1
00:00:10,119 --> 00:00:13,200
Speaker 1: Hello, and welcome to another episode of the All Thoughts podcast.

2
00:00:13,280 --> 00:00:16,800
Speaker 1: I'm Tracy Alloway and I'm Joe Wisenthal. So you are

3
00:00:16,840 --> 00:00:19,959
Speaker 1: about to listen to a very special episode. This is

4
00:00:20,040 --> 00:00:23,880
Speaker 1: a live conversation that we recorded with Michael Barr, the

5
00:00:24,000 --> 00:00:28,800
Speaker 1: fed's Vice Chair for Supervision, at the Clearinghouse Annual Conference

6
00:00:28,920 --> 00:00:30,920
Speaker 1: in New York on November seventeenth.

7
00:00:31,240 --> 00:00:33,279
Speaker 2: What should we talk about? There's nothing going on.

8
00:00:33,640 --> 00:00:36,000
Speaker 1: It's not like there's been any development in payments or

9
00:00:36,080 --> 00:00:38,080
Speaker 1: bank regulation. It's kind of boring.

10
00:00:38,440 --> 00:00:39,080
Speaker 3: Yeah, I don't know.

11
00:00:39,520 --> 00:00:41,640
Speaker 1: No, Okay, there is a lot to talk about, so

12
00:00:41,760 --> 00:00:43,560
Speaker 1: I should get started right away.

13
00:00:44,159 --> 00:00:45,559
Speaker 2: Why don't we start with payments.

14
00:00:45,640 --> 00:00:48,519
Speaker 1: We are at the Clearinghouse conference, so that's probably a

15
00:00:48,520 --> 00:00:51,400
Speaker 1: good place to start. You know, you launched FED now,

16
00:00:51,800 --> 00:00:55,280
Speaker 1: the new real time payments clearing system, a few months

17
00:00:55,320 --> 00:00:56,560
Speaker 1: ago in the summer.

18
00:00:57,040 --> 00:00:57,760
Speaker 2: How's that going.

19
00:00:57,880 --> 00:01:00,000
Speaker 1: What's the takeup been like and what have you learned

20
00:01:00,360 --> 00:01:01,160
Speaker 1: since launching that?

21
00:01:01,640 --> 00:01:03,880
Speaker 3: Well? I think it's going well. I think the important

22
00:01:03,880 --> 00:01:06,840
Speaker 3: thing to remember about take up is that it's going

23
00:01:06,920 --> 00:01:09,560
Speaker 3: to take a long time. When we've seen any payments

24
00:01:09,600 --> 00:01:13,039
Speaker 3: innovation in our economy, it takes a long time for

25
00:01:13,200 --> 00:01:16,200
Speaker 3: people to get used to the idea, to develop it,

26
00:01:16,400 --> 00:01:18,640
Speaker 3: to figure out how they're going to use it. But

27
00:01:18,800 --> 00:01:21,200
Speaker 3: right now, what we've done is built the rails, and

28
00:01:21,319 --> 00:01:23,840
Speaker 3: those rails can be used by the making sector to

29
00:01:23,920 --> 00:01:28,520
Speaker 3: provide new services to their customers, to households and businesses.

30
00:01:29,319 --> 00:01:32,800
Speaker 3: Take up really requires banks to decide that their customers

31
00:01:32,840 --> 00:01:35,480
Speaker 3: really want the service, and then they can innovate on

32
00:01:35,520 --> 00:01:37,360
Speaker 3: top of it. And that's what we're looking forward to

33
00:01:37,400 --> 00:01:37,920
Speaker 3: over time.

34
00:01:38,280 --> 00:01:41,880
Speaker 4: Do you have any way of gauging sitting aside that

35
00:01:41,920 --> 00:01:45,160
Speaker 4: it's going to take a while. It's what constitutes a

36
00:01:45,200 --> 00:01:48,120
Speaker 4: benchmark that we should watch for of Okay, this is

37
00:01:48,720 --> 00:01:51,840
Speaker 4: taking up again, sitting aside that we maybe decades, but

38
00:01:52,120 --> 00:01:54,760
Speaker 4: what should we be looking out for to see is this.

39
00:01:54,760 --> 00:01:57,640
Speaker 3: Going well again? I think the right way to think

40
00:01:57,640 --> 00:02:00,800
Speaker 3: about this is over the very long term. If you

41
00:02:00,840 --> 00:02:03,840
Speaker 3: look to think about any payments innovation, whether it's the

42
00:02:04,040 --> 00:02:07,280
Speaker 3: development of banknotes or the rise of checks in the

43
00:02:07,320 --> 00:02:11,240
Speaker 3: seventeen hundreds, or really any kind of innovation we've seen

44
00:02:11,760 --> 00:02:14,560
Speaker 3: in payments, they take a very long time to build

45
00:02:14,600 --> 00:02:18,000
Speaker 3: a network. Once that network gets built and you have scale,

46
00:02:18,680 --> 00:02:21,040
Speaker 3: then it really takes off and everybody assumes it's been

47
00:02:21,040 --> 00:02:23,720
Speaker 3: that way forever. So we're really at the very early

48
00:02:23,800 --> 00:02:24,560
Speaker 3: stages of this.

49
00:02:25,360 --> 00:02:29,880
Speaker 1: So speaking of development, I am not a payments expert.

50
00:02:30,120 --> 00:02:32,320
Speaker 1: I used to know more about the space when I

51
00:02:32,360 --> 00:02:34,680
Speaker 1: was a banking correspondent, but that was like more than

52
00:02:34,720 --> 00:02:37,360
Speaker 1: ten years ago at this point. But I do remember

53
00:02:37,840 --> 00:02:41,960
Speaker 1: ten years ago the Clearinghouse also developed its own real

54
00:02:42,000 --> 00:02:46,120
Speaker 1: time payment system. Is it weird that we've ended up

55
00:02:46,400 --> 00:02:49,280
Speaker 1: with two basically a publicly owned one and a sort

56
00:02:49,320 --> 00:02:50,679
Speaker 1: of privately owned.

57
00:02:50,800 --> 00:02:53,400
Speaker 3: We actually have a very long history in this country

58
00:02:53,400 --> 00:02:56,480
Speaker 3: of having both public rails and private rails. That's the

59
00:02:56,520 --> 00:03:00,400
Speaker 3: way most of our payments technology has evolved over time,

60
00:03:00,800 --> 00:03:04,160
Speaker 3: and most of our payment systems today have both public

61
00:03:04,200 --> 00:03:07,280
Speaker 3: aspects and private aspects. We really think of these things

62
00:03:07,280 --> 00:03:11,239
Speaker 3: as complementary. We work really closely together. You know, David

63
00:03:11,280 --> 00:03:15,959
Speaker 3: and Mark were taking selfies yesterday. These are close collaborations.

64
00:03:16,000 --> 00:03:19,000
Speaker 2: Yes, glad we could be here to facilitate it.

65
00:03:19,280 --> 00:03:21,560
Speaker 1: But just on this note, I mean, could you get

66
00:03:21,600 --> 00:03:24,960
Speaker 1: a situation where, for instance, a lot of the higher

67
00:03:25,080 --> 00:03:28,799
Speaker 1: volume payments from the big banks are traveling along the

68
00:03:28,840 --> 00:03:32,480
Speaker 1: clearinghouse pipes, whereas a lot of the smaller payments from

69
00:03:32,520 --> 00:03:35,280
Speaker 1: smaller banks are going along the public rails basically a

70
00:03:35,360 --> 00:03:37,480
Speaker 1: fracturing or a fragmentation of the system.

71
00:03:37,960 --> 00:03:39,960
Speaker 3: I don't think that if we ended up that way,

72
00:03:40,000 --> 00:03:41,600
Speaker 3: I don't think that would be a fracturing. We have

73
00:03:41,680 --> 00:03:45,880
Speaker 3: lots of systems now where larger volume payments travel one

74
00:03:45,960 --> 00:03:48,960
Speaker 3: route and smaller volume payments travel the other. That could

75
00:03:49,080 --> 00:03:52,040
Speaker 3: end up being the efficient way to do it. It would

76
00:03:52,080 --> 00:03:53,960
Speaker 3: be fine if it ended up that way. It also

77
00:03:53,960 --> 00:03:56,840
Speaker 3: would be fine if there were a mix of transactions

78
00:03:56,840 --> 00:03:59,800
Speaker 3: on both kinds of rails. They really are complementary. I

79
00:04:00,080 --> 00:04:02,600
Speaker 3: think that, you know, if you move forward many years,

80
00:04:02,640 --> 00:04:06,360
Speaker 3: we would expect that banks would have access to both

81
00:04:06,520 --> 00:04:09,839
Speaker 3: kinds of rails. They could choose which rail to send

82
00:04:09,840 --> 00:04:12,280
Speaker 3: an individual payment on. That would be great.

83
00:04:12,520 --> 00:04:15,760
Speaker 4: Why are they complementary because if they do roughly the

84
00:04:15,880 --> 00:04:18,560
Speaker 4: same thing, and I would to it that most payment

85
00:04:18,600 --> 00:04:22,320
Speaker 4: systems essentially benefit from network effects and the bigger one

86
00:04:22,440 --> 00:04:25,159
Speaker 4: makes it more valuable to use that one. Why wouldn't

87
00:04:25,200 --> 00:04:27,880
Speaker 4: we assume that it's just going to be one wins

88
00:04:27,920 --> 00:04:28,680
Speaker 4: and one loses.

89
00:04:29,200 --> 00:04:30,840
Speaker 3: Well, you know, if you again, if you look at

90
00:04:30,839 --> 00:04:35,520
Speaker 3: existing payment systems today, we have private rails for ACCH,

91
00:04:35,560 --> 00:04:39,359
Speaker 3: we have public rails for ACCH. I don't foresee this

92
00:04:39,520 --> 00:04:42,480
Speaker 3: being a conflict. I really do think that banks are

93
00:04:42,480 --> 00:04:44,839
Speaker 3: going to be able to have optionality in the systems

94
00:04:44,839 --> 00:04:47,680
Speaker 3: that they use, and they might use different rails for

95
00:04:47,720 --> 00:04:49,000
Speaker 3: different kinds of payments.

96
00:04:49,480 --> 00:04:51,920
Speaker 1: Why did it take so long to develop a real

97
00:04:51,960 --> 00:04:55,000
Speaker 1: time payment system? Because again, I mean I spent a

98
00:04:55,040 --> 00:04:56,760
Speaker 1: lot of time in the UK. I think the UK

99
00:04:56,960 --> 00:05:00,159
Speaker 1: had something equivalent in like two thousand and seven, and

100
00:05:00,279 --> 00:05:03,039
Speaker 1: we're here in twenty twenty three just launching it.

101
00:05:03,040 --> 00:05:05,760
Speaker 3: It has taken a long time. I would agree with that. Look,

102
00:05:05,960 --> 00:05:12,159
Speaker 3: the Federal Reserve is a conservative institution, and I think

103
00:05:12,200 --> 00:05:16,479
Speaker 3: that's appropriate. You know, people expect us to be able

104
00:05:16,520 --> 00:05:22,320
Speaker 3: to provide trustworthy, reliable services, and we earn that trust

105
00:05:22,440 --> 00:05:26,120
Speaker 3: by being very, very careful about everything we do, and

106
00:05:26,160 --> 00:05:27,600
Speaker 3: that's true with FED now as well.

107
00:05:28,120 --> 00:05:31,200
Speaker 4: Does the fact that there are these two competing payment

108
00:05:31,360 --> 00:05:35,640
Speaker 4: systems or maybe complementary what ambiguity about which one will

109
00:05:35,680 --> 00:05:38,560
Speaker 4: gather more volume and for which type of payments? Do

110
00:05:38,600 --> 00:05:41,559
Speaker 4: you think it slows down adoption at all in terms

111
00:05:41,600 --> 00:05:44,039
Speaker 4: of a bank having to decide which one they're going

112
00:05:44,080 --> 00:05:47,520
Speaker 4: to invest their time and energy or turning into a

113
00:05:47,560 --> 00:05:51,599
Speaker 4: retail facing application of it, and thinking about which one

114
00:05:51,640 --> 00:05:52,160
Speaker 4: is going to win.

115
00:05:53,000 --> 00:05:55,800
Speaker 3: You know what. My expectation is that banks will end

116
00:05:55,920 --> 00:05:59,880
Speaker 3: up again over time, probably adopting both the public rails

117
00:05:59,880 --> 00:06:03,520
Speaker 3: and the private rails and using them for complementary kinds

118
00:06:03,520 --> 00:06:06,320
Speaker 3: of services. It's going to take a time, you know,

119
00:06:06,360 --> 00:06:09,440
Speaker 3: I would say, especially for community banks. One of the

120
00:06:09,560 --> 00:06:13,320
Speaker 3: key issues here is making sure that core service providers

121
00:06:13,720 --> 00:06:16,719
Speaker 3: get up to speed quickly and offer the service to

122
00:06:16,800 --> 00:06:19,919
Speaker 3: all the community banks in a fair and equal and

123
00:06:20,000 --> 00:06:23,240
Speaker 3: accessible way. And so we are very focused on working

124
00:06:23,240 --> 00:06:26,159
Speaker 3: with those service providers to make sure they're offering that

125
00:06:26,240 --> 00:06:27,560
Speaker 3: service to community banks.

