WEBVTT - Trump’s Financial Reforms: Needed Correction or Ticking Time Bomb? 0:00:02.520 --> 0:00:07.040 Bloomberg Audio Studios, podcasts, radio news. 0:00:08.080 --> 0:00:12.440 It's going to be the largest regulatory reduction in the 0:00:12.480 --> 0:00:13.440 history of our country. 0:00:13.440 --> 0:00:15.000 It's going to happen very fairs. 0:00:25.040 --> 0:00:28.120 I'm Stephanie Flanders, head of Government and Economics at Bloomberg, 0:00:28.320 --> 0:00:30.960 and this is trump Anomics, the podcast that looks at 0:00:30.960 --> 0:00:33.920 the economic world of Donald Trump, how he's already shaped 0:00:33.920 --> 0:00:36.720 the global economy and what on earth is going to 0:00:36.760 --> 0:00:40.159 happen next. And this week we're talking about Donald Trump's 0:00:40.200 --> 0:00:43.560 way with money, all kinds of it. The old guard 0:00:43.640 --> 0:00:46.800 on Wall Street and the crypto punks are all delighted 0:00:46.840 --> 0:00:49.520 with the administration's plans for the financial sector so far, 0:00:50.000 --> 0:00:53.640 especially the big push on deregulation. That's no mean feat. 0:00:53.880 --> 0:00:56.000 I mean, there's little else these folks could agree on. 0:00:56.520 --> 0:00:59.760 But when the financial sector gets everything it's asked for, 0:01:00.240 --> 0:01:02.160 that's not always good news for the rest of us. 0:01:02.640 --> 0:01:04.759 In loosening the guardrails on the banks, or at least 0:01:04.760 --> 0:01:07.160 saying that's what it wants to do, and giving the 0:01:07.200 --> 0:01:11.360 presidential seal of approval to all kinds of crypto, is 0:01:11.360 --> 0:01:15.080 the administration laying the groundwork for the next big financial crisis, 0:01:15.600 --> 0:01:19.760 or just correcting the mountain of bureaucracy, regulation, and risk 0:01:19.840 --> 0:01:23.600 aversion that descended on America's financial system in the years 0:01:23.640 --> 0:01:26.440 after the financial crisis of two thousand and eight. That's 0:01:26.480 --> 0:01:28.640 what I'm wondering about this week, and I have two 0:01:28.880 --> 0:01:32.400 expert colleagues to help me navigate it all. Joining from 0:01:32.440 --> 0:01:35.800 New York Christine Harper, a member of the Bloomberg editorial 0:01:35.800 --> 0:01:38.600 board and also the co author with the man himself, 0:01:38.800 --> 0:01:43.440 of Paul Volker's biography, And in Washington, D C. Katanga Johnson, 0:01:43.480 --> 0:01:47.320 who's our lead reporter covering banking regulation in that bureau. 0:01:47.880 --> 0:01:49.560 Thank you so much for coming, both of you. 0:01:49.960 --> 0:01:51.520 Thank you thanks for having us in. 0:01:54.680 --> 0:01:57.040 So Kittanga, we tend to come to reporters first because 0:01:57.040 --> 0:01:58.640 they're the ones who are trying to kind of keep 0:01:58.680 --> 0:02:01.840 track of everything that's going on. When the administration came in, 0:02:02.040 --> 0:02:05.320 what would you say were their big priorities in thinking 0:02:05.360 --> 0:02:08.560 about the state of financial regulation in the US and 0:02:08.600 --> 0:02:10.840 the administrative system that they were inheriting. 0:02:11.560 --> 0:02:14.440 On day one, Trump's regulators really wanted to focus on 0:02:14.600 --> 0:02:19.520 streamlining all regulatory and supervisory efforts to make sure that 0:02:19.919 --> 0:02:22.960 small banks, community banks could compete and that bigger banks 0:02:23.200 --> 0:02:26.919 weren't necessarily complying with rules that were, as they say, 0:02:26.960 --> 0:02:31.520 goal plated or much more onerous than the framers had anticipated. 0:02:32.440 --> 0:02:35.240 Part of that focus was really to address things that 0:02:35.280 --> 0:02:39.280 didn't really address a bank's balance sheet, things like climate 0:02:39.400 --> 0:02:43.240 rules restricting access and partnerships with FinTechs and non banks, 0:02:43.880 --> 0:02:47.919 heavier hand on anything tied to crypto. Trump's regulators came 0:02:47.960 --> 0:02:50.800 in thinking, how can we level the playing field for 0:02:50.840 --> 0:02:53.760 banks to compete, whether those were smaller banks and bigger banks, 0:02:53.880 --> 0:02:57.520 And let's pause anything that the bui An administration proposed 0:02:57.840 --> 0:03:00.600 and then revisit some of the bigger ticket items addressed 0:03:00.639 --> 0:03:04.640 issues that actually affected their ability to end, like capital 0:03:04.800 --> 0:03:06.160 liquidity and all the rest. 0:03:06.639 --> 0:03:07.880 Okay, so that's really useful. 