1 00:00:00,080 --> 00:00:02,520 Speaker 1: Joining us up right now from the Money twenty twenty 2 00:00:02,560 --> 00:00:05,080 Speaker 1: conference out in Las Vegas is Randall Corals. He's the 3 00:00:05,080 --> 00:00:08,360 Speaker 1: former FED Vice Chair for Supervision here in the US 4 00:00:08,400 --> 00:00:11,200 Speaker 1: and now he's the founder of the private investment firm 5 00:00:11,280 --> 00:00:13,800 Speaker 1: Sinacher Group. Please to say that Randy joins us right 6 00:00:13,800 --> 00:00:16,759 Speaker 1: now from the sidelines of that conference, and Randy, I 7 00:00:16,760 --> 00:00:18,759 Speaker 1: do want to start off here with this idea of 8 00:00:18,840 --> 00:00:21,239 Speaker 1: the new regulation that may be coming down the pike. 9 00:00:21,320 --> 00:00:23,680 Speaker 1: Now that we're I don't know, seven eight months removed 10 00:00:24,040 --> 00:00:26,840 Speaker 1: from the initial fallout from the regional banking crisis here 11 00:00:26,880 --> 00:00:30,280 Speaker 1: in the US, we still haven't seen meaningful changes. When 12 00:00:30,280 --> 00:00:31,640 Speaker 1: do you expect them to come. 13 00:00:34,360 --> 00:00:37,760 Speaker 2: Well, I expect they'll be proposed relatively shortly. I do 14 00:00:37,840 --> 00:00:40,760 Speaker 2: think that. I mean I expect they'll be made final 15 00:00:40,800 --> 00:00:44,840 Speaker 2: relatively shortly. The proposals, I think have missed the mark 16 00:00:45,000 --> 00:00:48,640 Speaker 2: on what's really implied by the bank failures of the spring. 17 00:00:49,040 --> 00:00:52,000 Speaker 2: The proposals are proposing a lot more capital for the 18 00:00:52,080 --> 00:00:54,280 Speaker 2: very largest banks in the country, But across the system, 19 00:00:54,320 --> 00:00:57,320 Speaker 2: they're proposing a lot more internal liquidity that banks have 20 00:00:57,400 --> 00:00:59,880 Speaker 2: to keep a much higher level of liquid assets. And 21 00:01:01,240 --> 00:01:04,800 Speaker 2: neither of those would have prevented the problems in the spring. 22 00:01:05,920 --> 00:01:08,720 Speaker 2: I think that the Fed Reserve really needs to focus 23 00:01:08,760 --> 00:01:11,959 Speaker 2: on re energizing its own provision of liquidity for the 24 00:01:11,959 --> 00:01:14,839 Speaker 2: banking sestiment of the financial sector sector as a whole, 25 00:01:16,280 --> 00:01:19,520 Speaker 2: to really solve the pressures that the financial system is 26 00:01:19,600 --> 00:01:21,160 Speaker 2: under us were shown less March. 27 00:01:21,319 --> 00:01:23,200 Speaker 1: Well, I'm sure, as you know, Randy, there are a 28 00:01:23,240 --> 00:01:25,759 Speaker 1: lot of members of the FORMC that would push back 29 00:01:25,800 --> 00:01:27,640 Speaker 1: on that and say that they actually want to pass 30 00:01:27,920 --> 00:01:30,560 Speaker 1: the baton at least for some of that to the 31 00:01:30,600 --> 00:01:33,720 Speaker 1: private sector itself, meaning the banking sector itself, rather than 32 00:01:33,760 --> 00:01:37,080 Speaker 1: having it be something that the Fed itself ends up 33 00:01:37,080 --> 00:01:40,280 Speaker 1: being kind of about the first stop of resort, if 34 00:01:40,319 --> 00:01:40,679 Speaker 1: you will. 35 00:01:43,000 --> 00:01:46,640 Speaker 2: Yeah, I think if you're talking about liquidity, that's the 36 00:01:46,959 --> 00:01:49,760 Speaker 2: wrong way to look at it. We had a system 37 00:01:49,800 --> 00:01:53,440 Speaker 2: in the United States where banks were responsible for providing 38 00:01:53,480 --> 00:01:57,120 Speaker 2: all their own liquidity, that the principle sources of liquidity 39 00:01:57,240 --> 00:01:59,800 Speaker 2: was each bank's own resources. That was the system we 40 00:01:59,840 --> 00:02:02,680 Speaker 2: had through the