126
00:06:27,720 --> 00:06:29,600
Speaker 1: Can you give us a sense of the take up

127
00:06:29,680 --> 00:06:30,920
Speaker 1: and the expansion so far?

128
00:06:31,240 --> 00:06:33,920
Speaker 3: Now, what I would say is you should be thinking

129
00:06:34,000 --> 00:06:38,000
Speaker 3: about this. It's taking years to do. Take Up is

130
00:06:38,080 --> 00:06:41,320
Speaker 3: always slow at the start. It's going according to what

131
00:06:41,360 --> 00:06:44,320
Speaker 3: we thought, but that's very slow, and we expect it

132
00:06:44,360 --> 00:06:45,480
Speaker 3: to be slow at the beginning.

133
00:06:45,480 --> 00:06:49,560
Speaker 4: Will you come back on our podcasts ten years to us.

134
00:06:49,640 --> 00:06:51,840
Speaker 3: I would be delighted to That would be really fun.

135
00:06:51,960 --> 00:06:57,360
Speaker 1: Okay, well, I mean talking about long time scales. There

136
00:06:57,400 --> 00:06:59,200
Speaker 1: is a sense of irony in that the FED was

137
00:06:59,200 --> 00:07:01,560
Speaker 1: working on this for a long time and then they

138
00:07:01,600 --> 00:07:04,240
Speaker 1: release it in the summer of twenty twenty three, right

139
00:07:04,279 --> 00:07:09,279
Speaker 1: after we've seen essentially a bank run on Silicon Valley Bank,

140
00:07:09,800 --> 00:07:13,880
Speaker 1: and I've seen some commentary about a potential tension here.

141
00:07:13,960 --> 00:07:18,600
Speaker 1: You're making real time payments possible more instantaneous to posit

142
00:07:18,680 --> 00:07:22,360
Speaker 1: withdrawals twenty four to seven at a time when deposit

143
00:07:22,400 --> 00:07:26,240
Speaker 1: withdrawals have become problematic. I think Joe abat Over at

144
00:07:26,520 --> 00:07:29,440
Speaker 1: Barclay's was talking about how you're basically allowing banks to

145
00:07:29,520 --> 00:07:33,480
Speaker 1: kind of slim down their inventory in really efficient ways,

146
00:07:33,800 --> 00:07:36,440
Speaker 1: but in a way that, as we learned from the pandemic,

147
00:07:37,000 --> 00:07:40,880
Speaker 1: could be problematic if something happens. How are you balancing

148
00:07:41,080 --> 00:07:41,840
Speaker 1: that tension?

149
00:07:42,440 --> 00:07:44,720
Speaker 3: Well, you know, if you look at the situation today,

150
00:07:44,720 --> 00:07:50,440
Speaker 3: Obviously Silicon Valley Bank failed without any new technology. People

151
00:07:50,440 --> 00:07:53,320
Speaker 3: were able to withdraw it very, very quickly. The real

152
00:07:53,360 --> 00:07:57,440
Speaker 3: issue in Silicon Valley Bank was deep mismanagement of interest

153
00:07:57,480 --> 00:08:01,760
Speaker 3: rate risk and liquidity risk. The highly networked nature of

154
00:08:01,800 --> 00:08:07,520
Speaker 3: their deposit base. The technology side of that made it

155
00:08:07,560 --> 00:08:10,040
Speaker 3: possible for them to withdraw, but not in any fancy

156
00:08:10,080 --> 00:08:13,560
Speaker 3: new technology technology that's been around since the nineteen seventies.

157
00:08:13,960 --> 00:08:15,600
Speaker 3: So really, what we need to do is focus on

158
00:08:15,640 --> 00:08:18,400
Speaker 3: the fundamentals for banks to make sure that they are

159
00:08:18,400 --> 00:08:23,240
Speaker 3: appropriately managing their risks with respect to the new technology.

160
00:08:23,240 --> 00:08:27,360
Speaker 3: With respect to fed now, the individual banks can set

161
00:08:27,400 --> 00:08:30,240
Speaker 3: their own limits on the way in which they use

162
00:08:30,280 --> 00:08:33,280
Speaker 3: the technology. They can set size limits if they want,

163
00:08:33,280 --> 00:08:36,079
Speaker 3: they can cap it. So I don't think it'll introduce

164
00:08:36,679 --> 00:08:39,720
Speaker 3: new significant risks into the system. The risks and the

165
00:08:39,760 --> 00:08:41,480
Speaker 3: system that they're there, we need to make sure we

166
00:08:41,880 --> 00:08:42,880
Speaker 3: manage appropriately.

167
00:08:43,200 --> 00:08:46,680
Speaker 4: Setting aside, whether it's fed now or the private sector

168
00:08:46,760 --> 00:08:49,920
Speaker 4: clearing house one in the US. Does the fact that

169
00:08:50,360 --> 00:08:53,600
Speaker 4: arguably banks make a lot of money from the lack

170
00:08:53,600 --> 00:08:57,839
Speaker 4: of real time payments, whether it's overdraft fees, laid fees,

171
00:08:57,960 --> 00:09:00,640
Speaker 4: there's a lot of money in the business of people

172
00:09:00,720 --> 00:09:03,960
Speaker 4: not making timely payments. I also wonder maybe it's off

173
00:09:04,000 --> 00:09:05,120
Speaker 4: the mark, but I wonder, you know, we're in a

174
00:09:05,200 --> 00:09:07,880
Speaker 4: high interest rate environment, so people want to hold on

175
00:09:07,960 --> 00:09:10,199
Speaker 4: cash maybe for a few extra days. Does that when

176
00:09:10,240 --> 00:09:12,920
Speaker 4: we're thinking about timelines, do you think that that affects

177
00:09:12,920 --> 00:09:16,480
Speaker 4: the trajectory of these timelines the business of slow payments?

178
00:09:16,480 --> 00:09:19,839
Speaker 3: Basically, I do think we have to, you know, look

179
00:09:19,880 --> 00:09:23,880
Speaker 3: forward to a system in which businesses and households can

180
00:09:23,920 --> 00:09:26,840
Speaker 3: get their funds right away we might end up in

181
00:09:26,880 --> 00:09:29,680
Speaker 3: a situation where we can have a significant effect in

182
00:09:29,760 --> 00:09:35,920
Speaker 3: reducing overdraft fees, insufficient fund fees, a situation where a

183
00:09:35,920 --> 00:09:38,240
Speaker 3: small business can get paid right away for the work

184
00:09:38,280 --> 00:09:41,880
Speaker 3: they've done. That would be a huge benefit for American society.

185
00:09:42,280 --> 00:09:44,840
Speaker 3: And so I do think that one of the potential

186
00:09:44,960 --> 00:09:49,640
Speaker 3: upside benefits have fed now is the ability to actually

187
00:09:49,679 --> 00:09:54,040
Speaker 3: deliver for households and businesses the kinds of banking services

188
00:09:54,120 --> 00:09:57,840
Speaker 3: that they want and that would reduce risk to them.

189
00:09:58,160 --> 00:10:00,000
Speaker 3: I think that's a wonderful thing for society.

190
00:10:01,040 --> 00:10:02,560
Speaker 2: Just in terms of the payment space.

191
00:10:03,040 --> 00:10:07,200
Speaker 1: You've finally unveiled this what's on the agenda Now, what

192
00:10:07,320 --> 00:10:09,880
Speaker 1: other payments improvements could be made for the US.

193
00:10:10,040 --> 00:10:12,400
Speaker 3: Well, I think it's a great question. Look, I said

194
00:10:12,640 --> 00:10:15,840
Speaker 3: before that we're a very conservative institution, and we are,

195
00:10:16,480 --> 00:10:19,000
Speaker 3: but we also need to continue to think about innovation.

196
00:10:19,760 --> 00:10:22,920
Speaker 3: Fed now will continue to be an important part of

197
00:10:23,000 --> 00:10:25,680
Speaker 3: the way that we innovate. So we're looking to add

198
00:10:25,679 --> 00:10:29,920
Speaker 3: additional features to fed now over time, and those features

199
00:10:29,920 --> 00:10:32,360
Speaker 3: will make it easier for banks to use, better, for

200
00:10:32,440 --> 00:10:35,680
Speaker 3: banks to use, better for banks to offer to households

201
00:10:35,720 --> 00:10:39,280
Speaker 3: and businesses. I think those kinds of innovations are really important.

202
00:10:40,040 --> 00:10:43,960
Speaker 3: And then we're also doing very basic research in newer

203
00:10:44,000 --> 00:10:50,080
Speaker 3: technologies around distributed ledger technology using encryption techniques to send

204
00:10:50,080 --> 00:10:53,840
Speaker 3: payments back and forth. That very basic research might help

205
00:10:53,920 --> 00:10:56,320
Speaker 3: us to continue to innovate in our payment systems.

206
00:10:56,880 --> 00:11:01,480
Speaker 4: Since you mentioned digital ledger technologies, people talk about other

207
00:11:01,720 --> 00:11:05,280
Speaker 4: site other types of payments, central bank digital currencies. I

208
00:11:05,320 --> 00:11:08,600
Speaker 4: always have a hard time wrapping my head around I

209
00:11:08,600 --> 00:11:10,520
Speaker 4: guess the why of some of this. I mean, I

210
00:11:10,600 --> 00:11:15,600
Speaker 4: understand these are interesting technologies maybe, but why, Like what

211
00:11:15,720 --> 00:11:18,160
Speaker 4: is what do you feel is the impulse when people

212
00:11:18,200 --> 00:11:20,920
Speaker 4: talk about exploring is some of these new I don't

213
00:11:20,920 --> 00:11:24,080
Speaker 4: know paradigms of money or paradigms of payments, what people

214
00:11:24,120 --> 00:11:25,679
Speaker 4: hope to accomplish some of that.

215
00:11:26,240 --> 00:11:28,839
Speaker 3: You know, it's hard for me to say what lots

216
00:11:28,840 --> 00:11:30,640
Speaker 3: of other people think, but I'll just say just from

217
00:11:30,679 --> 00:11:33,680
Speaker 3: my perspective, you know, I think the research is important

218
00:11:33,679 --> 00:11:37,320
Speaker 3: because we might uncover ways to be much more efficient

219
00:11:37,360 --> 00:11:41,440
Speaker 3: with the payment system, and payment system efficiency can help

220
00:11:41,480 --> 00:11:46,319
Speaker 3: banks and households and businesses conduct their transactions in a

221
00:11:46,360 --> 00:11:49,760
Speaker 3: lower cost way. So I'm not super into all the

222
00:11:50,960 --> 00:11:54,160
Speaker 3: very large claims people make for Central Bank digital currency.

223
00:11:54,200 --> 00:11:57,840
Speaker 3: But I do think that the underlying technology, if it

224
00:11:57,880 --> 00:12:14,840
Speaker 3: can lower costs, improve efficiency, those things are worth researching.

225
00:12:18,480 --> 00:12:20,760
Speaker 2: Joe, you want to talk about bank reg let's talk

226
00:12:20,760 --> 00:12:21,719
Speaker 2: about bankreg all right.

227
00:12:22,000 --> 00:12:24,840
Speaker 1: So again, I used to be a former banking correspondent,

228
00:12:24,960 --> 00:12:27,840
Speaker 1: and I remember whenever I pitched a story about bank

229
00:12:27,880 --> 00:12:30,160
Speaker 1: regulation to my editors, their eyes would just sort of

230
00:12:30,160 --> 00:12:33,480
Speaker 1: glaze over. But now fix it now, Well, I don't

231
00:12:33,520 --> 00:12:37,679
Speaker 1: have to, because now you know there are adverts about basil.

232
00:12:37,600 --> 00:12:39,520
Speaker 2: Playing during NFL games.

233
00:12:39,280 --> 00:12:42,480
Speaker 4: Which is our own listeners are often our own listeners

234
00:12:42,480 --> 00:12:45,439
Speaker 4: of the podcast often talking about learning a lot about

235
00:12:45,480 --> 00:12:46,360
Speaker 4: basil endgames.