0:03:07.919 --> 0:03:11.040 We've tended to think that the administration has acted extremely 0:03:11.120 --> 0:03:13.720 quickly on an enormous range of fronts in its first 0:03:13.800 --> 0:03:16.280 few months. If you think about those goals that you 0:03:16.400 --> 0:03:18.320 just set out, how are they doing if they made 0:03:18.360 --> 0:03:20.080 some big moves in those directions. 0:03:20.720 --> 0:03:24.080 On the one hand, initially privately you'd hear folks on 0:03:24.120 --> 0:03:27.160 Wall Street and even some in Washington would agree there 0:03:27.160 --> 0:03:30.080 are things of the administrations doing that's not quite the 0:03:30.120 --> 0:03:33.400 main priority that included a flurry of executive orders that 0:03:33.480 --> 0:03:36.360 seemed to get in the way of regulators getting to work. 0:03:36.600 --> 0:03:39.240 But to some degree, the personnel moves that we've seen 0:03:39.440 --> 0:03:41.520 at the agencies have really made a big difference in 0:03:41.640 --> 0:03:45.360 terms of their ability to get the deregulation agenda started, 0:03:45.440 --> 0:03:49.720 and chiefly at the FAD the departure of Michael Barr, who, 0:03:50.520 --> 0:03:53.080 as the Vice Chair of Supervision under Biden, was supposed 0:03:53.080 --> 0:03:56.640 to be in office until next year. His departure in 0:03:56.680 --> 0:03:59.040 a bid to sort of avoid a fight with Trump, 0:03:59.320 --> 0:04:01.760 open the way for Michelle Bowman, who's now the fed's 0:04:01.800 --> 0:04:04.880 top bank cop, to come in and really take a 0:04:04.880 --> 0:04:07.120 look at Okay, what are the main issues that banks 0:04:07.120 --> 0:04:09.360 have said they want to see paused and what are 0:04:09.440 --> 0:04:12.080 things that we could begin to do around capital and 0:04:12.560 --> 0:04:15.240 the major agenda items so far out of the FED 0:04:15.360 --> 0:04:18.320 and indeed all of the regulators has been a major 0:04:18.360 --> 0:04:21.520 capital rule, this enhanced supplemental Leverage ratio, which is the 0:04:21.560 --> 0:04:24.799 beginning of easing capital rules for banks. There are others 0:04:24.960 --> 0:04:28.920 that we expect, but already having a proposal with a 0:04:28.960 --> 0:04:31.760 thirty day comment period on that item, in addition to 0:04:31.800 --> 0:04:34.280 pausing other rules that sort of got in the way, 0:04:34.760 --> 0:04:37.800 has been in some ways ahead of track for the administration, 0:04:38.040 --> 0:04:40.080 again because of Mar's departure. 0:04:40.720 --> 0:04:42.600 It's good you've taken us to the effect because I 0:04:42.600 --> 0:04:44.360 want to get onto that a bit later. I think 0:04:44.400 --> 0:04:46.359 we tend to focus a lot on what's going to 0:04:46.360 --> 0:04:49.200 happen to the chairmanship of the FED, and thinking about 0:04:49.520 --> 0:04:51.919 Jay Pale and whether he's going to get FED and 0:04:51.960 --> 0:04:54.920 how much power that might get the president. But as 0:04:54.960 --> 0:04:58.720 you've reminded us, there's lots of people behind slightly less 0:04:58.760 --> 0:05:02.000 high profile things that the FED is deeply involved in 0:05:02.040 --> 0:05:04.240 which the administration can have a lot of influence over 0:05:04.680 --> 0:05:08.600 partly because of that personnel change you just mentioned Michelle Bowman. 