00:23:56,360 Speaker 1: were engaging in both credit and maturity transformation. Uh, there 351 00:23:56,440 --> 00:23:59,560 Speaker 1: was a huge run on money market funds, showing the 352 00:24:00,560 --> 00:24:05,680 Speaker 1: the fragility of that particular financial model. The narrow bank 353 00:24:06,000 --> 00:24:09,040 Speaker 1: does not have that fragility because you can always meet 354 00:24:09,080 --> 00:24:14,040 Speaker 1: its depositors demands, and even government only money market funds 355 00:24:14,040 --> 00:24:17,840 Speaker 1: engage in maturity transformation in order to boost the returns 356 00:24:17,920 --> 00:24:21,040 Speaker 1: and that's a potential of fragility there. So T and 357 00:24:21,119 --> 00:24:25,080 Speaker 1: B is simply a safer alternative. And because of the 358 00:24:25,080 --> 00:24:27,600 Speaker 1: different assets, there are different interest rates that would be 359 00:24:27,760 --> 00:24:31,000 Speaker 1: earned by, on the one hand, shareholders in the money 360 00:24:31,000 --> 00:24:35,840 Speaker 1: market mutual fund and depositors at TNB, and it would 361 00:24:36,040 --> 00:24:38,720 Speaker 1: depend on market conditions who had the higher interest rate. 362 00:24:39,119 --> 00:24:43,159 Speaker 1: As we've seen recently, market conditions have changed in the 363 00:24:43,160 --> 00:24:47,120 Speaker 1: money market. Many people believe it's the very large issuance 364 00:24:47,160 --> 00:24:49,840 Speaker 1: of treasury bills by the U. S. Treasury. But in 365 00:24:49,960 --> 00:24:53,280 Speaker 1: recent months, the treasury bill rate and the repo rate 366 00:24:53,320 --> 00:24:57,320 Speaker 1: has moved up very close to the one that the 367 00:24:57,320 --> 00:25:03,160 Speaker 1: subtle reserve is paying on uh it's on reserves. So 368 00:25:03,640 --> 00:25:08,800 Speaker 1: UM market conditions have um, you know, moved somewhat against 369 00:25:08,920 --> 00:25:13,000 Speaker 1: the narrowbank model. But we believe that there's a a 370 00:25:13,080 --> 00:25:16,840 Speaker 1: business there. It may not be a huge business in 371 00:25:16,920 --> 00:25:20,639 Speaker 1: present circumstances, but we believed could be an important component 372 00:25:20,800 --> 00:25:23,399 Speaker 1: to the you know, to the financial system and I 373 00:25:23,520 --> 00:25:29,680 Speaker 1: and a new and very safe alternative for institutional depositors. 374 00:25:29,720 --> 00:25:33,280 Speaker 1: So I'm glad you said that about the business opportunity 375 00:25:33,320 --> 00:25:36,800 Speaker 1: because that's exactly what I was going to ask you next. A. 376 00:25:37,560 --> 00:25:41,119 Speaker 1: Have you estimated what how big of a business you 377 00:25:41,160 --> 00:25:44,600 Speaker 1: think that it could be? And B. I don't want 378 00:25:44,600 --> 00:25:47,240 Speaker 1: to phrase this in a way that might be sort 379 00:25:47,240 --> 00:25:50,719 Speaker 1: of condescending or missing the points, but I am curious 380 00:25:50,760 --> 00:25:55,159 Speaker 1: how much of this endeavor is about a business money 381 00:25:55,200 --> 00:25:59,600 Speaker 1: making opportunity for you and your partners versus to some 382 00:26:00,040 --> 00:26:04,560 Speaker 1: stent an implementation of an academic theory that's sort of 383 00:26:04,600 --> 00:26:09,280 Speaker 1: a kind of a quasi academic project. Well, let me 384 00:26:09,320 --> 00:26:14,160 Speaker 1: answer the the second question. First, this is a business opportunity. 385 00:26:14,880 --> 00:26:19,160 Speaker 1: This is uh a very unique business opportunity and one 386 00:26:19,160 --> 00:26:23,520 Speaker 1: that I think is inevitable given the payment of interest 387 00:26:23,560 --> 00:26:28,720 Speaker 1: on reserves. I fully believe that narrow banks are something 388 00:26:29,680 --> 00:26:32,399 Speaker 1: for the you know, for the future of our financial system, 389 00:26:32,440 --> 00:26:37,200 Speaker 1: not not the past, not the sort of academic exercises 390 00:26:37,240 --> 00:26:39,679 Speaker 1: that have been drawn on paper in the past. This 391 00:26:39,760 --> 00:26:43,280 Speaker 1: is a living, breathing business opportunity that we believe is 392 00:26:43,480 --> 00:26:50,760 Speaker 1: very important for depositors. And the reason again is