236
00:12:46,400 --> 00:12:48,360
Speaker 1: Yeah, this is something I never thought I would see

237
00:12:48,400 --> 00:12:50,480
Speaker 1: in my lifetime. I feel like it's a slippery slope

238
00:12:50,520 --> 00:12:53,080
Speaker 1: to the point where everyone starts including their position on

239
00:12:53,120 --> 00:12:56,000
Speaker 1: the basil endgame proposals in their like Tinder profile or

240
00:12:56,080 --> 00:12:56,719
Speaker 1: something like that.

241
00:12:57,200 --> 00:12:58,400
Speaker 2: It's a new talking point.

242
00:12:58,400 --> 00:13:01,840
Speaker 1: But have you been surprised by the amount of discussion

243
00:13:01,920 --> 00:13:02,959
Speaker 1: that this is generating.

244
00:13:03,160 --> 00:13:05,360
Speaker 3: I have been surprised by it. I mean, I do

245
00:13:05,440 --> 00:13:09,840
Speaker 3: think that some of the advertisements and things you're seeing

246
00:13:09,880 --> 00:13:13,840
Speaker 3: in the public are extremely unusual for bank regulation. Normally,

247
00:13:13,880 --> 00:13:17,840
Speaker 3: we issue a proposal and then we get very detailed

248
00:13:17,840 --> 00:13:21,240
Speaker 3: comment letters back, and we take those comment letters into

249
00:13:21,280 --> 00:13:24,080
Speaker 3: account and we finalize our rule. That's sort of the

250
00:13:24,120 --> 00:13:28,560
Speaker 3: normal process. So seeing ads at football games, that's that's

251
00:13:28,679 --> 00:13:29,440
Speaker 3: kind of unusual.

252
00:13:29,920 --> 00:13:32,120
Speaker 4: How does it feed through to you? I'm always actually

253
00:13:32,280 --> 00:13:35,880
Speaker 4: curious when an industry group does something like this, or

254
00:13:36,200 --> 00:13:38,400
Speaker 4: even when I see an ad for some you know,

255
00:13:38,640 --> 00:13:40,679
Speaker 4: some sort of B to B software or something. I'm

256
00:13:40,720 --> 00:13:44,480
Speaker 4: not the how does it actually filter through you in

257
00:13:44,520 --> 00:13:48,040
Speaker 4: your job in terms of okay, actually decision and the

258
00:13:48,080 --> 00:13:50,880
Speaker 4: pressure that maybe builds on you.

259
00:13:49,800 --> 00:13:53,400
Speaker 3: You know, like in the Peanuts when adults talk and

260
00:13:53,440 --> 00:13:54,040
Speaker 3: it goes.

261
00:13:54,040 --> 00:14:00,360
Speaker 4: Yeah, that's what they're accomplishing. Money well, spend well.

262
00:14:00,400 --> 00:14:04,360
Speaker 1: I mean, in fairness, this is a big deal for banks,

263
00:14:04,600 --> 00:14:07,280
Speaker 1: and I think there is some discussion around making the

264
00:14:07,320 --> 00:14:11,439
Speaker 1: cost of capital more expensive or less available for obvious reasons.

265
00:14:11,480 --> 00:14:14,280
Speaker 1: And one of the criticisms that you hear now is

266
00:14:14,559 --> 00:14:18,280
Speaker 1: this is going to make mortgages more expensive for Americans.

267
00:14:18,600 --> 00:14:23,680
Speaker 1: How would you tackle that particular issue or that particular criticism.

268
00:14:24,400 --> 00:14:28,080
Speaker 3: Look, you know, any time that you change regulation, there

269
00:14:28,120 --> 00:14:31,000
Speaker 3: are costs and benefits to that regulation. The big benefit

270
00:14:31,400 --> 00:14:34,240
Speaker 3: of having higher capital is that you make the banking

271
00:14:34,280 --> 00:14:36,840
Speaker 3: system more resilient. You know, one of the things that

272
00:14:36,880 --> 00:14:40,560
Speaker 3: we saw in the global financial crisis is that it

273
00:14:40,680 --> 00:14:45,400
Speaker 3: really crushed the American economy. It caused millions of households

274
00:14:45,880 --> 00:14:50,040
Speaker 3: to lose their homes to go into foreclosure. That financial

275
00:14:50,080 --> 00:14:54,680
Speaker 3: crisis shuttered American businesses. It called massive unemployment, huge arm

276
00:14:54,680 --> 00:14:56,760
Speaker 3: of the economy. We want to make sure that the

277
00:14:56,760 --> 00:15:01,240
Speaker 3: banking system doesn't crush households and businesses again. At the

278
00:15:01,280 --> 00:15:04,840
Speaker 3: same time, when you have higher capital levels, that increases

279
00:15:04,920 --> 00:15:09,200
Speaker 3: the private cost to banks. Banks use more equity and

280
00:15:09,280 --> 00:15:13,240
Speaker 3: a little bit less debt to fund their mortgages or

281
00:15:13,280 --> 00:15:18,080
Speaker 3: their trading activity or the like. The capital propose that

282
00:15:18,120 --> 00:15:22,000
Speaker 3: we've put forward mostly changes the rules for trading and

283
00:15:22,080 --> 00:15:26,120
Speaker 3: other non lending activity. A very small portion is actually

284
00:15:26,120 --> 00:15:29,800
Speaker 3: related to lending. And when you look at that increased

285
00:15:29,880 --> 00:15:34,359
Speaker 3: cost to the banks with respect to capital, that translates

286
00:15:34,480 --> 00:15:38,760
Speaker 3: on average for a typical loan to an increase if

287
00:15:38,960 --> 00:15:41,000
Speaker 3: all of it is passed through to the borrow, or

288
00:15:41,000 --> 00:15:43,840
Speaker 3: if there's no competition at all and all of it

289
00:15:43,920 --> 00:15:46,640
Speaker 3: is passed through to the borrow, the average increase would

290
00:15:46,680 --> 00:15:52,080
Speaker 3: be zero point zero three percent. So it's a very

291
00:15:52,280 --> 00:15:55,600
Speaker 3: very small change in the cost of credit and a

292
00:15:55,680 --> 00:15:58,720
Speaker 3: significant increase in the resiliency of the banking system. Just

293
00:15:58,760 --> 00:15:59,000
Speaker 3: on the.

294
00:15:59,000 --> 00:16:02,880
Speaker 1: Point about the different ways that big banks versus smaller

295
00:16:02,920 --> 00:16:06,400
Speaker 1: banks are treated. I mean, my understanding is the US

296
00:16:06,520 --> 00:16:10,840
Speaker 1: is one of the only jurisdictions that actually created carveouts

297
00:16:10,840 --> 00:16:14,520
Speaker 1: from basel for smaller banks. And I guess, going back

298
00:16:14,520 --> 00:16:17,520
Speaker 1: to the Silicon Valley Bank example, I mean, given where

299
00:16:17,600 --> 00:16:21,440
Speaker 1: trouble in the banking system was this year, is that

300
00:16:21,480 --> 00:16:22,920
Speaker 1: something we should still be doing.

301
00:16:23,640 --> 00:16:26,200
Speaker 3: Well. You raise an excellent point, so you know what

302
00:16:26,240 --> 00:16:29,480
Speaker 3: we've done in this proposal is say that those stricter

303
00:16:29,600 --> 00:16:33,880
Speaker 3: capital requirements should not only apply to the top eight

304
00:16:33,920 --> 00:16:37,040
Speaker 3: banks in the country, but they should also apply to

305
00:16:37,600 --> 00:16:40,440
Speaker 3: banks that are over one hundred billion. So there are

306
00:16:40,480 --> 00:16:42,480
Speaker 3: thirty seven banks in the country that are over one

307
00:16:42,520 --> 00:16:45,360
Speaker 3: hundred billion. There aren't that many. We have over four

308
00:16:45,400 --> 00:16:48,240
Speaker 3: thousand banks in the banking system, so less than forty

309
00:16:48,280 --> 00:16:51,800
Speaker 3: out of four thousand are covered. And it would have

310
00:16:51,920 --> 00:16:55,200
Speaker 3: covered institutions like Silicon Valley Bank if we had had

311
00:16:55,200 --> 00:16:58,200
Speaker 3: this place in place before. And I think one of

312
00:16:58,200 --> 00:17:02,920
Speaker 3: the lessons from that experience was that it's important for

313
00:17:03,080 --> 00:17:05,800
Speaker 3: large banks that might have an effect more broadly on

314
00:17:05,840 --> 00:17:10,840
Speaker 3: the economy to have that real resilience to them. And

315
00:17:11,600 --> 00:17:14,959
Speaker 3: you know, with respect to Silicon Valley Bank, they didn't

316
00:17:15,000 --> 00:17:18,399
Speaker 3: have to account for the unrealized losses on their balance

317
00:17:18,400 --> 00:17:23,480
Speaker 3: sheet reduction in value of securities, and under our proposal

318
00:17:23,560 --> 00:17:27,200
Speaker 3: they those institutions at that size would need to account

319
00:17:27,200 --> 00:17:27,399
Speaker 3: for that.

320
00:17:27,520 --> 00:17:30,760
Speaker 4: Now, I'd want to jump ahead too much. And it

321
00:17:30,880 --> 00:17:34,479
Speaker 4: was still a regulatory question. But at the FMC, at

322
00:17:34,520 --> 00:17:37,560
Speaker 4: the FED, do you think much about the interplay of

323
00:17:37,640 --> 00:17:42,000
Speaker 4: rate policy and financial stability because or regulation? Because I

324
00:17:42,000 --> 00:17:45,240
Speaker 4: feel like often we talk about these two different things.

325
00:17:45,280 --> 00:17:48,119
Speaker 4: There's the supervisory aspect of the FED, the regulation of

326
00:17:48,160 --> 00:17:50,440
Speaker 4: the banks, et cetera. And then there's monetary policy and

327
00:17:50,480 --> 00:17:54,280
Speaker 4: that's economics. But as we saw with SVB, they can

328
00:17:54,320 --> 00:17:57,120
Speaker 4: interplay and the loss is born on long term debt

329
00:17:57,200 --> 00:18:01,400
Speaker 4: or other holdings can become financial stability issues. How much

330
00:18:01,480 --> 00:18:05,000
Speaker 4: do those two conversations overseect in your that word over

331
00:18:05,119 --> 00:18:08,600
Speaker 4: sect in your world where you think about the stability

332
00:18:08,640 --> 00:18:11,480
Speaker 4: aspects of economic policy choices, I think you.

333
00:18:11,480 --> 00:18:16,520
Speaker 1: Mean overlap and intersect.

334
00:18:13,040 --> 00:18:19,800
Speaker 3: Over Yes, they both overlap and intersect. So no, I

335
00:18:19,800 --> 00:18:22,840
Speaker 3: think it's a great point. So you know, first of all,

336
00:18:22,840 --> 00:18:25,800
Speaker 3: I have two jobs. I'm a governor and therefore sit

337
00:18:25,920 --> 00:18:28,640
Speaker 3: on the Federal Open Markets Committee, and I'm the vice

338
00:18:28,720 --> 00:18:31,639
Speaker 3: chair for supervision, and so in my own you know,

339
00:18:31,760 --> 00:18:39,240
Speaker 3: personal responsibilities, those those are quite oversecting. But also more broadly,

340
00:18:39,280 --> 00:18:41,960
Speaker 3: for the FMC and for the Board, we care about

341
00:18:42,119 --> 00:18:46,840
Speaker 3: both both issues. Obviously, we have a clear monetary policy mission.

342
00:18:47,359 --> 00:18:50,320
Speaker 3: We're going to bring inflation down to two percent. That's

343
00:18:50,359 --> 00:18:53,399
Speaker 3: our job. We're going to do it, and we also

344
00:18:53,520 --> 00:18:57,280
Speaker 3: need to understand that, and do understand that as interest

345
00:18:57,359 --> 00:19:01,119
Speaker 3: rates rise, that changes dynamics in the banking system and

346
00:19:01,160 --> 00:19:06,119
Speaker 3: the financial system. We're really attentive to those changing dynamics. Obviously,

347
00:19:06,440 --> 00:19:09,120
Speaker 3: if we don't have a functioning financial system, we don't

348
00:19:09,119 --> 00:19:11,520
Speaker 3: have a functioning economy, and so we have to care

349
00:19:11,560 --> 00:19:16,280
Speaker 3: about financial stability risks and the system. We do regularly

350
00:19:16,359 --> 00:19:20,400
Speaker 3: monitor these. We have regular reports from our financial stability staff,

351
00:19:20,800 --> 00:19:24,040
Speaker 3: not only internally at the Board, but also to the FMC.

352
00:19:24,760 --> 00:19:27,199
Speaker 3: We have an opportunity for members of the FMC to

353
00:19:27,280 --> 00:19:31,160
Speaker 3: comment on financial stability issues as we have our discussions.

354
00:19:31,440 --> 00:19:34,000
Speaker 3: So these things really do go together.