0:05:08.680 --> 0:05:11.040 So we'll get onto that in a bit. But Christine, 0:05:11.320 --> 0:05:14.240 after many years of very distinguished reporting in different areas, 0:05:14.720 --> 0:05:18.240 often in finance in Bloomberg, you're now on the editorial board, 0:05:18.320 --> 0:05:20.680 and so you're associated with the editorials. And I was 0:05:20.760 --> 0:05:24.600 quite struck by one on financial deregulation that was published 0:05:24.760 --> 0:05:29.359 soon after President Trump was re elected, saying this campaign's 0:05:29.400 --> 0:05:33.120 disdained for the administrative state and the public's growing exasperation 0:05:33.240 --> 0:05:36.120 with red tape suggests the country is in for a 0:05:36.160 --> 0:05:40.880 period of bureaucratic humility. Here's hoping the financial system doesn't 0:05:40.920 --> 0:05:43.200 become vulnerable as a result. Well, I think you've got 0:05:43.279 --> 0:05:45.680 the bureaucratic humility right. 0:05:46.200 --> 0:05:48.400 But do you think. 0:05:48.240 --> 0:05:50.560 Overall that we're heading in a direction where the financial 0:05:50.560 --> 0:05:52.320 system will be less safe? 0:05:52.680 --> 0:05:55.359 Well it's hard to say. I mean, but as Katanga 0:05:55.400 --> 0:05:58.400 was pointing out, personnel is really policy here. I mean, 0:05:58.480 --> 0:06:03.000 besides Michelle Bauman, who's been a very staunch opponent of 0:06:03.040 --> 0:06:07.640 many of the regulatory efforts under Biden, the Trump administration 0:06:07.760 --> 0:06:11.400 has named to all of the key regulatory posts people 0:06:11.480 --> 0:06:14.840 who are, you know, advocates for the industry in one 0:06:14.839 --> 0:06:17.840 way or another. I think even Michelle Bowman has named 0:06:18.320 --> 0:06:20.360 one of the top lobbyists for the banks as a 0:06:20.440 --> 0:06:23.880 key deputy. So now there are people in position to 0:06:24.480 --> 0:06:29.320 rewrite or pause in many cases, rules or enforcement actions 0:06:29.839 --> 0:06:33.200 that the industry didn't like. That's not always a bad thing. 0:06:33.279 --> 0:06:35.559 Some of the things that were happening under the Biden 0:06:35.600 --> 0:06:40.200 administration were just, you know, probably over aggressive. Gary Gensler 0:06:41.080 --> 0:06:44.240 had an incredible record at the SEC of writing and 0:06:44.320 --> 0:06:49.039 proposing rules, far exceeding his predecessors, and many of the 0:06:49.080 --> 0:06:51.440 rules he was proposing were not required by statute, so 0:06:51.480 --> 0:06:54.840 he was really going above and beyond, and that is 0:06:54.880 --> 0:06:58.000 all being dialed back pretty quickly. The people who are 0:06:58.000 --> 0:07:00.160 in place are just right now just trying to and 0:07:00.400 --> 0:07:03.960 anything that was happening under their predecessors. And as I said, 0:07:04.040 --> 0:07:06.640 some of that makes sense. For instance, these really onerous 0:07:06.760 --> 0:07:11.040 requirements on mergers between banks and probably don't make that 0:07:11.160 --> 0:07:14.440 much sense. Bank mergers are in and of themselves not 0:07:14.520 --> 0:07:17.520 a bad thing. They can actually make the system safer sometimes. 0:07:18.120 --> 0:07:21.040 That said, I mean, they've basically gutted the Consumer Financial 0:07:21.080 --> 0:07:24.400 Protection Bureau, which had done some pretty useful work in 0:07:24.440 --> 0:07:29.800 protecting consumers. And remains to be seen how lowering capital 0:07:29.840 --> 0:07:33.680 requirements as are proposing will affect the resilience of banks 0:07:33.680 --> 0:07:36.360 if things go wrong. And then they're dialing back some 0:07:36.440 --> 0:07:39.120 of the oversight that had been proposed over the sort 0:07:39.120 --> 0:07:42.560 of so called shadow banking system, which poses its own 0:07:42.600 --> 0:07:45.640 set of potential dangers. I thought it was interesting just 0:07:45.680 --> 0:07:48.400 to make one point that the SEC one of the 0:07:48.400 --> 0:07:51.600 commissioners who's still on the Commission, who's a Republican, is 0:07:51.840 --> 0:07:56.280 Hester Pierce. She's so pro the cryptocurrency industry that she's 0:07:56.360 --> 0:07:59.320 known as crypto mom, but she actually put out a 0:07:59.360 --> 0:08:03.680 fascinating last week pushing back at the effort to tokenize 0:08:03.760 --> 0:08:07.239 all the financial instruments. If you tokenize things, it doesn't 0:08:07.280 --> 0:08:11.520 magically change the underlying thing. You can't just avoid securities 0:08:11.840 --> 0:08:15.480 laws by tokenizing something. So even people are who are 0:08:15.520 --> 0:08:18.320 industry advocates who are starting to see they need to 0:08:18.680 --> 0:08:21.560 push back a little bit against some of the excessive 0:08:22.040 --> 0:08:23.720 optimism of the people there. 