the 393 00:26:50,760 --> 00:26:54,080 Speaker 1: the see change that occurred in October two thousand eight 394 00:26:54,080 --> 00:26:56,760 Speaker 1: when the subtle Reserve began paying interest on reserves. That's 395 00:26:56,800 --> 00:26:59,840 Speaker 1: really a very important change in our financial system. But 396 00:27:00,280 --> 00:27:03,160 Speaker 1: I don't believe even ten years later that it's been 397 00:27:03,160 --> 00:27:07,439 Speaker 1: fully incorporated into the structure of the financial system. But 398 00:27:08,160 --> 00:27:14,119 Speaker 1: let me um also distinguish T and B from the 399 00:27:14,359 --> 00:27:18,720 Speaker 1: sort of historical plans and proposals for narrow banks. The 400 00:27:18,960 --> 00:27:22,720 Speaker 1: famous example is the Chicago Plan, which was proposed in 401 00:27:22,760 --> 00:27:28,320 Speaker 1: the wake of the banking crisis. Of the T and 402 00:27:28,400 --> 00:27:32,520 Speaker 1: B proposal is very distinct from that plan, which was 403 00:27:33,040 --> 00:27:37,280 Speaker 1: purely to make banking perfectly safe and it was also 404 00:27:37,440 --> 00:27:43,119 Speaker 1: to outlaw conventional banks, very radical sort of proposal. T 405 00:27:43,320 --> 00:27:48,320 Speaker 1: and B has no such interest in disrupting the business 406 00:27:48,320 --> 00:27:52,960 Speaker 1: of conventional banks. We believe conventional banks are complementary to 407 00:27:53,160 --> 00:27:55,200 Speaker 1: T and B, and the T and B would complement 408 00:27:55,240 --> 00:28:01,040 Speaker 1: our financial system. And you know retail banking. Retail customers 409 00:28:01,119 --> 00:28:06,320 Speaker 1: enjoy federal deposit insurance, they have safe deposits. This is 410 00:28:06,359 --> 00:28:10,520 Speaker 1: for the large depositors. So let me talk a little 411 00:28:10,520 --> 00:28:14,680 Speaker 1: bit about the social benefits of TNB. First of all, 412 00:28:15,000 --> 00:28:19,679 Speaker 1: there is the benefit of to the customers directly of 413 00:28:19,800 --> 00:28:22,960 Speaker 1: TMB that they would get higher deposit rates. But the 414 00:28:23,000 --> 00:28:26,200 Speaker 1: first thing that would happen if TMB came into the business, 415 00:28:26,200 --> 00:28:28,720 Speaker 1: and this is why it's hard to estimate how big 416 00:28:28,760 --> 00:28:33,200 Speaker 1: TMB might be it might be very small, is other banks, 417 00:28:33,359 --> 00:28:38,600 Speaker 1: the banks with whom TMB would compete, would raise their 418 00:28:38,640 --> 00:28:44,320 Speaker 1: deposit rates. And that's because TNB represents a new competitive 419 00:28:44,360 --> 00:28:50,600 Speaker 1: force in banking. So, as economists would tell you, increasing 420 00:28:50,720 --> 00:28:54,840 Speaker 1: that competition would lead to lead to improve deficiency in banking. 421 00:28:56,160 --> 00:28:59,840 Speaker 1: It also would lead to better implementation of monetary policy. 422 00:29:00,360 --> 00:29:03,800 Speaker 1: The Federal Reserve, as I mentioned earlier, created this their 423 00:29:03,840 --> 00:29:07,280 Speaker 1: own narrow bank but I consider to be equivalent to 424 00:29:07,320 --> 00:29:11,880 Speaker 1: a narrow bank the overnight reverse Repurchase Agreement facility, and 425 00:29:11,960 --> 00:29:16,040 Speaker 1: they did that to have better implementation of monetary policy, 426 00:29:16,120 --> 00:29:20,360 Speaker 1: and in its documents, the Federal Open Market Committee repeatedly 427 00:29:20,680 --> 00:29:24,239 Speaker 1: claims that the o E n r RP is necessary 428 00:29:24,320 --> 00:29:27,440 Speaker 1: for the implementation of monetary policy. T and B would 429 00:29:27,440 --> 00:29:30,680 Speaker 1: be accomplishing a similar goal of getting deposit rates higher 430 00:29:30,680 --> 00:29:34,520 Speaker 1: and closer to IOE r um, something that the Federal 431 00:29:34,560 --> 00:29:38,800 Speaker 1: Reserve leads is necessary to its implementation of monetary policy. 432 00:29:39,280 --> 00:29:43,280 Speaker 1: It also would lead to better efficiency and government spending 433 00:29:43,480 --> 00:29:47,480 Speaker 1: and better distributional effects, as this government expenditure of io 434 00:29:47,600 --> 00:29:51,959 Speaker 1: we are is passed on two depositors and doesn't stay 435 00:29:52,000 --> 00:29:59,040 Speaker 1: solely with banks. A second social benefit of TNB is 436 00:29:59,680 --> 00:30:03,280 Speaker 1: the um effect it would have on the market for 437 00:30:03,320 --> 00:30:08,120 Speaker 1: these large wholesale funds but are sometimes called large cash pools. 