355
00:19:35,200 --> 00:19:37,520
Speaker 1: You know. Joe brought up the fact that there are

356
00:19:37,560 --> 00:19:41,920
Speaker 1: supervisory functions financial stability functions market functions. Just going back

357
00:19:41,960 --> 00:19:45,679
Speaker 1: to the example of Silicon Valley Bank, it seems like

358
00:19:46,119 --> 00:19:49,760
Speaker 1: part of the issue here was supervisory. So even though

359
00:19:49,760 --> 00:19:52,600
Speaker 1: you could see that there was a capital problem, you

360
00:19:52,600 --> 00:19:54,800
Speaker 1: could see the mark to market losses coming through on

361
00:19:54,840 --> 00:19:58,320
Speaker 1: the balance sheet some months before the bank actually went

362
00:19:58,359 --> 00:20:02,640
Speaker 1: down in four users didn't raise those concerns, and they

363
00:20:02,640 --> 00:20:07,159
Speaker 1: certainly didn't force a capital raised by SBB. Do you

364
00:20:07,160 --> 00:20:10,520
Speaker 1: think there's more to be done on the supervisory front,

365
00:20:10,640 --> 00:20:13,960
Speaker 1: maybe changing the culture of some of those supervisors so

366
00:20:14,040 --> 00:20:17,680
Speaker 1: that they feel more comfortable, more willing, whatever, for whatever reason,

367
00:20:18,000 --> 00:20:20,800
Speaker 1: to actually raise these concerns at the appropriate time.

368
00:20:21,640 --> 00:20:23,600
Speaker 3: I think you raise a really important point. And you know,

369
00:20:23,640 --> 00:20:27,680
Speaker 3: we issued a report right after SVB failed, and one

370
00:20:27,720 --> 00:20:31,680
Speaker 3: of the findings of the report was that supervisors identified

371
00:20:31,720 --> 00:20:35,360
Speaker 3: the risks at the bank, but they didn't feel empowered

372
00:20:35,400 --> 00:20:37,720
Speaker 3: to push hard enough to get the bank to take action.

373
00:20:38,440 --> 00:20:41,240
Speaker 3: And so one of the things that we're making sure

374
00:20:41,240 --> 00:20:44,800
Speaker 3: of is that supervisors know that they should act with

375
00:20:44,960 --> 00:20:49,320
Speaker 3: speed and with force and with agility when risks weren't

376
00:20:49,680 --> 00:20:53,160
Speaker 3: that that kind of action. It does take a change

377
00:20:53,160 --> 00:20:56,640
Speaker 3: of culture, It does require us to really make sure

378
00:20:56,720 --> 00:21:00,760
Speaker 3: that that examiners feel supported and empowered to take that step.

379
00:21:01,080 --> 00:21:02,960
Speaker 3: We want to make sure that they're trained and that

380
00:21:03,000 --> 00:21:07,080
Speaker 3: they have guidance to to act forcefully. And I do

381
00:21:07,119 --> 00:21:09,520
Speaker 3: think that all these measures are really critical to making

382
00:21:09,560 --> 00:21:12,720
Speaker 3: sure we have a supervisory system that's effective. Now. You know,

383
00:21:12,800 --> 00:21:15,240
Speaker 3: of course, at the beginning and end of the day,

384
00:21:15,840 --> 00:21:18,200
Speaker 3: you know, bank management and the board of directors of

385
00:21:18,240 --> 00:21:22,280
Speaker 3: the bank are responsible for running the institution, and you know,

386
00:21:22,320 --> 00:21:24,720
Speaker 3: we're not able to come in and run the bank.

387
00:21:25,000 --> 00:21:28,000
Speaker 3: For bank managers, that's their job to do. And in

388
00:21:28,040 --> 00:21:31,600
Speaker 3: this case, in the case of SVB and some other banks,

389
00:21:32,200 --> 00:21:36,800
Speaker 3: the banks really sorely mismanaged both interest rate risk and

390
00:21:36,840 --> 00:21:40,639
Speaker 3: liquidity risk, and they did things that you know, in

391
00:21:40,720 --> 00:21:44,400
Speaker 3: retrospect you kind of are hedge scratchers. You know, they had,

392
00:21:44,840 --> 00:21:47,400
Speaker 3: for example, some hedges on some of their interest rate

393
00:21:47,520 --> 00:21:49,879
Speaker 3: risk and they took those off.

394
00:21:50,680 --> 00:21:54,399
Speaker 1: I saw the internal presentation where they talked about doing that,

395
00:21:54,440 --> 00:21:56,720
Speaker 1: and it was basically like, well, we have these hedges,

396
00:21:56,920 --> 00:21:59,480
Speaker 1: they're expensive. We don't think the Fed's going to raise rates,

397
00:21:59,480 --> 00:22:01,160
Speaker 1: so why don't we make some more money.

398
00:22:01,359 --> 00:22:02,320
Speaker 2: It was literally that.

399
00:22:02,560 --> 00:22:05,160
Speaker 3: Yeah, and you know, it does go to this question

400
00:22:05,240 --> 00:22:08,639
Speaker 3: of you know, compensation they were really focused on short

401
00:22:08,720 --> 00:22:13,040
Speaker 3: term profits and not looking at all on long term risks,

402
00:22:13,080 --> 00:22:16,320
Speaker 3: and that really is inconsistent with the approach that we

403
00:22:16,400 --> 00:22:20,560
Speaker 3: require of banks to have compensation aligned not just with

404
00:22:21,359 --> 00:22:23,000
Speaker 3: how a bank is doing in the short term in

405
00:22:23,080 --> 00:22:26,240
Speaker 3: term profits, but also thinking long term about risk management.

406
00:22:26,560 --> 00:22:30,160
Speaker 4: So, just on this point, particularly about culture of supervision,

407
00:22:30,440 --> 00:22:33,359
Speaker 4: can in you know, March twenty twenty four or March

408
00:22:33,400 --> 00:22:36,920
Speaker 4: twenty twenty five down the road, can you talk about

409
00:22:37,000 --> 00:22:40,720
Speaker 4: what specific is being done now such that in the

410
00:22:40,800 --> 00:22:42,400
Speaker 4: future the culture is better.

411
00:22:42,760 --> 00:22:44,920
Speaker 3: Now this is there's a lot of work going on,

412
00:22:45,160 --> 00:22:47,359
Speaker 3: you know. One of the things that we're doing is

413
00:22:47,400 --> 00:22:52,040
Speaker 3: again making sure that examiners feel empowered to act on

414
00:22:52,119 --> 00:22:54,800
Speaker 3: the basis of the information they have in front of

415
00:22:54,840 --> 00:22:58,000
Speaker 3: them in a timely way. Make sure that they have

416
00:22:58,080 --> 00:23:01,640
Speaker 3: the tools to put in place mitigants if a firm

417
00:23:01,720 --> 00:23:05,000
Speaker 3: is getting itself into trouble and the like. We want

418
00:23:05,000 --> 00:23:07,439
Speaker 3: to make sure that we have a system that escalates

419
00:23:07,640 --> 00:23:11,560
Speaker 3: appropriately so that if there are significant risks, you don't

420
00:23:11,560 --> 00:23:16,359
Speaker 3: wait years before action is taken on those. We're making

421
00:23:16,400 --> 00:23:19,640
Speaker 3: sure that examiners have the training they need to take

422
00:23:19,680 --> 00:23:22,480
Speaker 3: action when they need it. And you know, in the

423
00:23:22,480 --> 00:23:25,879
Speaker 3: current environment. We're focused on things like interest rate risk,

424
00:23:26,080 --> 00:23:32,280
Speaker 3: liquidity risk, credit risk, particularly in the office sector, and cybersecurity,

425
00:23:32,320 --> 00:23:35,480
Speaker 3: which is just a fundamental risk that many banks are

426
00:23:35,640 --> 00:23:36,199
Speaker 3: exposed to.

427
00:23:36,440 --> 00:23:38,879
Speaker 1: I definitely want to talk a little bit more about

428
00:23:38,920 --> 00:23:43,240
Speaker 1: some of those individual risks, but just on interest rates. So,

429
00:23:43,600 --> 00:23:46,440
Speaker 1: you know, we talked about Silicon Valley and the fact

430
00:23:46,480 --> 00:23:49,200
Speaker 1: that they didn't think the FED was going to raise rates,

431
00:23:49,280 --> 00:23:52,400
Speaker 1: even though I would argue looking at FED speeches for

432
00:23:52,560 --> 00:23:55,360
Speaker 1: most of twenty twenty two and into twenty twenty three,

433
00:23:55,359 --> 00:23:57,639
Speaker 1: there was a lot of discussion about we are raising rates.

434
00:23:58,240 --> 00:24:00,600
Speaker 2: But that said, we have been in this.

435
00:24:00,720 --> 00:24:06,240
Speaker 1: Sort of weird environment where the economic outcomes seem almost binary,

436
00:24:06,400 --> 00:24:08,919
Speaker 1: at least if you read financial commentary.

437
00:24:09,040 --> 00:24:09,880
Speaker 2: So going into.

438
00:24:09,640 --> 00:24:12,920
Speaker 1: Twenty twenty three, it felt like the two options were

439
00:24:12,960 --> 00:24:17,800
Speaker 1: either soft landing or massive recession, and I think if

440
00:24:17,840 --> 00:24:22,159
Speaker 1: you're a bank, it's kind of hard to juggle those

441
00:24:22,280 --> 00:24:25,640
Speaker 1: two things. Is there anything that the FED can do

442
00:24:25,760 --> 00:24:30,160
Speaker 1: more on the sort of forward guidance side to minimize

443
00:24:30,200 --> 00:24:34,360
Speaker 1: interest rate risk? So aside from the basel endgame proposals

444
00:24:34,480 --> 00:24:36,520
Speaker 1: in terms of communications, is there more.

445
00:24:36,359 --> 00:24:36,800
Speaker 4: You can do?

446
00:24:37,320 --> 00:24:39,360
Speaker 3: Well? You know, first let me just say, with respect

447
00:24:39,359 --> 00:24:42,040
Speaker 3: to interest rate risk. We expect banks to be able

448
00:24:42,040 --> 00:24:45,320
Speaker 3: to manage interestrate risk, whether rates are rising or falling.

449
00:24:45,359 --> 00:24:48,920
Speaker 3: That's part of prudent risk management. The feder Reserve does

450
00:24:48,920 --> 00:24:52,959
Speaker 3: communicate quite often about the communicating right now about the

451
00:24:52,960 --> 00:24:57,480
Speaker 3: path of interest rates. The FMC every other meeting puts

452
00:24:57,520 --> 00:25:01,920
Speaker 3: out a summary of economic projections that are designed to

453
00:25:01,960 --> 00:25:05,800
Speaker 3: show what each individual member of the FMC believes about

454
00:25:05,880 --> 00:25:10,679
Speaker 3: the path going forward for the economy. It's not a forecast,

455
00:25:11,000 --> 00:25:15,000
Speaker 3: it's not a collective judgment or consensus document, but it

456
00:25:15,080 --> 00:25:19,520
Speaker 3: does let the public know what each individual member of

457
00:25:19,520 --> 00:25:23,080
Speaker 3: the FMC is thinking about the future path for monetary policy.

458
00:25:23,600 --> 00:25:26,600
Speaker 3: I think Chair Pale has made it clear that we're

459
00:25:26,600 --> 00:25:29,920
Speaker 3: going to need to hold interest rates at their peak

460
00:25:30,000 --> 00:25:32,520
Speaker 3: level for some time in order to make sure that

461
00:25:33,040 --> 00:25:35,280
Speaker 3: we're on the right path to get inflation back to

462
00:25:35,320 --> 00:25:37,960
Speaker 3: two percent, and so I do think that kind of

463
00:25:38,000 --> 00:25:41,560
Speaker 3: communication can help the market, can help the economy, can

464
00:25:41,600 --> 00:25:45,359
Speaker 3: help businesses plan for the future. Of course, we're all

465
00:25:45,480 --> 00:25:49,240
Speaker 3: taking in information in real time. We do need to

466
00:25:49,280 --> 00:25:52,359
Speaker 3: be dependent on the data we receive. The data we

467
00:25:52,400 --> 00:25:56,720
Speaker 3: receive updates helps us update our forecasts for the future.

468
00:25:57,200 --> 00:26:01,520
Speaker 3: And we are living in an uncertain time endemic caused

469
00:26:01,680 --> 00:26:05,640
Speaker 3: significant changes to our economy, and those are still working

470
00:26:05,720 --> 00:26:06,840
Speaker 3: their way through the system.