0:08:24.080 --> 0:08:26.320 So just to touch into the weeds a little bit. 0:08:26.600 --> 0:08:30.160 One of the rules that has certainly been a little 0:08:30.200 --> 0:08:33.000 bit unpopular among some of the big banks is this 0:08:33.400 --> 0:08:38.040 supplemental ratio, which is supposed to be about maintaining the 0:08:38.120 --> 0:08:40.640 strength of the balance sheet of the bank and making 0:08:40.679 --> 0:08:43.600 sure that they can't be too highly leveraged. But there's 0:08:43.640 --> 0:08:47.240 a change in effective loosening in that which the administration 0:08:47.360 --> 0:08:50.440 is very keen to achieve. You know, roughly, what is 0:08:50.480 --> 0:08:52.199 that aimed at doing? Katanga? 0:08:52.840 --> 0:08:57.160 Roughly, the regulators hope that by making changes to the ratio, 0:08:57.800 --> 0:09:02.680 to the enhanced supplementary leverage ratio, that trading in the 0:09:02.720 --> 0:09:05.439 twenty nine trillion dollar treasuries market, particularly in a. 0:09:05.360 --> 0:09:07.679 Moment you had federal government bonds, Yeah. 0:09:07.920 --> 0:09:11.520 Would be easier for the likes of JP, Morgan Goldmansas, 0:09:11.520 --> 0:09:15.800 and Morgan Stanley, And by lowering that requirement for those banks, 0:09:16.080 --> 0:09:19.840 it would allow them and their subsidiaries to sort of 0:09:19.840 --> 0:09:21.439 have the same requirement. 0:09:21.840 --> 0:09:25.200 So, Christine, I'm remembering in the first Trump administration, some 0:09:25.240 --> 0:09:27.360 of the constraints that were put on banks after the 0:09:27.400 --> 0:09:31.120 global financial crisis were paired back, and then it was 0:09:31.400 --> 0:09:34.080 suggested later that those changes had helped put us on 0:09:34.120 --> 0:09:36.600 a path to the bank failures we had a couple 0:09:36.640 --> 0:09:39.000 of years ago. I guess you know, Silicon Valley Banks 0:09:39.040 --> 0:09:42.520 signature First Republic. Do you have the same kind of 0:09:42.520 --> 0:09:46.839 worries about this effort to change the supplemental leverage ratio 0:09:47.000 --> 0:09:48.839 or do you think it actually makes a bit of sense. 0:09:49.880 --> 0:09:51.960 Well, I mean, it's certainly true that the size of 0:09:52.000 --> 0:09:55.240 the treasury market has grown dramatically since those rules were 0:09:55.240 --> 0:09:58.040 first proposed back in I think twenty fourteen, and so 0:09:58.840 --> 0:10:01.480 when they were proposed, there was supposed to be this 0:10:01.640 --> 0:10:05.680 limit on how many assets banks could have compared to 0:10:05.800 --> 0:10:08.560 their level of capital, even if those assets were super 0:10:08.559 --> 0:10:12.600 safe things like treasuries or central bank reserves. So they 0:10:12.600 --> 0:10:15.040 wanted to make sure that there was a minimum sort 0:10:15.040 --> 0:10:18.040 of backstop, no matter what the riskiness of their assets was. 0:10:18.240 --> 0:10:20.760 But as this treasury market has grown, now the banks 0:10:20.760 --> 0:10:24.520 are constrained when things really developed from being able to 0:10:24.960 --> 0:10:29.240 just buy unlimited treasuries, and as a result you've seen 0:10:29.240 --> 0:10:32.880 a lot of hedge funds and proprietary trading firms step 0:10:32.920 --> 0:10:35.880 in and do a lot more activity in the treasury market. 0:10:36.440 --> 0:10:38.959 The problem is that if you lower that backstop, that 0:10:39.040 --> 0:10:43.480 sort of minimum capital requirement for banks, you're just reducing 0:10:43.840 --> 0:10:48.200 the safety that bank depositors and other investors have that 0:10:48.440 --> 0:10:50.840 if something goes wrong in the assets on the bank's 0:10:50.880 --> 0:10:53.520 balance sheet, that they'll have enough capital to deal with it. 0:10:54.160 --> 0:10:57.040 So things just go wrong, they always do, and so 0:10:57.920 --> 0:11:00.400 as a result, it would make more sense in my 0:11:00.520 --> 0:11:03.360 view to have capital requirements where they are. It doesn't 0:11:03.400 --> 0:11:05.160 seem necessarily to lower them. There are other ways you 0:11:05.160 --> 0:11:06.880 could solve the problems in the treasury market. 