438 00:30:08,720 --> 00:30:12,000 Speaker 1: There's a lot of research that has been done by 439 00:30:12,680 --> 00:30:18,880 Speaker 1: economists pointing out that when the Treasury Department issues a 440 00:30:18,960 --> 00:30:23,240 Speaker 1: lot of Treasury bills, that tends to crowd out the 441 00:30:23,360 --> 00:30:29,680 Speaker 1: issuance of systemically risky short term liabilities by private firms, 442 00:30:29,720 --> 00:30:33,080 Speaker 1: such as the issuance prior to the crisis of A B, C, 443 00:30:33,320 --> 00:30:39,640 Speaker 1: P C, P, V R, D O S A R S, 444 00:30:39,800 --> 00:30:43,040 Speaker 1: S repost and so on. All these panically of the 445 00:30:43,200 --> 00:30:49,000 Speaker 1: seemingly safe but ultimately very risky UH short term liabilities. 446 00:30:49,000 --> 00:30:53,120 Speaker 1: So when the again, when the Treasury issues a lot 447 00:30:53,120 --> 00:30:57,520 Speaker 1: of Treasury bills, there's less issuance of those systemically risky 448 00:30:57,760 --> 00:31:01,680 Speaker 1: short term liabilities. T and B could have that beneficial 449 00:31:01,720 --> 00:31:04,640 Speaker 1: effect as well. If it were accepted in the market, 450 00:31:05,240 --> 00:31:09,720 Speaker 1: then that would be an alternative to those investors who 451 00:31:09,760 --> 00:31:14,280 Speaker 1: are looking for safe, safe haven and rather than go 452 00:31:14,400 --> 00:31:17,040 Speaker 1: into some risky v R G O or something like that, 453 00:31:17,040 --> 00:31:18,800 Speaker 1: they could go to T and B, and that would 454 00:31:18,840 --> 00:31:23,360 Speaker 1: be beneficial to society, would reduce UH systemic risks. The 455 00:31:23,440 --> 00:31:28,000 Speaker 1: third one is one that the great economist James Tobin 456 00:31:28,600 --> 00:31:34,840 Speaker 1: pointed out in two papers. Paper was called the Case 457 00:31:34,920 --> 00:31:38,400 Speaker 1: for Preserving Regulatory Distinctions and was presented at the Jackson 458 00:31:38,440 --> 00:31:42,480 Speaker 1: the Whole Conference, and in those papers he recommended that 459 00:31:42,520 --> 00:31:46,000 Speaker 1: there'd be narrow banks. His reason from narrow banks was 460 00:31:46,280 --> 00:31:49,080 Speaker 1: again distinct from the Chicago Plan or anything. He again 461 00:31:49,160 --> 00:31:53,959 Speaker 1: did not suggest that conventional banks be outlawed or anything 462 00:31:54,000 --> 00:31:56,640 Speaker 1: like that. He thought the narrow banks would be complementary 463 00:31:56,680 --> 00:31:59,880 Speaker 1: to the banking system, and what he saw at the 464 00:32:00,000 --> 00:32:03,560 Speaker 1: benefit of neuro banks at that time was that there 465 00:32:03,600 --> 00:32:08,520 Speaker 1: would be a less reliance placed on deposit insurance. As 466 00:32:08,520 --> 00:32:12,560 Speaker 1: a society, we have placed essentially, we put all our 467 00:32:12,640 --> 00:32:16,640 Speaker 1: eggs in the deposit insurance basket. And that's reflected in 468 00:32:16,680 --> 00:32:19,000 Speaker 1: the fact that the f d i C in April 469 00:32:19,040 --> 00:32:23,280 Speaker 1: two thou eleven changed its assessment formula on banks to 470 00:32:23,560 --> 00:32:26,880 Speaker 1: charge its assessment on all the liabilities issued by bank 471 00:32:26,920 --> 00:32:31,640 Speaker 1: holding companies. And that made sense because during the crisis, 472 00:32:32,120 --> 00:32:34,360 Speaker 1: not to go back ten years ago, Joe that you're 473 00:32:35,240 --> 00:32:38,959 Speaker 1: done with that, You're so done with that. But the 474 00:32:38,960 --> 00:32:42,520 Speaker 1: the f d i C issued, you know, extraordinary guarantees 475 00:32:42,640 --> 00:32:49,920 Speaker 1: on all transaction accounts and also um guaranteed and insured 476 00:32:50,280 --> 00:32:55,320 Speaker 1: the debt issued by participating large bank holding companies. So 477 00:32:55,440 --> 00:33:00,600 Speaker 1: it's clear that the f d i C has enormous 478 00:33:01,000 --> 00:33:04,520 Speaker 