late nineteenth century and into the beginning 41 00:02:02,680 --> 00:02:06,080 Speaker 2: of the twentieth century, and it was wildly unstable. There's 42 00:02:06,120 --> 00:02:08,560 Speaker 2: just not a way that a two hundred billion dollar 43 00:02:08,639 --> 00:02:11,880 Speaker 2: bank could have enough internal liquidity to respond to one 44 00:02:11,919 --> 00:02:13,920 Speaker 2: hundred and forty two billion dollar run, which is what 45 00:02:14,000 --> 00:02:16,840 Speaker 2: Silicon Valley Bank was looking at it in the at 46 00:02:16,880 --> 00:02:20,440 Speaker 2: the beginning of March. That's why the FED was created 47 00:02:20,480 --> 00:02:24,280 Speaker 2: in nineteen thirteen, because the system of requiring every bank 48 00:02:24,480 --> 00:02:28,240 Speaker 2: to have its own high quality liquid assets and completely 49 00:02:28,240 --> 00:02:33,160 Speaker 2: rely on those for responding to a run was It 50 00:02:33,280 --> 00:02:36,800 Speaker 2: was a definitely inferior system. It resulted in financial crises 51 00:02:36,960 --> 00:02:42,399 Speaker 2: and economic depressions, and the FED was created to eliminate 52 00:02:42,440 --> 00:02:45,520 Speaker 2: all of that. But since the Great Financial Crisis, we've 53 00:02:45,560 --> 00:02:50,240 Speaker 2: moved back to increasingly requiring the banks not only have 54 00:02:50,400 --> 00:02:56,040 Speaker 2: a first level of response amount of liquid assets, that 55 00:02:56,120 --> 00:02:58,680 Speaker 2: they really are expected to provide all their own liquidity. 56 00:02:58,720 --> 00:03:00,000 Speaker 2: And that's just not how it should be. 57 00:03:01,320 --> 00:03:05,280 Speaker 3: Randy in retrospect, do you have any regrets about policy 58 00:03:05,360 --> 00:03:10,800 Speaker 3: choices that the FED made with regard to the collapse 59 00:03:10,840 --> 00:03:12,919 Speaker 3: of Silicon Valley bankers and the other lenders? 60 00:03:16,680 --> 00:03:20,600 Speaker 2: So, I mean, Silicon Valley Bank failed almost two years 61 00:03:20,639 --> 00:03:23,920 Speaker 2: after I had left the FED. So I guess, if 62 00:03:23,960 --> 00:03:29,400 Speaker 2: you're asking, should the FED have supervised Silicon Valley Bank differently, 63 00:03:29,520 --> 00:03:31,959 Speaker 2: most of that was during the period that I was gone. 64 00:03:32,000 --> 00:03:37,040 Speaker 2: Of course, I don't think that the regulatory framework was 65 00:03:37,080 --> 00:03:39,400 Speaker 2: really at fault. There's been a lot of analysis of 66 00:03:39,440 --> 00:03:44,839 Speaker 2: that the regulations were completely adequate to have prevented the 67 00:03:44,840 --> 00:03:47,200 Speaker 2: failure of Silicon Valley Bank, or at least ensure that 68 00:03:47,200 --> 00:03:50,640 Speaker 2: there was a proper official sector response. I do think 69 00:03:50,680 --> 00:03:55,440 Speaker 2: that there is too much of a willingness on the 70 00:03:55,480 --> 00:03:58,640 Speaker 2: part of the supervisory system in general to focus on 71 00:03:58,960 --> 00:04:02,160 Speaker 2: non core issue use and not focus on the most 72 00:04:02,160 --> 00:04:05,520 Speaker 2: important issues, which in the case of SVB was liquidity 73 00:04:05,560 --> 00:04:10,240 Speaker 2: and interest rate risk and concentration of deposits, and and 74 00:04:10,280 --> 00:04:12,960 Speaker 2: that's something the supervisor's job is very hard. I don't 75 00:04:13,000 --> 00:04:15,640 Speaker 2: felt the supervisors for that at all, but it is 76 00:04:15,680 --> 00:04:19,480 Speaker 2: something that we have to continually work on to ensure 77 00:04:19,520 --> 00:04:23,560 Speaker 2: that the supervisors are focusing on what's most important and 78 00:04:23,680 --> 00:04:25,040 Speaker 2: not just trying to boil the ocean. 