0:11:06.920 --> 0:11:09.000 It is funny when you look at a bank balance sheet, 0:11:09.040 --> 0:11:10.640 there is this kind of basic fact that if it 0:11:10.679 --> 0:11:12.720 was any other business, you would say. 0:11:12.600 --> 0:11:14.400 It was hugely bankrupt. You know. 0:11:14.480 --> 0:11:16.880 It's like they're the only institutions that are able to 0:11:16.920 --> 0:11:19.960 have a relatively small amount of equity, and then they're 0:11:20.040 --> 0:11:22.160 lending a huge amount on the back of that, which 0:11:22.200 --> 0:11:23.600 you'd never be able to do if you were just 0:11:23.640 --> 0:11:25.960 a sort of normal, normal company. 0:11:25.640 --> 0:11:27.319 Right, And that's by design. And that's one of the 0:11:27.440 --> 0:11:29.600 arguments that a lot of the you know, private credit 0:11:29.679 --> 0:11:32.240 and non bank companies are saying is that you know, 0:11:32.240 --> 0:11:34.680 we have a different model where we have more permanent capital, 0:11:35.240 --> 0:11:38.280 and so there's no risk that depositors suddenly flee and 0:11:38.440 --> 0:11:41.679 you have a problem with, you know, trying to repay 0:11:41.720 --> 0:11:44.760 your lenders. But banks, you know, are always going to 0:11:44.760 --> 0:11:47.679 be leveraged. But making sure that they're not over leverage 0:11:47.800 --> 0:11:50.320 is sort of the core part of the post financial 0:11:50.320 --> 0:11:53.200 crisis regulation, and so any effort to sort of water 0:11:53.320 --> 0:11:55.520 that down seems concerning. 0:11:55.880 --> 0:11:56.439 I could take it. 0:11:56.480 --> 0:11:58.920 I think, I mean Scott Besson, the Treasury Sectuary, it 0:11:58.960 --> 0:12:02.839 does seem to be one of the key movers in 0:12:03.000 --> 0:12:07.240 this financial deregulation or certainly to this push to change 0:12:07.280 --> 0:12:10.760 banking regulation. And of course the Treasure Secutor has always 0:12:10.800 --> 0:12:12.920 had quite a lot of power in these areas, but 0:12:12.960 --> 0:12:16.360 I guess the way that the administration has concentrated power 0:12:16.400 --> 0:12:19.319 and gained a lot more influence over the independent agencies. 0:12:19.320 --> 0:12:22.280 You know, Supreme Court has kind of given them the 0:12:22.480 --> 0:12:25.400 power to hire and fire many of these officials or 0:12:25.440 --> 0:12:27.880 independent agencies who we previously would have thought of as 0:12:27.920 --> 0:12:31.160 a bit more arm's length from the administration. I mean, 0:12:31.240 --> 0:12:34.319 I write in thinking that he has become a particularly 0:12:34.320 --> 0:12:38.120 important figure in this and along with Michelle Bowman, is 0:12:38.160 --> 0:12:41.000 you know, really giving the administration a much sort of 0:12:41.240 --> 0:12:45.319 clearer unified policy making than we might have had in 0:12:45.440 --> 0:12:46.360 previous series. 0:12:46.480 --> 0:12:50.320 You're right, Stephanie, that'son has really taken the helm of 0:12:50.360 --> 0:12:54.079 the financial regulators and said, let's coordinate our efforts by 0:12:54.160 --> 0:12:57.839 meeting with the heads of the three main banked regulators, 0:12:58.040 --> 0:13:00.880 the Federal Reserve, the Federal Deposit Insurance Corp, and the 0:13:00.920 --> 0:13:04.319 Treasury Zone Office of the Control of the Currency. Together, 0:13:04.360 --> 0:13:07.880 those three agencies are now trying to coordinate their efforts 0:13:08.040 --> 0:13:13.960 in streamlining rules, discussing the sort of priorities around changes 0:13:14.000 --> 0:13:14.520 to capital. 0:13:14.800 --> 0:13:17.679 Call me suspicious, but I can't help noticing that Scott 0:13:17.720 --> 0:13:20.199 Bessont the Treasury sector, who's now going to be also 0:13:20.280 --> 0:13:25.120 presiding over a massive increase in the number of US treasuries. 