1: exposure to the US banking system. And what James Tobin 479 00:33:05,040 --> 00:33:08,120 Speaker 1: he foresaw that and he said, we're replacing so much 480 00:33:08,120 --> 00:33:13,440 Speaker 1: emphasis on deposit insurance. It's so difficult to uh supervise 481 00:33:13,520 --> 00:33:18,200 Speaker 1: these firms and actually uh control the amount of risks 482 00:33:18,200 --> 00:33:23,240 Speaker 1: that they're taking. We could provide safety alternatively through technological means, 483 00:33:23,560 --> 00:33:27,120 Speaker 1: not through government guarantees. And the technological means is to 484 00:33:27,200 --> 00:33:32,720 Speaker 1: create safe UH deposits through narrow banks, and T and 485 00:33:32,840 --> 00:33:34,960 Speaker 1: B has that flavor as well, So that would be 486 00:33:35,000 --> 00:33:39,680 Speaker 1: another potential social benefit from TMB. But those are the 487 00:33:39,720 --> 00:33:43,080 Speaker 1: social benefits. T and B is organized as a business, 488 00:33:43,240 --> 00:33:48,840 Speaker 1: and it it's not created for some other reason. It's 489 00:33:48,840 --> 00:33:53,000 Speaker 1: primarily a business opportunity that we see. So Jamie, you're 490 00:33:53,040 --> 00:33:56,200 Speaker 1: obviously talking about a lot of the positives that come 491 00:33:56,280 --> 00:33:59,000 Speaker 1: from narrow banking. And I have to say, as as 492 00:33:59,040 --> 00:34:02,600 Speaker 1: a depositor who currently earns you know, zero points something 493 00:34:02,880 --> 00:34:06,520 Speaker 1: on my deposit in the US, the idea of my 494 00:34:06,640 --> 00:34:09,440 Speaker 1: bank being forced to offer me a higher rate is 495 00:34:09,640 --> 00:34:15,440 Speaker 1: very attractive. However, there are some people who wonder about 496 00:34:15,600 --> 00:34:20,800 Speaker 1: whether or not narrow banking could maybe have some negative 497 00:34:20,840 --> 00:34:25,719 Speaker 1: consequences in the event that we have another Lehman like situation, 498 00:34:25,880 --> 00:34:28,239 Speaker 1: so in other words, whether it might not end up 499 00:34:28,800 --> 00:34:34,319 Speaker 1: increasing financial instability, because what might happen is if you 500 00:34:34,400 --> 00:34:37,640 Speaker 1: have the hint of a run on UM, you know, 501 00:34:37,760 --> 00:34:41,960 Speaker 1: certain money like assets like you mentioned commercial paper or 502 00:34:42,400 --> 00:34:46,239 Speaker 1: ABCP asset backed commercial paper UM, which is what we 503 00:34:46,280 --> 00:34:50,120 Speaker 1: saw in September two thousand eight, that the depositors will 504 00:34:50,160 --> 00:34:54,160 Speaker 1: just flee all of those and move into narrow banking, 505 00:34:54,400 --> 00:34:58,600 Speaker 1: and so you're effectively potentially worsening a run on the 506 00:34:58,640 --> 00:35:03,040 Speaker 1: sort of interbank system. How would you respond to those 507 00:35:03,080 --> 00:35:06,640 Speaker 1: sorts of concerns, Well, let me first say that in 508 00:35:06,760 --> 00:35:10,359 Speaker 1: normal times. Some people have said in normal times, even 509 00:35:10,440 --> 00:35:14,120 Speaker 1: narrow banks might think gain to gain a market share 510 00:35:14,160 --> 00:35:16,600 Speaker 1: at the expense of conventional banks, and I'd like to 511 00:35:16,640 --> 00:35:20,879 Speaker 1: say I don't believe that's that's really a concern, both 512 00:35:20,960 --> 00:35:24,560 Speaker 1: because the vast majority of deposits in conventional banks are 513 00:35:24,640 --> 00:35:29,239 Speaker 1: covered by deposit insurance, so they're perfectly safe, and those 514 00:35:29,239 --> 00:35:32,880 Speaker 1: depositors would not have a reason to leave their banks, 515 00:35:32,960 --> 00:35:37,120 Speaker 1: and their banks could, again in normal times, respond by 516 00:35:37,200 --> 00:35:41,040 Speaker 1: raising their deposit interest rate and retaining their depositors. So 517 00:35:41,080 --> 00:35:47,000 Speaker 1: there should be no UH large disruptions of banking in 518 00:35:47,120 --> 00:35:50,680 Speaker 1: normal times as a result of UH a narrow bank 519 00:35:50,840 --> 00:35:54,759 Speaker 1: or many narrow banks existing. Then the question is, as 520 00:35:54,880 --> 00:36:00,600 Speaker 1: you described, Tracy, if there were a stressful situation UH 521 00:36:00,640 --> 00:36:04,440 Speaker 1: in the marketplace, and if there were a run into 522 00:36:04,719 --> 00:36:09,720 Speaker 1: narrow banks. Currently, if there's stress in the marketplace, people 523 00:36:10,160 --> 00:36:14,280 Speaker 1: often find refuge in the government only money market mutual funds, 524 00:36:14,360 --> 00:36:19,600 Speaker 1: as as was seen in the prime fund money market 525 00:36:19,680 --> 00:36:25,080 Speaker 1: run in two thousand eight. So I think that people 526 00:36:25,120 --> 00:36:31,040 Speaker 1: would still take advantage of going into money market mutual funds. 