79 00:04:25,560 --> 00:04:27,719 Speaker 3: What are some of the non core issues that you're 80 00:04:27,720 --> 00:04:32,520 Speaker 3: referring to that perhaps regulators are overly concerned with. 81 00:04:34,680 --> 00:04:37,000 Speaker 2: Oh, there's a great deal of if you look at 82 00:04:37,120 --> 00:04:39,320 Speaker 2: again to day, Silicon Valley Bank as the core example. 83 00:04:39,320 --> 00:04:42,039 Speaker 2: Although you know two other banks failed in the spring, 84 00:04:42,080 --> 00:04:44,640 Speaker 2: and they were both supervised explosively by the FDIC and 85 00:04:44,680 --> 00:04:46,760 Speaker 2: not by the FED. But if you look at Silicon 86 00:04:46,839 --> 00:04:49,479 Speaker 2: Valley Bank, you know, the Fed's been very candid in saying, 87 00:04:49,520 --> 00:04:52,160 Speaker 2: here's the supervisory approach that we had had to it. 88 00:04:52,480 --> 00:04:56,360 Speaker 2: They had thirty two I think matters requiring attention or 89 00:04:56,400 --> 00:05:02,400 Speaker 2: matters requiring immediate attention, which is the supervisor's for matters 90 00:05:02,400 --> 00:05:07,000 Speaker 2: that had been identified for urgent remedial attention. Very few 91 00:05:07,000 --> 00:05:10,080 Speaker 2: of those had anything to do with what really mattered 92 00:05:10,120 --> 00:05:13,400 Speaker 2: to the bank, which was liquidity and interest rate risk. 93 00:05:13,520 --> 00:05:15,719 Speaker 2: And even those that did have something to do with 94 00:05:15,720 --> 00:05:18,400 Speaker 2: liquidity and interest rate risk were not at the highest 95 00:05:18,480 --> 00:05:23,280 Speaker 2: level of importance. And we're more about process as opposed 96 00:05:23,320 --> 00:05:25,160 Speaker 2: to you must address this risk. Now. 97 00:05:25,839 --> 00:05:28,000 Speaker 1: I know you've moved on from that job as vice chair, 98 00:05:28,040 --> 00:05:31,719 Speaker 1: but RANDI, would you support giving the regional banks a 99 00:05:31,720 --> 00:05:34,359 Speaker 1: little bit more power, a little bit more autonomy to 100 00:05:34,400 --> 00:05:37,839 Speaker 1: make decisions with regards to these regulatory issues we're talking about. 101 00:05:38,000 --> 00:05:39,440 Speaker 1: And I'm just going back to a lot of the 102 00:05:39,440 --> 00:05:44,080 Speaker 1: criticism that was put towards Mary Daly's way and whether 103 00:05:44,120 --> 00:05:46,400 Speaker 1: the San Francisco FED was asleep at the wheel. But 104 00:05:46,440 --> 00:05:48,600 Speaker 1: there has been this call as to why the reserve 105 00:05:48,680 --> 00:05:51,400 Speaker 1: banks still need to be dependent on the FED board 106 00:05:51,440 --> 00:05:53,360 Speaker 1: to sort of give them the green light to do 107 00:05:53,440 --> 00:05:55,560 Speaker 1: some of the regulatory actions that they want to do. 108 00:05:57,880 --> 00:06:03,200 Speaker 2: Yeah, I'm very much in favor of empowering the reserve 109 00:06:03,279 --> 00:06:07,080 Speaker 2: banks up to a point. There's a pendulum over decades. 110 00:06:07,120 --> 00:06:09,279 Speaker 2: This is not just since the Great Financial Crisis, but 111 00:06:10,200 --> 00:06:13,640 Speaker 2: particularly in the FED system, but across the bank regulators, 112 00:06:14,640 --> 00:06:18,520 Speaker 2: where you empower the folks in the field, and then 113 00:06:18,680 --> 00:06:22,000 Speaker 2: you get a lot of differing decisions so that institutions 114 00:06:22,000 --> 00:06:24,400 Speaker 2: that are really very similarly situated, It depends on what 115 00:06:24,520 --> 00:06:28,080 Speaker 2: particular local supervisor they're talking to. So then the system 116 00:06:28,160 --> 00:06:32,640 Speaker 2: tries to centralize more of the decision making, and that 117 00:06:32,680 --> 00:06:38,839 Speaker 2: results in