0:13:25.160 --> 0:13:26.600 I mean, the debt is going to go up by 0:13:26.640 --> 0:13:30.040 several trillion dollars at least according to almost everyone's forecast. 0:13:30.559 --> 0:13:32.679 Is it a coincidence that he also wants to make 0:13:32.720 --> 0:13:35.880 it much easier for banks to hold treasuries not worried 0:13:35.920 --> 0:13:37.880 too much about how many they own. Isn't that going 0:13:37.880 --> 0:13:40.200 to be unbalance sort of positive for the market at 0:13:40.200 --> 0:13:42.400 a time when the cost of borrowing for governments from 0:13:42.400 --> 0:13:42.800 going up. 0:13:43.040 --> 0:13:45.160 Many people would agree that yes. On its face, it's 0:13:45.200 --> 0:13:49.240 interesting that Beston is playing that role and seemingly following 0:13:49.280 --> 0:13:53.240 some strategy that many others either haven't haven't seen or 0:13:53.360 --> 0:13:56.520 haven't agreed on. But what the impact will be will 0:13:56.559 --> 0:14:00.000 be rather interesting, and I imagine a lot of ways 0:14:00.000 --> 0:14:03.680 people close to him privately must be discussing, Hey, have 0:14:03.760 --> 0:14:06.360 you considered what the outcome will be by addressing things 0:14:06.360 --> 0:14:07.640 in this way on both sides? 0:14:08.160 --> 0:14:10.640 Well, that's a very careful answer, which I would expect. 0:14:10.679 --> 0:14:12.760 I would expect no less. But lots of people will 0:14:12.760 --> 0:14:15.040 be amazed that we haven't talked about crypto yet, Christine. 0:14:15.240 --> 0:14:18.280 For people on the outside, that seems like the biggest 0:14:18.360 --> 0:14:21.960 sort of mood shift and change of direction for this 0:14:22.000 --> 0:14:25.360 administration when it comes to finance. I mean, that feels 0:14:25.400 --> 0:14:29.560 like the whole world of cryptocurrencies is being kind of 0:14:29.680 --> 0:14:33.200 welcomed into the American financial system in a way that 0:14:33.400 --> 0:14:36.200 was just not the case under the previous administration. 0:14:36.840 --> 0:14:40.480 But that's absolutely true. And just to return to your 0:14:40.520 --> 0:14:44.080 previous point about the treasury market, one of the first 0:14:44.120 --> 0:14:47.040 things that the Banking Committee got to was the Genius Act, 0:14:47.120 --> 0:14:49.920 which is a way of creating a regulatory framework for 0:14:50.000 --> 0:14:52.480 what are known as stable coins. This is a part 0:14:52.480 --> 0:14:54.960 of the crypto market that basically just as you know, 0:14:55.000 --> 0:14:58.560 a digital version of the dollar, let's say, and there's 0:14:58.760 --> 0:15:01.560 part of the regulatory regime will require them to own 0:15:01.800 --> 0:15:06.280 safe assets like in particularly treasuries, and there's an argument 0:15:06.360 --> 0:15:09.360 that this will increase demand for treasuries and help the 0:15:09.440 --> 0:15:12.640 dollar and whatnot. And so you're building a sort of 0:15:12.680 --> 0:15:18.040 a whole financial structure that's even more leveraged on treasury market. 0:15:18.240 --> 0:15:21.360 So stable coins and banks, as you've talked about, At 0:15:21.360 --> 0:15:23.800 a time when the treasury market maybe is becoming a 0:15:23.800 --> 0:15:27.000 little less reliable, as you just saw a downgrade from 0:15:27.120 --> 0:15:30.960 the third of the three big rating agencies, that maybe 0:15:30.960 --> 0:15:34.480 should be a cause for some concern, but otherwise, crypto 0:15:34.560 --> 0:15:37.640 in general sort of the irony is it's being boosted 0:15:37.800 --> 0:15:41.760 by regulation because they were the least regulated thing that 0:15:41.920 --> 0:15:44.400 existed and they could do whatever they wanted. And it 0:15:44.440 --> 0:15:47.040 turned out that was not good for the crypto industry 0:15:47.120 --> 0:15:49.720 because they went too far and they stole too much money, 0:15:49.760 --> 0:15:53.520 and people lost their life savings and got scammed and 0:15:53.560 --> 0:15:56.760 got defrauded, and there were a lot of problems. And 0:15:56.840 --> 0:16:01.040 so now they're writing rules to make people feel comfortable 0:16:01.160 --> 0:16:05.080 about the crypto industry. And it's interesting that these are 0:16:05.160 --> 0:16:08.120 rules that were essentially very similar to what Sam Bankman 0:16:08.200 --> 0:16:11.040 Freed was proposing back when he was on the Hill, 0:16:11.680 --> 0:16:14.960 you know, asking for regulation by the commodity in futures. 