527 00:36:31,080 --> 00:36:35,920 Speaker 1: Government only money market mutual funds, the narrow bank would 528 00:36:35,960 --> 00:36:40,560 Speaker 1: require many days, if not a couple of weeks to 529 00:36:40,600 --> 00:36:45,399 Speaker 1: acquire a new customers, so the one could not run 530 00:36:45,440 --> 00:36:53,040 Speaker 1: into the narrow bank, uh, you know, immediately, And the 531 00:36:53,120 --> 00:36:58,480 Speaker 1: narrow bank would have the ability to request current customers 532 00:36:58,520 --> 00:37:03,640 Speaker 1: to slow down deposit inflows if if that were at 533 00:37:03,640 --> 00:37:10,120 Speaker 1: all a concern, So there are natural breaks on the 534 00:37:10,200 --> 00:37:12,840 Speaker 1: narrow bank. The narrow bank T and B would not 535 00:37:12,920 --> 00:37:17,080 Speaker 1: want to be associated with any you know, distress in 536 00:37:17,440 --> 00:37:22,080 Speaker 1: a market, and would not necessarily want to be the 537 00:37:22,080 --> 00:37:26,200 Speaker 1: the recipient of flows that were causing some sort of 538 00:37:26,320 --> 00:37:31,120 Speaker 1: problem for the US financial system. The other aspect is 539 00:37:31,680 --> 00:37:36,560 Speaker 1: if there were a situation like this, the Federal Reserve 540 00:37:36,640 --> 00:37:42,480 Speaker 1: would have many tools to address the situation. If there 541 00:37:42,480 --> 00:37:49,359 Speaker 1: were a public necessity, Federal Reserve could choose to pay 542 00:37:49,400 --> 00:37:55,360 Speaker 1: a lower interest rate to narrow banks relative to conventional banks, 543 00:37:55,440 --> 00:37:59,319 Speaker 1: and that would thereby for the ability of people to 544 00:37:59,400 --> 00:38:04,200 Speaker 1: run into narrow banks. So I again, that's sort of 545 00:38:04,239 --> 00:38:09,760 Speaker 1: like a theoretical academic concern that in the real world 546 00:38:09,440 --> 00:38:15,360 Speaker 1: would never occur. Jamie. In theory you mentioned worthy narrow 547 00:38:15,400 --> 00:38:19,759 Speaker 1: bank to get off the ground and start collecting big deposits, 548 00:38:20,160 --> 00:38:23,600 Speaker 1: it will likely or could certainly put pressure on the 549 00:38:23,600 --> 00:38:27,040 Speaker 1: existing banks to offer higher interest rates. Would it be 550 00:38:27,120 --> 00:38:31,800 Speaker 1: possible theoretically at some point for existing banks to offer 551 00:38:32,040 --> 00:38:36,480 Speaker 1: segregated narrow bank like accounts where they basically tell people 552 00:38:36,640 --> 00:38:39,960 Speaker 1: that if they want, they can have an account that 553 00:38:41,600 --> 00:38:47,000 Speaker 1: backed up with reserves central bank reserves. I I think 554 00:38:47,080 --> 00:38:53,759 Speaker 1: that that is a potential um direction that banks could go. 555 00:38:53,920 --> 00:38:57,360 Speaker 1: They would probably need the Federal Reserve to to change 556 00:38:57,400 --> 00:39:01,920 Speaker 1: their policies to allow banks to have a you know, 557 00:39:02,040 --> 00:39:07,560 Speaker 1: a segregated account at the Federal Reserve. And I've I've 558 00:39:08,400 --> 00:39:12,480 Speaker 1: recommended this and written a paper about the possibility of 559 00:39:12,520 --> 00:39:16,760 Speaker 1: doing that. So I think that would be healthy again 560 00:39:16,840 --> 00:39:21,000 Speaker 1: for a financial system, if if any bank could essentially 561 00:39:21,239 --> 00:39:25,480 Speaker 1: form a narrow bank arm And that's again also something 562 00:39:25,480 --> 00:39:29,799 Speaker 1: that James Tobin recommended in his but I think it 563 00:39:29,800 --> 00:39:33,759 Speaker 1: would require a change