slowing down decision making, and which was some 118 00:06:38,960 --> 00:06:42,480 Speaker 2: of what we saw in the Silicon Valley bank and 119 00:06:42,800 --> 00:06:46,279 Speaker 2: Signature and First Republic situations where you just had the 120 00:06:46,320 --> 00:06:49,000 Speaker 2: center being a bottleneck, so you try to swing that 121 00:06:49,120 --> 00:06:52,520 Speaker 2: back out. You're trying to strike a balance. After the 122 00:06:52,520 --> 00:06:55,800 Speaker 2: Great Financial Crisis, the FED long before I got there, 123 00:06:55,839 --> 00:06:58,159 Speaker 2: of course, but the FED brought everything back into the 124 00:06:58,200 --> 00:07:01,600 Speaker 2: center again as part of trying to respond to that 125 00:07:02,320 --> 00:07:05,000 Speaker 2: age old question of where should the center of gravity be? 126 00:07:06,000 --> 00:07:08,320 Speaker 2: I think it is appropriate to swing that center of 127 00:07:08,320 --> 00:07:14,040 Speaker 2: gravity back out somewhat to the reserve banks without undermining 128 00:07:14,200 --> 00:07:18,880 Speaker 2: the consistency of decisions that are made across the entire system. Randy, 129 00:07:18,920 --> 00:07:19,800 Speaker 2: before we let you go. 130 00:07:19,840 --> 00:07:22,360 Speaker 3: The feed, of course, is also looking into perhaps revising 131 00:07:22,400 --> 00:07:26,120 Speaker 3: the cap on interchange fees for that merchant's paid to 132 00:07:26,360 --> 00:07:28,920 Speaker 3: the debit card companies every time a customer swipes or 133 00:07:28,960 --> 00:07:32,840 Speaker 3: debit card. Is this necessary and if so, what would 134 00:07:32,880 --> 00:07:39,120 Speaker 3: reducing the cap lowering the cap mean for the banking system. 135 00:07:40,080 --> 00:07:43,480 Speaker 2: I myself don't think that it's necessary to revisit the cap. 136 00:07:44,360 --> 00:07:47,760 Speaker 2: That was the idea of the cap. It was a 137 00:07:47,920 --> 00:07:52,160 Speaker 2: very well intentioned measure that was intended to be pro consumer, 138 00:07:52,880 --> 00:07:55,560 Speaker 2: that you could shift some of the surplus from the 139 00:07:55,560 --> 00:07:59,000 Speaker 2: banking system to the consumer. It's very clear that all 140 00:07:59,040 --> 00:08:01,080 Speaker 2: that it has done, have all of the data and 141 00:08:01,120 --> 00:08:04,120 Speaker 2: a lot of experience with the first iteration of the cap, 142 00:08:04,320 --> 00:08:07,160 Speaker 2: and it's just shifted that surplus from the banks to 143 00:08:07,320 --> 00:08:10,920 Speaker 2: the large retailers. There's no particular reason that the government 144 00:08:11,000 --> 00:08:13,840 Speaker 2: should care where that surplus goes between the banks and 145 00:08:13,840 --> 00:08:16,640 Speaker 2: the large retailers. That's for them to negotiate among themselves. 146 00:08:17,360 --> 00:08:19,440 Speaker 2: None of it is going to the consumer, or very 147 00:08:19,520 --> 00:08:21,320 Speaker 2: very little of it and that would be the case 148 00:08:21,360 --> 00:08:24,560 Speaker 2: if you tried to further ratchet down that cap to day, 149 00:08:24,720 --> 00:08:27,320 Speaker 2: it would just transfer more over to the large retailers. 150 00:08:27,560 --> 00:08:29,760 Speaker 1: All right, Brandy, thanks for taking time for us. We're 151 00:08:29,760 --> 00:08:31,840 Speaker 1: going to have to leave it there. Randy Quarrels, of course, 152 00:08:31,840 --> 00:08:34,520 Speaker 1: he was the first vice chair for supervision over at 153 00:08:34,559 --> 00:08:38,560 Speaker 1: the Federal Reserve, now at the private investment firm Cinoshare Group, 154 00:08:38,559 --> 00:08:41,040 Speaker 1: and joining us today out at the Money twenty twenty 155 00:08:41,080 --> 00:08:42,520 Speaker 1: conference in Las Vegas.