471
00:26:07,400 --> 00:26:09,359
Speaker 4: I think we were going to throw in a couple

472
00:26:09,359 --> 00:26:11,920
Speaker 4: of macro questions at the end, but just since we're

473
00:26:11,960 --> 00:26:15,679
Speaker 4: talking about diary. So in the last few weeks, we

474
00:26:15,760 --> 00:26:18,480
Speaker 4: had a non farm payrolls report that came in a

475
00:26:18,480 --> 00:26:22,679
Speaker 4: little bit weaker than expected, continuing continuous jobless claims, highest

476
00:26:22,760 --> 00:26:25,119
Speaker 4: level of the year, close to highest level in two years.

477
00:26:25,480 --> 00:26:29,120
Speaker 4: CPI report that came in pretty clearly cooler than expected.

478
00:26:29,520 --> 00:26:32,600
Speaker 4: As the FOMC member, how is your thinking on the

479
00:26:32,640 --> 00:26:35,600
Speaker 4: economy right now and the appropriateness of Fed's policy stance

480
00:26:35,640 --> 00:26:36,360
Speaker 4: where it is right now?

481
00:26:36,960 --> 00:26:39,119
Speaker 3: Thank you. Look, we take all this data as it

482
00:26:39,160 --> 00:26:41,960
Speaker 3: comes in, and we're very data dependent, but we're also

483
00:26:42,800 --> 00:26:45,760
Speaker 3: not dependent on any one single data point. So I

484
00:26:45,760 --> 00:26:49,399
Speaker 3: said three, yes, So I think it's you know, I

485
00:26:49,400 --> 00:26:51,800
Speaker 3: think it's useful for us to take that information in.

486
00:26:52,240 --> 00:26:56,359
Speaker 3: You know, certainly, the information that we've had recently suggests

487
00:26:56,400 --> 00:27:00,280
Speaker 3: that we're moving into better balance on the risk between

488
00:27:00,800 --> 00:27:04,720
Speaker 3: overtightening and under tightening, and I think that's quite encouraging.

489
00:27:04,800 --> 00:27:09,360
Speaker 3: So we're likely at or near the peak of where

490
00:27:09,400 --> 00:27:11,679
Speaker 3: we need to be in terms of having a sufficiently

491
00:27:11,720 --> 00:27:16,520
Speaker 3: restrictive stance of monetary policy that we'll sustainably bring inflation

492
00:27:16,600 --> 00:27:19,480
Speaker 3: down to two percent. And I think the recent economic

493
00:27:19,920 --> 00:27:24,040
Speaker 3: readings reinforce my view that that is probably correct.

494
00:27:24,880 --> 00:27:29,040
Speaker 1: What's your favorite or most compelling indicator right now for

495
00:27:29,080 --> 00:27:32,400
Speaker 1: the direction of the economy. This is desert island indicators.

496
00:27:32,440 --> 00:27:34,360
Speaker 1: If you had to pick one, what would you.

497
00:27:34,280 --> 00:27:34,760
Speaker 2: Bring with you?

498
00:27:35,400 --> 00:27:37,840
Speaker 3: So you know, it's a terrific question that I'm not

499
00:27:37,880 --> 00:27:38,439
Speaker 3: going to answer.

500
00:27:40,040 --> 00:27:42,000
Speaker 1: Those are always the best questions, the ones that don't

501
00:27:42,000 --> 00:27:42,960
Speaker 1: get answered.

502
00:27:42,760 --> 00:27:45,880
Speaker 3: You know, because it really goes back to my point earlier.

503
00:27:46,640 --> 00:27:51,560
Speaker 3: The pandemic really did significantly disrupt our economy, and it

504
00:27:51,640 --> 00:27:54,480
Speaker 3: disrupted many of the ways that we think about economic

505
00:27:54,520 --> 00:27:58,600
Speaker 3: relationships in our economy, and so it does require us

506
00:27:58,640 --> 00:28:02,080
Speaker 3: to really look at a very broad range of indicators

507
00:28:02,640 --> 00:28:06,440
Speaker 3: as they come in and not just a single data

508
00:28:06,440 --> 00:28:10,359
Speaker 3: point as evidence of you know, now, I know that

509
00:28:10,640 --> 00:28:13,240
Speaker 3: we're in the right place. So we're very I would

510
00:28:13,280 --> 00:28:16,320
Speaker 3: say I am, and generally as a committee we are

511
00:28:16,800 --> 00:28:19,880
Speaker 3: cautious about overinterpreting anyone data point.

512
00:28:20,160 --> 00:28:22,440
Speaker 4: Not that anyone ask, but mine would be claims because

513
00:28:22,480 --> 00:28:24,240
Speaker 4: I figure if I'm on a desert island. I don't know,

514
00:28:24,240 --> 00:28:25,800
Speaker 4: wait it to a whole month for a data point. I

515
00:28:25,880 --> 00:28:29,359
Speaker 4: figure once a week something something is something that something

516
00:28:29,400 --> 00:28:32,840
Speaker 4: that keep me entertained. Going back to the regulation question,

517
00:28:33,040 --> 00:28:36,119
Speaker 4: you know, you mentioned that in your view, cost of

518
00:28:36,560 --> 00:28:39,120
Speaker 4: lending cost would be pretty minimal with some of these

519
00:28:39,160 --> 00:28:42,000
Speaker 4: new capital capital constraints. But I'm curious. You know, when

520
00:28:42,040 --> 00:28:46,000
Speaker 4: we talk to regulators, in most regulator conversations, it's very

521
00:28:46,120 --> 00:28:50,400
Speaker 4: much centered around de risking constraints, et cetera. But I'm

522
00:28:50,400 --> 00:28:53,560
Speaker 4: wondering if you ever think about the opposite of building

523
00:28:53,640 --> 00:28:56,520
Speaker 4: out sort of affirmative capacity for lending at banks. And

524
00:28:56,720 --> 00:28:59,680
Speaker 4: the specific reason I asked is a few weeks ago

525
00:29:00,240 --> 00:29:03,240
Speaker 4: and I interviewed a Jiggershaw who runs the loan program

526
00:29:03,240 --> 00:29:05,760
Speaker 4: at the Department of Energy, a lot of lending to

527
00:29:05,960 --> 00:29:08,560
Speaker 4: clean energy companies and so forth who aren't in a

528
00:29:08,600 --> 00:29:11,000
Speaker 4: position to take to borrow money from banks, and even

529
00:29:11,040 --> 00:29:15,800
Speaker 4: actually cited basal rules as a reason that banks we're

530
00:29:15,800 --> 00:29:18,000
Speaker 4: not in a position to do a lot of this lending.

531
00:29:18,040 --> 00:29:21,760
Speaker 4: And I'm curious whether you worry about that. Essentially, banks

532
00:29:22,080 --> 00:29:25,160
Speaker 4: no longer building that in house knowledge of capacities of

533
00:29:25,240 --> 00:29:28,680
Speaker 4: specific sectors of the economy of different areas real estate, energy,

534
00:29:28,720 --> 00:29:30,960
Speaker 4: et cetera. And it all sort of ended up getting

535
00:29:31,080 --> 00:29:36,080
Speaker 4: outsourced to private credit public type banks, et cetera. And

536
00:29:36,160 --> 00:29:38,920
Speaker 4: how much of that you think ideally should be preserved

537
00:29:39,000 --> 00:29:41,040
Speaker 4: in house at the lending desks of banks.

538
00:29:41,520 --> 00:29:44,440
Speaker 3: We do take all those kinds of issues into account.

539
00:29:44,520 --> 00:29:47,440
Speaker 3: You know, we're in the phase of our rulemaking where

540
00:29:47,480 --> 00:29:50,360
Speaker 3: we've issued a proposal, we're taking comment on that proposal.

541
00:29:50,880 --> 00:29:53,520
Speaker 3: We really are open to all kinds of input on

542
00:29:53,560 --> 00:29:55,400
Speaker 3: the proposal. We want to make sure we get it right.

543
00:29:55,800 --> 00:29:57,640
Speaker 3: If there are areas that we can improve it, we

544
00:29:57,680 --> 00:30:00,360
Speaker 3: certainly will. You know, one of the areas that you

545
00:30:00,520 --> 00:30:03,840
Speaker 3: mentioned is with respect to energy. Some people have come

546
00:30:03,880 --> 00:30:06,040
Speaker 3: to us and said, we think that the way you're

547
00:30:06,080 --> 00:30:11,120
Speaker 3: treating in the proposal tax credits equity tax credits doesn't

548
00:30:11,120 --> 00:30:14,880
Speaker 3: appropriately take into account the way in which repayment occurs

549
00:30:14,960 --> 00:30:19,240
Speaker 3: under the tax credit. Because in a normal equity investment,

550
00:30:19,680 --> 00:30:22,480
Speaker 3: the return of the investor is from the investment itself,

551
00:30:22,920 --> 00:30:25,200
Speaker 3: and in these tax credit deals, we should think of

552
00:30:25,240 --> 00:30:28,440
Speaker 3: those as having the return coming from the tax credit.

553
00:30:28,800 --> 00:30:32,000
Speaker 3: The tax credit is a regular source of payment, so

554
00:30:32,160 --> 00:30:35,640
Speaker 3: you should think about this tax credit differently from other

555
00:30:35,720 --> 00:30:38,680
Speaker 3: equity investments, and that's the kind of comment that is

556
00:30:38,760 --> 00:30:42,719
Speaker 3: useful to us. We'll look at that, we'll examine the analysis,

557
00:30:42,800 --> 00:30:45,160
Speaker 3: the empirics of it, and if that proves out to

558
00:30:45,160 --> 00:30:46,800
Speaker 3: be true, then we can make an adjustment.

559
00:30:47,400 --> 00:30:51,360
Speaker 1: I mean it is true more broadly that your counterparts

560
00:30:51,480 --> 00:30:55,480
Speaker 1: in Europe, some European central banks have made accommodations for

561
00:30:55,880 --> 00:30:59,160
Speaker 1: green energy loans or investments. Is that it sounds like

562
00:30:59,200 --> 00:31:01,240
Speaker 1: that's something that you would consider, at least from a

563
00:31:01,280 --> 00:31:03,680
Speaker 1: tax credit perspective, that sort of change.

564
00:31:03,720 --> 00:31:08,800
Speaker 3: We don't consider the you know, non risk factors I

565
00:31:08,800 --> 00:31:12,480
Speaker 3: would say related to tax credits. But if the risk

566
00:31:12,520 --> 00:31:15,240
Speaker 3: of those tax credits is lower, then that is exactly

567
00:31:15,240 --> 00:31:16,200
Speaker 3: something that I see.

568
00:31:16,200 --> 00:31:19,160
Speaker 2: So it would still be industry neutral, correct. Okay.

569
00:31:19,520 --> 00:31:22,320
Speaker 1: In terms of other changes that you may or may

570
00:31:22,360 --> 00:31:25,400
Speaker 1: not be considering, one of the big points of contention

571
00:31:25,640 --> 00:31:29,840
Speaker 1: with the basel endgame proposal has to be the change

572
00:31:29,840 --> 00:31:32,600
Speaker 1: to operational risk and the way that's calculated. And I've

573
00:31:32,640 --> 00:31:35,200
Speaker 1: seen some numbers floating out there saying that you know,

574
00:31:35,680 --> 00:31:38,120
Speaker 1: I've been watching NFL and I've heard the ads.

575
00:31:37,840 --> 00:31:40,960
Speaker 3: And your listeners are willing to talk about operational risks.

576
00:31:41,680 --> 00:31:45,080
Speaker 1: It's surprising, I know, But is that something that is

577
00:31:45,120 --> 00:31:48,760
Speaker 1: like up for debate or some briggle room or what

578
00:31:48,920 --> 00:31:51,760
Speaker 1: sort of conversations are you having right now with the

579
00:31:51,800 --> 00:31:54,320
Speaker 1: stakeholders about this particular issue.

580
00:31:54,440 --> 00:31:57,680
Speaker 3: We also do look at again comments on any aspect

581
00:31:57,680 --> 00:32:01,360
Speaker 3: of the rule. We've heard comments already and I'm sure

582
00:32:01,440 --> 00:32:03,680
Speaker 3: I'm going to hear more of them soon that the

583
00:32:03,720 --> 00:32:07,840
Speaker 3: operational risk charges is too high for some categories of activity. Again,

584
00:32:07,880 --> 00:32:12,200
Speaker 3: we're open to comment that is evidence based, that's analytic,

585
00:32:13,000 --> 00:32:17,520
Speaker 3: that demonstrates that the risk calibration should be different. We

586
00:32:17,520 --> 00:32:19,480
Speaker 3: want to get the rule right and we're open to

587
00:32:19,520 --> 00:32:20,520
Speaker 3: those kinds of emments.

588
00:32:36,600 --> 00:32:39,040
Speaker 4: Should we take a couple a couple audience questions? Yeah,

589
00:32:39,080 --> 00:32:41,960
Speaker 4: let's here's a question. Fed now Could it ever be

590
00:32:42,040 --> 00:32:45,280
Speaker 4: the backbone for a simple point of sale system?