in policy and operations by the 564 00:39:33,800 --> 00:39:39,960 Speaker 1: Federal Reserve to to accommodate that that alternative for banks UH. 565 00:39:40,000 --> 00:39:43,680 Speaker 1: And then another thing is, so let's say this became 566 00:39:43,960 --> 00:39:47,120 Speaker 1: big and your narrow bank launched, and there were other 567 00:39:47,480 --> 00:39:51,279 Speaker 1: narrow banks. The narrow bank or your bank isn't going 568 00:39:51,360 --> 00:39:54,160 Speaker 1: to do things that get involved in loans and real 569 00:39:54,280 --> 00:39:56,759 Speaker 1: estate and all that. What do you see is the 570 00:39:56,880 --> 00:40:01,000 Speaker 1: future for that aspect of business banking, which is here, 571 00:40:01,040 --> 00:40:05,040 Speaker 1: you know, the lending side. If more of the world's 572 00:40:05,080 --> 00:40:10,560 Speaker 1: deposits were to opt for UH fully backed reserve deposits, 573 00:40:11,320 --> 00:40:15,360 Speaker 1: I don't see any interruption in the business of conventional 574 00:40:15,440 --> 00:40:18,879 Speaker 1: banks as a result of the creation of narrow banks. Again, 575 00:40:18,920 --> 00:40:23,600 Speaker 1: the the point of narrow banks UH in the current world, 576 00:40:23,640 --> 00:40:26,799 Speaker 1: and the reason T ANDB was created is to compete 577 00:40:27,120 --> 00:40:32,400 Speaker 1: the interest on reserves more towards depositors, to provide competition 578 00:40:32,520 --> 00:40:35,759 Speaker 1: so that the interest on reserves gets two depositors. That 579 00:40:35,800 --> 00:40:40,840 Speaker 1: does not in any way affect the conventional banks ability 580 00:40:40,880 --> 00:40:43,400 Speaker 1: to make real estate loans or anything else. All it 581 00:40:43,440 --> 00:40:47,719 Speaker 1: does is it removes a little bit of rent that 582 00:40:47,840 --> 00:40:52,480 Speaker 1: banks are currently earning between the amount that they earn 583 00:40:52,560 --> 00:40:55,600 Speaker 1: on reserves and the amount the pay depositors. If you 584 00:40:55,640 --> 00:41:01,040 Speaker 1: consider a bank today and as suppose a borrower comes 585 00:41:01,080 --> 00:41:03,000 Speaker 1: up to the bank and proves to the bank that 586 00:41:03,080 --> 00:41:05,759 Speaker 1: it is it's a perfectly risk free borrower, and they say, 587 00:41:05,880 --> 00:41:08,719 Speaker 1: what will you lend at? What interest rate will you 588 00:41:08,800 --> 00:41:12,120 Speaker 1: lend to me? The bank is not going to lend 589 00:41:12,120 --> 00:41:15,239 Speaker 1: to that person at a rate below one point nine, 590 00:41:15,960 --> 00:41:18,319 Speaker 1: even if they're perfectly risk free, because they can earn 591 00:41:18,400 --> 00:41:24,560 Speaker 1: one point nine at the federal reserve. That's going to 592 00:41:24,600 --> 00:41:28,279 Speaker 1: be the same before and after the narrow bank. The 593 00:41:28,400 --> 00:41:33,279 Speaker 1: narrow bank does not restrict the bank's hurdle rate or 594 00:41:33,560 --> 00:41:37,759 Speaker 1: change the bank's hurdle rate on lending at all, so 595 00:41:37,800 --> 00:41:40,759 Speaker 1: the bank. All it does is the bank may have 596 00:41:41,000 --> 00:41:45,520 Speaker 1: to pay a higher interest rate on their liabilities, and 597 00:41:45,680 --> 00:41:48,960 Speaker 1: so they may be affected in that they have a 598 00:41:49,000 --> 00:41:51,759 Speaker 1: lower level of rent. I would not even call this 599 00:41:51,840 --> 00:41:56,759 Speaker 1: a lower level of profit, because I believe that the 600 00:41:56,800 --> 00:42:01,440 Speaker 1: earnings that banks get between the interests that are paid 601 00:42:01,480 --> 00:42:04,759 Speaker 1: to banks on reserves versus what they paid to depositors 602 00:42:04,840 --> 00:42:07,520 Speaker 1: is really a rent. They get that for being there 603 00:42:08,040 --> 00:42:12,080 Speaker 1: and for being perceived as safe. Um, they're not out 604 00:42:12,120 --> 00:42:16,759 Speaker 1: competing for that, and so uh, that's really the effect. 605 00:42:17,000 --> 00:42:20,799 Speaker 1: It would improve efficiency in banking if any banks are 606 00:42:20,840 --> 00:42:23,640 Speaker 1: actually making a living on that part of their business. 