0:16:14.720 --> 0:16:16.240 Right before his company blew up. 0:16:16.320 --> 0:16:18.920 Yeah, before he went to jail. So you know, and 0:16:19.000 --> 0:16:21.960 Trump himself was a big skeptic of crypto back in 0:16:21.960 --> 0:16:24.800 the day, kind of in the same vein as Jamie 0:16:24.880 --> 0:16:27.720 Diamond and Warren Buffett. But now he's he's in the business, 0:16:27.760 --> 0:16:30.560 so he's a proponent. So yeah, everything seems to be 0:16:30.640 --> 0:16:33.720 designed on Capitol Hill to do whatever they can to 0:16:33.800 --> 0:16:37.440 help the crypto industry. And you know, there's I think 0:16:37.760 --> 0:16:41.800 a genuinely large degree of risk in that, you know, 0:16:41.880 --> 0:16:45.160 the volatility of these assets they're just not They don't 0:16:45.160 --> 0:16:47.560 have the tradition of risk management that the sort of 0:16:47.800 --> 0:16:53.160 you know, more established banking and financial system have, So 0:16:53.240 --> 0:16:56.680 there's a lot more volatility and there's no fundamental value 0:16:56.680 --> 0:16:58.720 in a lot of these sort of meme coins or 0:16:59.040 --> 0:17:02.600 different tokens. I mean stable coins are different, obviously, but 0:17:02.720 --> 0:17:05.239 even stable coins, it's going to be a lot of 0:17:05.720 --> 0:17:08.440 tech companies starting these. One way of thinking of it 0:17:08.480 --> 0:17:10.560 is you've sort of had banks that were becoming more 0:17:10.600 --> 0:17:13.159 technologically focused, and now you're having tech companies that are 0:17:13.200 --> 0:17:15.920 becoming more bank focused, and which do you feel safe 0:17:15.960 --> 0:17:18.080 for putting your money in. It's a real question. The 0:17:18.200 --> 0:17:20.919 risk is that there we're having a bubble, which you 0:17:20.920 --> 0:17:24.200 know is very possible. We had one in twenty twenty 0:17:24.200 --> 0:17:28.320 two that popped, and then if it all turns around, 0:17:28.520 --> 0:17:31.879 then you have a big you know. And the more 0:17:31.600 --> 0:17:35.120 the more that it's a traditional financial system is connected 0:17:35.160 --> 0:17:38.160 to it, the more risk you have for the broader 0:17:38.359 --> 0:17:42.160 economy and people who aren't connected to crypto. 0:17:42.880 --> 0:17:45.240 Good Tanka weren't. There's some limits that were put on 0:17:45.560 --> 0:17:49.080 the banks to prevent them having too much exposure to crypto, 0:17:49.440 --> 0:17:53.960 and the administrator's been talking about pairing those back. 0:17:54.080 --> 0:17:54.600 Is that right? 0:17:55.440 --> 0:17:59.120 So trust regulators have indeed sort of reversed those guardrails 0:17:59.160 --> 0:18:00.800 that were put in place f I mean the twenty 0:18:00.880 --> 0:18:04.280 twenty two issues in the industry, But since then they've 0:18:04.280 --> 0:18:07.320 tried to underscore the importance of banks that are holding 0:18:07.320 --> 0:18:11.120 crypto custody, as recently as this month saying banks really 0:18:11.160 --> 0:18:14.080 should bear in mind that the onus is on those 0:18:14.119 --> 0:18:16.840 institutions for any types they have with crypto firms to 0:18:16.880 --> 0:18:19.920 make sure that they are disclosed adequately and spell it 0:18:19.960 --> 0:18:22.840 for their customers with the risks are which is commonplace. Right, 0:18:22.840 --> 0:18:23.680 that's an expectation. 