591
00:32:45,560 --> 00:32:47,680
Speaker 3: It's a great question. You know. One of the cool

592
00:32:47,760 --> 00:32:52,200
Speaker 3: things about setting up a structure like fed now is

593
00:32:52,240 --> 00:32:55,040
Speaker 3: that people can innovate in lots of different ways on it.

594
00:32:55,080 --> 00:32:57,600
Speaker 3: And I do think that that might be one of

595
00:32:57,600 --> 00:32:59,440
Speaker 3: the ways that people could innovate over time.

596
00:33:01,320 --> 00:33:02,560
Speaker 2: Do you want to do another one? Or shall I

597
00:33:02,600 --> 00:33:02,920
Speaker 2: throw one in?

598
00:33:03,000 --> 00:33:03,560
Speaker 3: Yeah? Throw in?

599
00:33:03,720 --> 00:33:07,959
Speaker 1: Okay, I'll throw one in so in some respects, you know,

600
00:33:08,080 --> 00:33:10,760
Speaker 1: I hope this is one of the easier or more

601
00:33:10,800 --> 00:33:13,600
Speaker 1: relaxed conversations that you're having this week, because you were

602
00:33:13,640 --> 00:33:18,800
Speaker 1: talking to lawmakers and politicians, and you know, that's always

603
00:33:18,840 --> 00:33:22,320
Speaker 1: a sort of intense discussion I find. But when one

604
00:33:22,360 --> 00:33:26,920
Speaker 1: of the questions was are you aiming for consensus on

605
00:33:27,120 --> 00:33:29,240
Speaker 1: these new bank rules? And so I'm not going to

606
00:33:29,280 --> 00:33:33,560
Speaker 1: ask that question again, but what does consensus actually look

607
00:33:33,720 --> 00:33:35,000
Speaker 1: like to you?

608
00:33:35,000 --> 00:33:38,960
Speaker 4: Can I just why was there a subtext there? Like

609
00:33:39,000 --> 00:33:43,000
Speaker 4: why were they There's so many questions on this consensus question,

610
00:33:43,120 --> 00:33:45,000
Speaker 4: like what was what were they really asking about?

611
00:33:45,040 --> 00:33:48,040
Speaker 3: Too? So, you know, traditionally, one of the things that

612
00:33:48,360 --> 00:33:50,120
Speaker 3: is true of the FED, and that I really value

613
00:33:50,120 --> 00:33:52,560
Speaker 3: about the FED is that we're a very much a

614
00:33:52,560 --> 00:33:55,520
Speaker 3: collegial body. We spend a lot of time working with

615
00:33:55,600 --> 00:33:59,160
Speaker 3: each other, talking to each other, working through issues, and

616
00:33:59,280 --> 00:34:03,280
Speaker 3: to the greatest extent practical, we try and get most

617
00:34:03,400 --> 00:34:06,560
Speaker 3: or all of the board members in favor of any

618
00:34:06,560 --> 00:34:10,360
Speaker 3: particular thing that we're doing. So, you know, if I

619
00:34:10,440 --> 00:34:13,120
Speaker 3: look back over the last you know, year and a half,

620
00:34:13,719 --> 00:34:15,800
Speaker 3: not quite year and a half, but we've had about

621
00:34:15,880 --> 00:34:22,600
Speaker 3: fifty substantive either supervisory matters or rulemakings that I've brought

622
00:34:22,600 --> 00:34:25,759
Speaker 3: to the board for consideration, and almost all of those

623
00:34:25,800 --> 00:34:29,200
Speaker 3: have been unanimous decisions. It doesn't mean that they are

624
00:34:29,560 --> 00:34:34,040
Speaker 3: always unanimous. Sometimes we have descents, and I respect the descent.

625
00:34:34,239 --> 00:34:36,760
Speaker 3: So we have board members, one or two board members

626
00:34:36,800 --> 00:34:40,120
Speaker 3: on a handful of matters that have dissented from the

627
00:34:40,160 --> 00:34:43,719
Speaker 3: proposals that I've put forward. And I think it makes

628
00:34:43,800 --> 00:34:46,120
Speaker 3: us a better institution to have that, first of all,

629
00:34:46,120 --> 00:34:49,520
Speaker 3: the conversation and to try and to teach consensus, and second,

630
00:34:49,960 --> 00:34:53,400
Speaker 3: you know, if we can't get there, to have dissenting voices.

631
00:34:54,600 --> 00:34:58,200
Speaker 4: Tracy already asked a question about, you know, capital requirements

632
00:34:58,200 --> 00:35:00,440
Speaker 4: a large and small banks, but one of the question

633
00:35:00,600 --> 00:35:03,600
Speaker 4: on audience question on the process and just sort of

634
00:35:03,600 --> 00:35:07,960
Speaker 4: the pure regulatory burden side setting aside capital requirements. Are

635
00:35:08,000 --> 00:35:12,120
Speaker 4: there concerns that just the higher cost of compliance in

636
00:35:12,160 --> 00:35:15,719
Speaker 4: any respect hurt smaller banks and will sort of accelerate

637
00:35:15,760 --> 00:35:16,799
Speaker 4: industry concentration.

638
00:35:17,520 --> 00:35:20,480
Speaker 3: So you know, this rule only applies to the largest

639
00:35:20,560 --> 00:35:23,400
Speaker 3: thirty seven banks in the country, banks over one hundred billion,

640
00:35:23,600 --> 00:35:27,080
Speaker 3: So community banks are not affected at all. Smaller banks

641
00:35:27,080 --> 00:35:31,080
Speaker 3: are not affected at all. We do care about compliance burdens,

642
00:35:31,120 --> 00:35:33,040
Speaker 3: even for the very largest banks. We want to make

643
00:35:33,080 --> 00:35:37,920
Speaker 3: sure that they're commensurate with an increased resilience of the

644
00:35:37,960 --> 00:35:42,000
Speaker 3: banking system that results. But this is not affecting small

645
00:35:42,040 --> 00:35:43,280
Speaker 3: banks anywhere in the country.

646
00:35:44,719 --> 00:35:48,360
Speaker 2: Should I do another one? Are we we're alternating? Okay?

647
00:35:48,400 --> 00:35:51,520
Speaker 1: Well, I feel we've been very bank focused, which maybe

648
00:35:51,600 --> 00:35:54,800
Speaker 1: in some respects is unfair or makes complete sense given

649
00:35:55,080 --> 00:35:58,560
Speaker 1: our current venue. But maybe we could talk about non

650
00:35:58,640 --> 00:36:01,320
Speaker 1: bank entities for a bit. I have a couple questions

651
00:36:01,320 --> 00:36:05,600
Speaker 1: on this, So again posts two thousand and eight. When

652
00:36:05,640 --> 00:36:09,960
Speaker 1: we saw those initial BASL rules come in, a big

653
00:36:10,040 --> 00:36:13,960
Speaker 1: part of that was making banks safer for obvious reasons.

654
00:36:14,000 --> 00:36:16,960
Speaker 1: We saw, to your point, the destruction that the financial

655
00:36:16,960 --> 00:36:19,480
Speaker 1: system had had on the global economy at that time,

656
00:36:20,239 --> 00:36:22,120
Speaker 1: and it seemed like a lot of the risk was

657
00:36:22,160 --> 00:36:26,560
Speaker 1: pushed into non bank entities. Again for obvious reasons. You know,

658
00:36:26,600 --> 00:36:31,399
Speaker 1: they're less levered, they're more contained. Potentially, you don't want systemic,

659
00:36:31,840 --> 00:36:34,879
Speaker 1: systemically important banks to be taking all these risks because

660
00:36:34,880 --> 00:36:37,600
Speaker 1: it comes back to bite you, as we saw in eight.

661
00:36:38,160 --> 00:36:41,600
Speaker 1: But fast forward to twenty twenty three, it does feel

662
00:36:41,600 --> 00:36:45,400
Speaker 1: like the non bank sector of the economy has grown enormously,

663
00:36:46,040 --> 00:36:48,879
Speaker 1: And Joe and I had a conversation earlier this week

664
00:36:49,000 --> 00:36:52,480
Speaker 1: about private credit. I was shocked to find out that

665
00:36:52,520 --> 00:36:54,919
Speaker 1: the private credit market in the US is now as

666
00:36:55,000 --> 00:36:59,320
Speaker 1: big as the broadly syndicated market for junk created bonds.

667
00:36:59,400 --> 00:37:01,600
Speaker 1: I mean, that is huge, and even the junk rated

668
00:37:01,640 --> 00:37:05,520
Speaker 1: bond market has been growing exponentially in recent years up

669
00:37:05,600 --> 00:37:08,239
Speaker 1: until twenty twenty three. Anyway, So how are you looking

670
00:37:08,239 --> 00:37:10,640
Speaker 1: at those non bank risks nowadays?

671
00:37:11,280 --> 00:37:14,000
Speaker 3: That's a great point. Look, we need a strong and

672
00:37:14,040 --> 00:37:18,240
Speaker 3: resilient banking system that's at the core of our financial system,

673
00:37:18,320 --> 00:37:21,200
Speaker 3: and we need to pay attention to the non bank sector.

674
00:37:21,239 --> 00:37:25,000
Speaker 3: But we can't have a weaker bank system because of

675
00:37:25,320 --> 00:37:27,800
Speaker 3: concerns about the non bank sector. We need a strong

676
00:37:27,880 --> 00:37:30,960
Speaker 3: banking system, and then we also need to pay attention

677
00:37:31,040 --> 00:37:33,120
Speaker 3: to the non bank risk. So we do spend a

678
00:37:33,160 --> 00:37:35,840
Speaker 3: lot of time at the FED and at our sister

679
00:37:35,920 --> 00:37:39,760
Speaker 3: agencies looking at and examining risks in the non bank sector.

680
00:37:40,360 --> 00:37:43,040
Speaker 3: You know, I gave a speech yesterday at the Treasury

681
00:37:43,120 --> 00:37:45,920
Speaker 3: Market Conference, and one of the things that I noted

682
00:37:46,040 --> 00:37:49,160
Speaker 3: is that the hedge funds are significant participants in the

683
00:37:49,160 --> 00:37:52,960
Speaker 3: treasury market that has lots of benefits in terms of

684
00:37:53,320 --> 00:37:58,200
Speaker 3: liquidity in that market, in terms of matching activity between

685
00:37:58,360 --> 00:38:00,560
Speaker 3: the cash part of that market and the future's part

686
00:38:00,600 --> 00:38:04,120
Speaker 3: of that market, in terms of helping asset managers to

687
00:38:04,160 --> 00:38:07,120
Speaker 3: get access to futures that they want. But there are

688
00:38:07,160 --> 00:38:12,080
Speaker 3: also risks because the activity is being conducted with in

689
00:38:12,120 --> 00:38:15,120
Speaker 3: many cases no margin at all, which means the trades

690
00:38:15,160 --> 00:38:16,640
Speaker 3: are extremely highly leveraged.

691
00:38:16,680 --> 00:38:19,840
Speaker 1: Yeah, well, we saw what happened in March twenty twenty exactly.

692
00:38:19,960 --> 00:38:23,799
Speaker 3: So in March twenty twenty, hedge funds were among the

693
00:38:23,880 --> 00:38:28,080
Speaker 3: contributors to the disruption and the treasury market, and so

694
00:38:28,160 --> 00:38:30,319
Speaker 3: we want to be sure that first of all, that

695
00:38:30,440 --> 00:38:35,080
Speaker 3: banks as they are providing credit to their clients the

696
00:38:35,160 --> 00:38:38,400
Speaker 3: hedge funds are thinking about those risks. And then we

697
00:38:38,480 --> 00:38:40,360
Speaker 3: also want to make sure that the treasury market is

698
00:38:40,400 --> 00:38:43,799
Speaker 3: resilient to those kinds of potential disruptions. So we look

699
00:38:43,960 --> 00:38:47,080
Speaker 3: very carefully at that. You know, we're looking very carefully

700
00:38:47,080 --> 00:38:50,719
Speaker 3: at other aspects of the non bank sector, and all

701
00:38:50,800 --> 00:38:53,600
Speaker 3: of that I think is important for financial stability reasons.

702
00:38:53,880 --> 00:38:57,359
Speaker 4: On the looking carefully at other aspects of the non

703
00:38:57,400 --> 00:39:02,640
Speaker 4: bank financial sector, I mean, obviously, entities funds can lose

704
00:39:02,680 --> 00:39:04,840
Speaker 4: money but are there other ways in which you could

705
00:39:04,880 --> 00:39:08,000
Speaker 4: foresee the risks becoming systemic in a meaningful way? Or

706
00:39:08,120 --> 00:39:11,600
Speaker 4: is or is the hope or is the view that, well, yes,

707
00:39:12,000 --> 00:39:15,080
Speaker 4: risky investors can lose money, but that doesn't necessarily mean

708
00:39:15,080 --> 00:39:15,759
Speaker 4: systemic risk.