607 00:42:23,920 --> 00:42:27,279 Speaker 1: They would have their activity curtailed, but it's not going 608 00:42:27,360 --> 00:42:30,600 Speaker 1: to interrupt in any way the profitable businesses lending to 609 00:42:30,719 --> 00:42:35,160 Speaker 1: households and businesses. So, Jamie, you have the banking charter, 610 00:42:35,840 --> 00:42:39,760 Speaker 1: you applied for an actual reserve account at the FED, 611 00:42:39,960 --> 00:42:44,560 Speaker 1: which was rejected. Um, and hence the lawsuit. What next 612 00:42:44,640 --> 00:42:47,640 Speaker 1: for you and what sort of argument are you going 613 00:42:47,680 --> 00:42:52,239 Speaker 1: to be making about the Fed's decision. Well, we have 614 00:42:52,440 --> 00:42:55,600 Speaker 1: not been just to clarify, Tracy, We've not been rejected 615 00:42:55,640 --> 00:42:57,600 Speaker 1: on a reserve account. It's just that the Federal Reserve 616 00:42:57,640 --> 00:43:00,440 Speaker 1: back in New York has not been willing to ye 617 00:43:00,760 --> 00:43:04,120 Speaker 1: the reserve account. Uh, they've not said no. So we 618 00:43:04,200 --> 00:43:08,600 Speaker 1: hope that the Felleral Reserve will provide us a reserve account. 619 00:43:09,040 --> 00:43:13,720 Speaker 1: And we hope, um, they will do this quickly. And uh, 620 00:43:14,600 --> 00:43:17,200 Speaker 1: we think it's in the interests of the Fettle Reserve 621 00:43:17,960 --> 00:43:21,359 Speaker 1: and the interests of the U S taxpayers, as well 622 00:43:21,400 --> 00:43:25,480 Speaker 1: as the interests of our financial system well as journalists 623 00:43:25,520 --> 00:43:28,800 Speaker 1: who find this to be a fascinating story. We hope 624 00:43:28,800 --> 00:43:31,680 Speaker 1: that it goes forward, if only because we'd really like 625 00:43:31,800 --> 00:43:35,719 Speaker 1: to see how this evolves and how this plays out 626 00:43:35,800 --> 00:43:39,520 Speaker 1: in the financial system and the banking system. So, Jamie McAndrews, 627 00:43:39,840 --> 00:43:41,680 Speaker 1: thank you so much for joining us. That was a 628 00:43:41,680 --> 00:43:45,520 Speaker 1: fascinating conversation. Great, thank you so much, Joe and Trying. 629 00:43:45,680 --> 00:44:04,920 Speaker 1: I appreciate it. Tracy, I really loved that conversation. I 630 00:44:04,960 --> 00:44:08,840 Speaker 1: feel like, um, just getting into the mechanics of banking 631 00:44:08,960 --> 00:44:11,640 Speaker 1: is one of those things that it kind of makes 632 00:44:11,640 --> 00:44:14,200 Speaker 1: your head hurt a lot, but it is really worth 633 00:44:14,239 --> 00:44:18,320 Speaker 1: it to actually understand how our system really works. Oh yeah, totally. 634 00:44:18,400 --> 00:44:21,440 Speaker 1: And the best way to understand, you know, the traditional 635 00:44:21,520 --> 00:44:25,400 Speaker 1: banking model is probably to talk about a new banking model, 636 00:44:25,520 --> 00:44:28,399 Speaker 1: which we just did in detail. You know, I sort 637 00:44:28,440 --> 00:44:30,879 Speaker 1: of feel bad that I started that thing. The thing 638 00:44:30,920 --> 00:44:36,359 Speaker 1: I didn't like, um the anniversary of Lehman, because oh yeah, 639 00:44:36,360 --> 00:44:38,600 Speaker 1: you should feel like I do. Kind of feel bad now. 640 00:44:38,640 --> 00:44:41,640 Speaker 1: But one point that I think Jamie made that I 641 00:44:41,640 --> 00:44:45,440 Speaker 1: thought was extremely interesting, and something that people often forget 642 00:44:45,480 --> 00:44:49,120 Speaker 1: about the crisis is how much of it was a 643 00:44:49,200 --> 00:44:54,319 Speaker 1: result of the manufacture of safe assets for things that 644 00:44:54,400 --> 00:44:58,200 Speaker 1: weren't from things that weren't safe. And so investors set 645 00:44:58,239 --> 00:45:00,759 Speaker 1: out to take a bunch of crazy risks, but what 646 00:45:00,800 --> 00:45:05,600 Speaker 1: they really wanted was extremely safe assets, and then the 647 00:45:05,680 --> 00:45:13,160 Speaker 1: industry complied by essentially fabricating safe assets out of risky assets. 