0:18:24.040 --> 0:18:25.919 You know, we saw that really work very well in 0:18:25.960 --> 0:18:28.560 two thousand and eight. Just to just be careful, just 0:18:28.640 --> 0:18:30.840 make sure you know the risks on your balance sheet 0:18:31.040 --> 0:18:33.640 if you were one of the big banks. There has 0:18:33.680 --> 0:18:37.399 to be something a little bit alarming about this zeal 0:18:37.600 --> 0:18:42.000 to have this whole new form of finance that, really, 0:18:42.520 --> 0:18:46.359 although it's somewhat regulated, now makes a virtue of not 0:18:46.560 --> 0:18:51.520 being very transparent, of being difficult to track, and somewhat 0:18:51.560 --> 0:18:54.520 outside the traditional system. You have the Peter Tiels of 0:18:54.520 --> 0:18:57.920 this world and others they actively want to you would say, 0:18:57.920 --> 0:19:02.720 dis intermediate you know, bring the final outside of traditional banks. 0:19:02.800 --> 0:19:05.840 It is a threat to the traditional financial system ultimately, 0:19:05.920 --> 0:19:07.960 and its administration seems to be all in favor. 0:19:08.600 --> 0:19:11.000 Well, I mean in two ways. So I would say 0:19:11.160 --> 0:19:14.439 one thing that's been a rallying cry among Republicans this 0:19:14.520 --> 0:19:18.760 year has been this claim that the big banks were debanking, 0:19:19.440 --> 0:19:25.359 meaning denying banking services to crypto related companies, just on 0:19:25.400 --> 0:19:28.520 the basis of sort of reputation or not liking them, 0:19:28.640 --> 0:19:30.560 and that this was a wrong thing and that it 0:19:30.640 --> 0:19:33.840 had to be stopped. And so you know, there was 0:19:34.000 --> 0:19:36.760 put in place a change so that you know, regulators 0:19:36.760 --> 0:19:41.800 couldn't consider reputation risk when they're assessing banks. Banks have 0:19:41.880 --> 0:19:45.040 a lot of reasons why they legitimately had to have 0:19:45.080 --> 0:19:48.119 concerns about banking with these crypto companies. One of the 0:19:48.240 --> 0:19:50.200 with them is just how onerous it is to do 0:19:50.320 --> 0:19:53.320 the anti money laundering checks. This is a system that's 0:19:53.359 --> 0:19:57.680 designed to get around the regulated financial system. It has 0:19:57.800 --> 0:20:03.080 been used by criminal and illicit funds. So now they're 0:20:03.119 --> 0:20:05.720 almost being pushed that you have to bank crypto. If 0:20:05.760 --> 0:20:08.880 you're not, you're somehow debanking. You're doing this illegal and 0:20:09.000 --> 0:20:11.200 sort of almost like a First Amendment the kind of thing. 0:20:11.760 --> 0:20:14.560 On the other front, there is this real concern that 0:20:14.720 --> 0:20:17.359 some of the rules that have traditionally applied to the 0:20:17.400 --> 0:20:20.680 financial sector, like the US has always had this concept 0:20:20.680 --> 0:20:24.240 of the separation of commerce and banking. In other words, 0:20:24.240 --> 0:20:26.840 we don't want Walmart to also be a bank because 0:20:26.960 --> 0:20:30.680 then somehow they're going to you know, prioritize their suppliers 0:20:30.720 --> 0:20:34.879 and their customers over their competitors. Stable coins are going 0:20:34.960 --> 0:20:36.720 to be allowed to be issued by a lot of 0:20:36.720 --> 0:20:40.360 tech companies, or at least the private tech companies, and 0:20:40.440 --> 0:20:43.800 so you know, this is sort of these traditional rules 0:20:43.840 --> 0:20:46.399 are just being scrapped in the interest of helping the 0:20:46.440 --> 0:20:49.320 sort of crypto industry. And so yeah, I think for 0:20:49.359 --> 0:20:51.399 the big banks and for little banks, it's sort of 0:20:51.600 --> 0:20:53.720 a concerning development development. 0:20:53.640 --> 0:20:54.240 Okay, Tangia. 0:20:54.440 --> 0:20:56.920 Is there a concern in Washington that the financial system 0:20:56.960 --> 0:20:58.360 is going to be a bit hard to control as 0:20:58.359 --> 0:21:00.480 a result of this or is that just not a 0:21:00.520 --> 0:21:02.919 voice that you hear very much when you're talking to people. 0:21:03.520 --> 0:21:06.920 Not quite the voice I'm hearing in Washington. But either 0:21:07.000 --> 0:21:10.199 former regulators on both sides, folks who work at the 0:21:10.200 --> 0:21:15.399 agencies under different administrations, academics researchers all point to the 0:21:15.400 --> 0:21:20.520 fact that it is increasingly becoming concerning that by at 0:21:20.520 --> 0:21:25.240 the same time deregulating and welcoming less traditional access to 0:21:25.680 --> 0:21:28.960