709
00:39:16,000 --> 00:39:19,640
Speaker 3: Yeah, we we aren't really concerned. You know, when when

710
00:39:19,719 --> 00:39:22,120
Speaker 3: investors lose money or when they gain money, that's not

711
00:39:22,200 --> 00:39:25,000
Speaker 3: really any of our business. It's really about are there

712
00:39:25,239 --> 00:39:29,760
Speaker 3: disruptive events that could cause significant harm to the system.

713
00:39:30,160 --> 00:39:32,440
Speaker 3: You know, one area that I mentioned very briefly that

714
00:39:32,680 --> 00:39:35,799
Speaker 3: you know we're looking at very carefully is the way

715
00:39:35,840 --> 00:39:40,600
Speaker 3: in which cyber events might cause systemic disruptions. We had

716
00:39:40,640 --> 00:39:43,920
Speaker 3: a smaller event over the last couple of weeks that

717
00:39:43,960 --> 00:39:46,640
Speaker 3: we paid careful attention to, working with Treasury and other

718
00:39:46,840 --> 00:39:51,040
Speaker 3: federal regulators. But we want to make sure that banks

719
00:39:51,320 --> 00:39:55,960
Speaker 3: and other participants in the market are resilient to cyber

720
00:39:56,000 --> 00:39:59,520
Speaker 3: attack and that means both that they have good prevention

721
00:39:59,640 --> 00:40:03,120
Speaker 3: system in place and also they have good systems for

722
00:40:03,239 --> 00:40:07,160
Speaker 3: recovery in the event that cyber attacks are successful, which,

723
00:40:07,200 --> 00:40:09,560
Speaker 3: given the way the world is, you have to assume

724
00:40:09,640 --> 00:40:11,920
Speaker 3: that some of those attacks are going to get through.

725
00:40:12,640 --> 00:40:14,879
Speaker 3: And so we really are quite focused on making sure

726
00:40:14,920 --> 00:40:18,560
Speaker 3: that that kind of risk is appropriately attended to by

727
00:40:18,800 --> 00:40:19,759
Speaker 3: regulated identities.

728
00:40:20,480 --> 00:40:23,560
Speaker 1: Just going back to treasury clearing for a second, I mean,

729
00:40:23,560 --> 00:40:27,520
Speaker 1: this has been a hotly debated topic, the degree to

730
00:40:27,560 --> 00:40:30,680
Speaker 1: which this actually poses a risk to the market, And

731
00:40:30,800 --> 00:40:34,000
Speaker 1: I did mention that it definitely became an issue in

732
00:40:34,040 --> 00:40:36,839
Speaker 1: March of twenty twenty. But there is an argument out

733
00:40:36,840 --> 00:40:40,200
Speaker 1: there that, you know, do we need to tailor our

734
00:40:40,840 --> 00:40:44,600
Speaker 1: day to day policy for an event that happens, you know,

735
00:40:44,680 --> 00:40:47,600
Speaker 1: once every like three hundred years or something like that.

736
00:40:47,680 --> 00:40:51,120
Speaker 1: And I think we asked Darryl Duffy this question in

737
00:40:51,239 --> 00:40:52,920
Speaker 1: Jackson Hole and he was adamant.

738
00:40:52,920 --> 00:40:55,359
Speaker 2: He just said, yes, we absolutely do.

739
00:40:55,680 --> 00:40:58,319
Speaker 1: But I'd be curious to understand how you're sort of

740
00:40:58,320 --> 00:41:02,319
Speaker 1: balancing I guess the immediate trade offs versus like the

741
00:41:02,400 --> 00:41:04,960
Speaker 1: long term goal of having a more stable system.

742
00:41:05,400 --> 00:41:09,040
Speaker 3: We absolutely have to have a reliable, a stable, a

743
00:41:09,160 --> 00:41:14,319
Speaker 3: resilient system for trading of treasuries. Treasuries are really at

744
00:41:14,360 --> 00:41:18,439
Speaker 3: the core of our financial system. They're the way that

745
00:41:19,040 --> 00:41:24,200
Speaker 3: individuals across the globe price other assets. They're the mechanism

746
00:41:24,280 --> 00:41:27,759
Speaker 3: for the government to raise funds. They're really at the

747
00:41:27,760 --> 00:41:30,680
Speaker 3: core of the system, and so we absolutely have to

748
00:41:30,719 --> 00:41:35,560
Speaker 3: have a reliable, resilient system, a deep system, and so

749
00:41:36,320 --> 00:41:38,839
Speaker 3: we do need to take the measures necessary to make

750
00:41:38,880 --> 00:41:42,040
Speaker 3: sure that it stays that way. I think that the

751
00:41:42,160 --> 00:41:44,560
Speaker 3: kinds of thing, kinds of steps that we've taken thus

752
00:41:44,600 --> 00:41:47,680
Speaker 3: far are useful. You know, for example, one of the

753
00:41:47,719 --> 00:41:51,080
Speaker 3: steps that the Federal Reserve took is to establish a

754
00:41:51,160 --> 00:41:56,040
Speaker 3: standing repo facility and a facility for foreign official counterparts,

755
00:41:56,600 --> 00:41:59,799
Speaker 3: so that if there's pressure in the system that can

756
00:41:59,840 --> 00:42:03,920
Speaker 3: be relieved through using repotransactions instead of outright sales that

757
00:42:04,080 --> 00:42:07,080
Speaker 3: might cause serious dislocations to the economy.

758
00:42:07,760 --> 00:42:11,640
Speaker 4: Tracy mentioned our conversation with Darryl Duffy, and obviously when

759
00:42:11,640 --> 00:42:14,000
Speaker 4: we talk about just the sheer amount of debt that's

760
00:42:14,040 --> 00:42:16,239
Speaker 4: being issued, a lot of people talk about it in

761
00:42:16,360 --> 00:42:20,160
Speaker 4: terms of macro macro conditions and the financing costs, but

762
00:42:20,320 --> 00:42:22,680
Speaker 4: just in terms of infrastructure. Is there more in your

763
00:42:22,800 --> 00:42:25,480
Speaker 4: view that needs to be done, whether on sort of

764
00:42:25,520 --> 00:42:29,359
Speaker 4: private sector balance sheet, side market structure, central clearing, etc.

765
00:42:29,719 --> 00:42:33,880
Speaker 4: That would make the market more able to absorb the

766
00:42:34,760 --> 00:42:36,680
Speaker 4: have more capacity for all this issuings.

767
00:42:37,360 --> 00:42:40,000
Speaker 3: I do think it's a really critical question. We do

768
00:42:40,040 --> 00:42:44,759
Speaker 3: need a system that can intermediate effectively for treasury securities.

769
00:42:45,320 --> 00:42:48,520
Speaker 3: There appears to be strong demand for treasury security, so

770
00:42:48,560 --> 00:42:51,960
Speaker 3: it really is question of making sure that securities can

771
00:42:51,960 --> 00:42:56,360
Speaker 3: efficiently get to the right to the right buyer. I

772
00:42:56,400 --> 00:43:00,680
Speaker 3: think that the SECS move towards central clearing of treasury

773
00:43:00,719 --> 00:43:05,440
Speaker 3: securities might be an additional appropriate next step. We're studying

774
00:43:05,480 --> 00:43:08,200
Speaker 3: lots of other ways. This is I would say, ongoing

775
00:43:08,239 --> 00:43:11,480
Speaker 3: work and will be ongoing work. It was just at

776
00:43:11,480 --> 00:43:15,399
Speaker 3: the as I mentioned at the Treasury conference yesterday, it's

777
00:43:15,440 --> 00:43:17,640
Speaker 3: an area that we're paying attention to all the time.

778
00:43:18,440 --> 00:43:20,920
Speaker 1: So I realized we've hit a lot of different risks

779
00:43:21,040 --> 00:43:24,080
Speaker 1: in this discussion. So we've done interest rate risk, did

780
00:43:24,120 --> 00:43:26,520
Speaker 1: operational risksk cyber.

781
00:43:26,280 --> 00:43:28,400
Speaker 2: Risk risks in the treasury market.

782
00:43:28,719 --> 00:43:31,520
Speaker 1: One risk we haven't really talked about, maybe because it

783
00:43:31,600 --> 00:43:34,640
Speaker 1: isn't in the headlines quite as much anymore, is crypto risk.

784
00:43:35,600 --> 00:43:38,920
Speaker 1: And you know, we had a big slide in the

785
00:43:38,960 --> 00:43:41,480
Speaker 1: crypto market over the past year, so it doesn't seem

786
00:43:41,560 --> 00:43:44,640
Speaker 1: like that was a huge deal for the banking system,

787
00:43:44,800 --> 00:43:48,120
Speaker 1: except maybe you know, in respect to something like silver Gate.

788
00:43:48,840 --> 00:43:53,160
Speaker 1: But one aspect of crypto contagion, I guess, or like

789
00:43:53,200 --> 00:43:56,600
Speaker 1: one little crack that I think hasn't gotten that much attention,

790
00:43:57,840 --> 00:44:00,920
Speaker 1: even though the guy behind it certainly has has to

791
00:44:00,960 --> 00:44:03,840
Speaker 1: do with Sam Bankman Freed, who has been a guest

792
00:44:03,880 --> 00:44:06,200
Speaker 1: on this podcast a number of times and is now

793
00:44:06,239 --> 00:44:08,879
Speaker 1: in a lot of legal trouble for reasons I think

794
00:44:08,920 --> 00:44:13,520
Speaker 1: everyone knows. But he did buy or FTX appears to

795
00:44:13,600 --> 00:44:17,480
Speaker 1: have bought a US bank through a Cayman based company,

796
00:44:17,560 --> 00:44:21,800
Speaker 1: which seems like a pretty big channel through which crypto

797
00:44:21,960 --> 00:44:25,480
Speaker 1: could perhaps come into the US banking system. Is that

798
00:44:25,560 --> 00:44:29,160
Speaker 1: something that you and your supervisory role are looking at

799
00:44:29,360 --> 00:44:31,720
Speaker 1: or aware of, or how are you thinking about crypto

800
00:44:31,800 --> 00:44:34,400
Speaker 1: contagion and the risks posed there more broadly?

801
00:44:35,520 --> 00:44:39,120
Speaker 3: Well, let me just say that in general, the banking

802
00:44:39,200 --> 00:44:45,360
Speaker 3: system is not deeply exposed to issues in the crypto space.

803
00:44:45,600 --> 00:44:48,520
Speaker 3: Most banks have been taking what I would describe as

804
00:44:49,040 --> 00:44:53,160
Speaker 3: careful and cautious approach to crypto. But we have been

805
00:44:53,160 --> 00:44:56,240
Speaker 3: paying attention to these issues very much since I arrived

806
00:44:56,280 --> 00:45:02,080
Speaker 3: at the board. We've established a Novel Activity Supervisory program

807
00:45:02,600 --> 00:45:06,520
Speaker 3: to bring experts from around the Federal Reserve system together

808
00:45:07,160 --> 00:45:11,399
Speaker 3: to help supervisors deal with issues at banks that are

809
00:45:11,640 --> 00:45:16,040
Speaker 3: engaging in some crypto related activity and that novel activities.

810
00:45:16,040 --> 00:45:20,240
Speaker 3: Supervisory program should help us wrap our arms around the issues,

811
00:45:20,719 --> 00:45:25,279
Speaker 3: should provide greater clarity and guardrails to banks that want

812
00:45:25,280 --> 00:45:28,160
Speaker 3: to be involved in this space. So we want to

813
00:45:28,280 --> 00:45:32,560
Speaker 3: enable banks to innovate using these new technologies, but to

814
00:45:32,600 --> 00:45:34,560
Speaker 3: do that in a way that is safe and sound,

815
00:45:35,280 --> 00:45:39,480
Speaker 3: that complies with consumer protection laws, that doesn't expose the

816
00:45:39,520 --> 00:45:45,759
Speaker 3: banking system to threats from illicit finance, terrorist financing, money laundering.

817
00:45:46,360 --> 00:45:49,120
Speaker 3: All those issues really need to be completely buttoned down,

818
00:45:49,640 --> 00:45:52,760
Speaker 3: and this supervisory program will help provide that kind of clarity.

819
00:45:53,480 --> 00:45:56,440
Speaker 4: Speaking of crypto, while we're on the subject, one of

820
00:45:56,480 --> 00:45:59,279
Speaker 4: those things that we've sort of learned to appreciate over

821
00:45:59,280 --> 00:46:02,520
Speaker 4: the time is stomach risk seems to come from instruments

822
00:46:02,560 --> 00:46:05,120
Speaker 4: which are presumed not to be risky but to be safe.