648 00:45:13,200 --> 00:45:15,880 Speaker 1: And then he listed off, Jamie listed off this alphabet 649 00:45:15,960 --> 00:45:19,640 Speaker 1: soup of things like, you know, the auction rate securities 650 00:45:19,840 --> 00:45:23,719 Speaker 1: and asset back, commercial deposits and all that stuff, which 651 00:45:23,760 --> 00:45:26,879 Speaker 1: were all examples of things that were more or less 652 00:45:26,880 --> 00:45:30,719 Speaker 1: seen as triple A money like, but the underlying foundations 653 00:45:30,800 --> 00:45:34,200 Speaker 1: of which were actually pretty risky. Yeah, and that's really 654 00:45:34,760 --> 00:45:37,359 Speaker 1: the whole conversation that we just had was about how 655 00:45:37,440 --> 00:45:42,440 Speaker 1: to manufacture more safe assets, but in a way where 656 00:45:42,480 --> 00:45:45,680 Speaker 1: they are actually safe. And I realized the irony of 657 00:45:45,760 --> 00:45:49,719 Speaker 1: me saying that, but that's always what we're trying to do. Um. 658 00:45:51,520 --> 00:45:53,359 Speaker 1: But and in this case they actually would be. I mean, 659 00:45:53,400 --> 00:45:55,919 Speaker 1: if they were in this case, I think it's safe 660 00:45:56,000 --> 00:45:58,160 Speaker 1: to say that if the funds were in fact deposited 661 00:45:58,560 --> 00:46:00,800 Speaker 1: right at the FED, they would literally be the safest 662 00:46:00,880 --> 00:46:04,879 Speaker 1: kind of money imaginable. Yeah, it's sort of like the 663 00:46:04,920 --> 00:46:10,320 Speaker 1: magic of banking intermediation in reverse, right, Like, normally banks 664 00:46:10,440 --> 00:46:13,400 Speaker 1: take your money and invest it in a bunch of 665 00:46:13,480 --> 00:46:16,239 Speaker 1: risky things, but your money is considered safe because it's 666 00:46:16,280 --> 00:46:19,839 Speaker 1: a deposit. But in this case, your risky money would 667 00:46:19,880 --> 00:46:22,400 Speaker 1: kind of be put at the FED and turned into 668 00:46:22,520 --> 00:46:28,600 Speaker 1: something safe automatically, so financial engineering in reverse. You're going 669 00:46:28,640 --> 00:46:31,879 Speaker 1: to say something else though before I interrupted you. Oh yeah, Well, 670 00:46:31,920 --> 00:46:33,440 Speaker 1: the other thing I was thinking about is, you know, 671 00:46:33,480 --> 00:46:37,080 Speaker 1: you mentioned banking reform at the beginning of the conversation, 672 00:46:38,040 --> 00:46:40,600 Speaker 1: and um, I was just thinking, like, you know, here 673 00:46:40,640 --> 00:46:45,040 Speaker 1: we have an idea to create basically the world's safest bank. 674 00:46:45,280 --> 00:46:47,520 Speaker 1: And of course you know, the notion that the FED 675 00:46:47,600 --> 00:46:51,680 Speaker 1: hasn't said yes just yet is very ironic. But I 676 00:46:51,719 --> 00:46:55,680 Speaker 1: also wonder it's kind of hard to create something new 677 00:46:56,040 --> 00:46:59,799 Speaker 1: once you have the existing infrastructure, right, and that might 678 00:46:59,800 --> 00:47:02,080 Speaker 1: be the difficulty here. I think like the FEDS a 679 00:47:02,080 --> 00:47:04,759 Speaker 1: little bit unwilling to try something new because they're worried 680 00:47:04,800 --> 00:47:08,840 Speaker 1: about the knock on effect for existing financial institutions and 681 00:47:08,920 --> 00:47:12,279 Speaker 1: you can't really start from scratch. Yeah, it is really difficult. 682 00:47:12,480 --> 00:47:16,080 Speaker 1: And momentum and inertia, I always say, is like the 683 00:47:16,120 --> 00:47:20,200 Speaker 1: most powerful, the most powerful force in the world. Right, Well, 684 00:47:20,400 --> 00:47:23,600 Speaker 1: speaking of inertia, shall we wrap this up? At speaking 685 00:47:23,600 --> 00:47:25,680 Speaker 1: of inertia, I don't really get that seg but yeah, 686 00:47:25,719 --> 00:47:28,680 Speaker 1: let's wrap it up. Well I tried. Okay, this has 687 00:47:28,719 --> 00:47:32,560 Speaker 1: been another episode of the Odd Lots podcast. I'm Tracy Alloway. 688 00:47:32,680 --> 00:47:35,440 Speaker 1: You can follow me on Twitter at Tracy Alloway. And 689 00:47:35,480 --> 00:47:38,600 Speaker 1: I'm Joe Wisenthal. You can follow me on Twitter at 690 00:47:38,640 --> 00:47:41,480 Speaker 1: The Stalwart, and you should follow our producer on Twitter 691 00:47:41,640 --> 00:47:45,719 Speaker 1: tofor Foreheads at Forehast, and you should follow the Bloomberg 692 00:47:45,800 --> 00:47:50,320 Speaker 1: head of podcast, Francesco Levy on Twitter at Francesca Today. 693 00:47:50,360 --> 00:48:02,160 Speaker 1: Thanks for listening to