823
00:46:05,160 --> 00:46:07,760
Speaker 4: And so whether we're talking about the money market funds

824
00:46:07,800 --> 00:46:10,600
Speaker 4: back in two thousand and eight or just the par

825
00:46:10,800 --> 00:46:13,680
Speaker 4: value of deposits at a bank in twenty twenty three,

826
00:46:13,920 --> 00:46:16,200
Speaker 4: and so that obviously when it comes to crypto, you know,

827
00:46:16,280 --> 00:46:19,000
Speaker 4: that leads you to the stable coin conversation. So I

828
00:46:19,040 --> 00:46:21,960
Speaker 4: kind of want to ask two questions. One is, you know,

829
00:46:22,000 --> 00:46:24,439
Speaker 4: what further do we need to do to make sure

830
00:46:24,520 --> 00:46:27,000
Speaker 4: that stable coins, at some point in the future don't

831
00:46:27,040 --> 00:46:29,360
Speaker 4: become a source of systemic risk. But also in the

832
00:46:29,400 --> 00:46:32,600
Speaker 4: positive sense, do you feel any optimism at all that

833
00:46:32,840 --> 00:46:36,120
Speaker 4: stable coins could be a big private issued stable coins

834
00:46:36,320 --> 00:46:39,240
Speaker 4: could be a meaningful and important part of the global

835
00:46:39,239 --> 00:46:40,680
Speaker 4: payments landscape going forward.

836
00:46:41,560 --> 00:46:43,560
Speaker 3: Well, let me just say first of all, I think

837
00:46:43,600 --> 00:46:46,400
Speaker 3: that we have to be very careful with stable coins.

838
00:46:46,440 --> 00:46:49,719
Speaker 3: Stable Coins are a form of private money, and we've

839
00:46:49,760 --> 00:46:54,040
Speaker 3: seen throughout really history that private money, if it's not

840
00:46:54,239 --> 00:46:58,560
Speaker 3: well regulated, can be extremely explosive. People come to rely

841
00:46:58,680 --> 00:47:01,439
Speaker 3: on it. In the case of a stable coin linked

842
00:47:01,480 --> 00:47:05,160
Speaker 3: to the dollar, stable coins are really borrowing the trust

843
00:47:05,239 --> 00:47:08,880
Speaker 3: of the Federal Reserve. And if that's the case, we

844
00:47:08,920 --> 00:47:13,520
Speaker 3: need strong federal oversight of stable coins. We need oversight

845
00:47:14,120 --> 00:47:16,960
Speaker 3: of the issuers and the wallets. We need to make

846
00:47:17,000 --> 00:47:19,920
Speaker 3: sure that there's strong enforcement. They're strong rules of the

847
00:47:20,000 --> 00:47:23,120
Speaker 3: road because they can be quite explosive, and so I

848
00:47:23,160 --> 00:47:25,160
Speaker 3: do think we have to be really careful in the

849
00:47:25,200 --> 00:47:28,560
Speaker 3: stable coin space. I think that, you know, innovation is

850
00:47:28,600 --> 00:47:31,520
Speaker 3: hard to predict. It's hard to say that a particular

851
00:47:31,560 --> 00:47:33,720
Speaker 3: technology is the one that's going to be the next

852
00:47:34,080 --> 00:47:37,560
Speaker 3: technology of the future. I think it's appropriate for us

853
00:47:38,400 --> 00:47:42,640
Speaker 3: to let that innovation happen, but it's got to happen

854
00:47:42,680 --> 00:47:45,000
Speaker 3: within really, really clear guardrails.

855
00:47:46,440 --> 00:47:48,040
Speaker 2: We just have a few minutes left. Shall we take

856
00:47:48,080 --> 00:47:48,600
Speaker 2: some more questions?

857
00:47:48,840 --> 00:47:49,040
Speaker 3: Yeah?

858
00:47:49,040 --> 00:47:51,279
Speaker 4: Sure, Okay, So this is a going back to the

859
00:47:51,360 --> 00:47:54,520
Speaker 4: FED now question question or asked, is the FED conflicted

860
00:47:54,560 --> 00:47:57,520
Speaker 4: as a regulator of debit card costs and an operator

861
00:47:57,560 --> 00:48:01,000
Speaker 4: of FED now potentially competing with debit card card cause?

862
00:48:01,080 --> 00:48:03,080
Speaker 4: And I also wonder, you know, sort of dumvetails back

863
00:48:03,120 --> 00:48:06,000
Speaker 4: to this question that I asked earlier about the degree

864
00:48:06,200 --> 00:48:10,440
Speaker 4: to which real time payments for various reasons haven't flourished

865
00:48:10,480 --> 00:48:13,920
Speaker 4: because the lack of real time payments.

866
00:48:13,040 --> 00:48:14,239
Speaker 2: Service people make money.

867
00:48:14,280 --> 00:48:16,319
Speaker 4: People make money on the existence a lot of money

868
00:48:16,360 --> 00:48:18,160
Speaker 4: has made on the existing payment system.

869
00:48:18,440 --> 00:48:20,640
Speaker 3: Yeah. No, I look, first of all, on the second point.

870
00:48:20,680 --> 00:48:23,239
Speaker 3: I you know, we talked about this briefly before. I

871
00:48:23,239 --> 00:48:26,920
Speaker 3: do think that there are revenues in the banking system,

872
00:48:27,520 --> 00:48:33,560
Speaker 3: like overdraft fees and insufficient fund fees that some banks

873
00:48:33,719 --> 00:48:36,400
Speaker 3: have gotten used to. Many banks now are getting out

874
00:48:36,440 --> 00:48:39,080
Speaker 3: of that business entirely. They've announced that, you know, they're

875
00:48:39,120 --> 00:48:41,000
Speaker 3: not going to do overdrafts anymore. They're not going to

876
00:48:41,080 --> 00:48:44,560
Speaker 3: charge for them. I think that's positive for our economy

877
00:48:44,600 --> 00:48:48,719
Speaker 3: and for consumers. Overdraft fees are often really hard for

878
00:48:48,880 --> 00:48:52,080
Speaker 3: consumers to avoid, and so if we can get rid

879
00:48:52,120 --> 00:48:54,840
Speaker 3: of them because banks are deciding that that's not the

880
00:48:54,840 --> 00:48:57,200
Speaker 3: business they want to be in, I think that's a

881
00:48:57,239 --> 00:49:02,120
Speaker 3: net positive for households and the life, you know. With

882
00:49:02,160 --> 00:49:06,440
Speaker 3: respect to the existing payment system, I don't see a

883
00:49:06,480 --> 00:49:10,600
Speaker 3: conflict between the work that we're doing on debit cards

884
00:49:10,640 --> 00:49:13,320
Speaker 3: and the work that we're doing on FED now. Congress

885
00:49:13,360 --> 00:49:16,719
Speaker 3: has assigned us a very particular role with respect to

886
00:49:16,760 --> 00:49:20,080
Speaker 3: debit cards. Congress has said that we need to determine

887
00:49:20,600 --> 00:49:25,200
Speaker 3: that debit card interchange fees are reasonable and proportional in

888
00:49:25,239 --> 00:49:29,279
Speaker 3: relation to certain specified costs. That's our job. We do

889
00:49:29,320 --> 00:49:32,680
Speaker 3: the job Congress has assigned us. We recently issued a

890
00:49:32,719 --> 00:49:35,799
Speaker 3: proposal to update the rules in that space, and I

891
00:49:35,840 --> 00:49:38,480
Speaker 3: don't see that influencing or connecting in any way with

892
00:49:38,520 --> 00:49:39,520
Speaker 3: our work on FED now.

893
00:49:40,360 --> 00:49:43,400
Speaker 1: Should I ask a super big picture question, go for it.

894
00:49:43,640 --> 00:49:44,600
Speaker 2: We've been pretty micro.

895
00:49:45,480 --> 00:49:48,560
Speaker 1: There was a brief moment this summer, sort of post SBB,

896
00:49:48,719 --> 00:49:52,160
Speaker 1: where it felt like there was a window to suddenly

897
00:49:52,800 --> 00:49:56,760
Speaker 1: have a sort of existential conversation about the US banking system,

898
00:49:56,840 --> 00:50:00,799
Speaker 1: there was discussion over what do we actually want this

899
00:50:00,960 --> 00:50:04,080
Speaker 1: to look like. Do we want a nation of small

900
00:50:04,200 --> 00:50:09,000
Speaker 1: banks where everyone knows their banker in it's a wonderful lifestyle.

901
00:50:09,280 --> 00:50:12,520
Speaker 1: Do we want something that's maybe more similar to Canada,

902
00:50:12,560 --> 00:50:15,760
Speaker 1: where we have like six huge banks that are highly

903
00:50:15,800 --> 00:50:21,120
Speaker 1: regulated and that sort of thing. When you're making bank rules,

904
00:50:21,160 --> 00:50:24,680
Speaker 1: when you're evaluating everything that we've discussed today, do you

905
00:50:24,760 --> 00:50:27,560
Speaker 1: have a vision of what you want the US banking

906
00:50:27,560 --> 00:50:28,440
Speaker 1: system to look like?

907
00:50:29,080 --> 00:50:31,719
Speaker 3: Well, let me just say I very much value the

908
00:50:31,800 --> 00:50:34,160
Speaker 3: diversity that we have in the United States. So different

909
00:50:34,200 --> 00:50:38,239
Speaker 3: kinds of institutions. We have community banks that are very

910
00:50:38,360 --> 00:50:41,800
Speaker 3: very local. We have smaller regional banks. We have large

911
00:50:41,800 --> 00:50:44,359
Speaker 3: banks that are not the g sibs. We have very

912
00:50:44,440 --> 00:50:48,319
Speaker 3: large banks that are super complex and serve different kinds

913
00:50:48,360 --> 00:50:52,120
Speaker 3: of markets. I think that that diversity in our financial

914
00:50:52,160 --> 00:50:55,840
Speaker 3: system is actually really healthy. It makes for a stronger,

915
00:50:55,960 --> 00:51:00,440
Speaker 3: more vibrant economy. It makes our banking system more resilient

916
00:51:00,480 --> 00:51:04,040
Speaker 3: to shock, and so I do think that we do

917
00:51:04,120 --> 00:51:06,279
Speaker 3: take into account. I do think that it's important for

918
00:51:06,360 --> 00:51:09,560
Speaker 3: us to take into account that diversity of size and

919
00:51:09,640 --> 00:51:11,120
Speaker 3: type of institution.

920
00:51:11,760 --> 00:51:14,040
Speaker 4: Can I ask just like a random question that's totally

921
00:51:14,040 --> 00:51:17,160
Speaker 4: out of now. Yeah, I should have asked this during

922
00:51:17,200 --> 00:51:19,880
Speaker 4: the more the macro part of the discussion. But you know,

923
00:51:19,880 --> 00:51:22,120
Speaker 4: and I think about where the FED is the policy

924
00:51:22,600 --> 00:51:25,080
Speaker 4: with the policy trajectory, you know, the one area of

925
00:51:25,120 --> 00:51:27,399
Speaker 4: the economy that I think everyone agrees that the FED

926
00:51:27,440 --> 00:51:31,160
Speaker 4: has real influenced on his housing and rate policy feeds

927
00:51:31,200 --> 00:51:33,719
Speaker 4: directly through to mortgage rates, and you can slow down.

928
00:51:33,800 --> 00:51:36,240
Speaker 4: It looks like, unambiguously, if there's one thing that rates

929
00:51:36,239 --> 00:51:38,840
Speaker 4: can do, it's slow down housing activity. But that cuts

930
00:51:38,840 --> 00:51:42,360
Speaker 4: both ways because it reduces demand for new mortgages, but

931
00:51:42,400 --> 00:51:44,360
Speaker 4: it can also impair supply. And we are in a

932
00:51:44,440 --> 00:51:47,160
Speaker 4: time in which many people feel like the United States

933
00:51:47,200 --> 00:51:50,200
Speaker 4: is perhaps millions of units under housed. How do you

934
00:51:50,280 --> 00:51:55,120
Speaker 4: think about the supply side aspect of monetary policy and

935
00:51:55,160 --> 00:52:00,680
Speaker 4: the point at which rate policy ends up constrain supply

936
00:52:00,800 --> 00:52:03,880
Speaker 4: when in theory more supplies what drivers prices down?

937
00:52:04,120 --> 00:52:08,799
Speaker 3: Yes, So what I give you a technical answer and

938
00:52:08,840 --> 00:52:12,120
Speaker 3: then a maybe a broader answer, So you know, we

939
00:52:12,200 --> 00:52:14,960
Speaker 3: really are mostly working on the demand side of that

940
00:52:15,040 --> 00:52:17,759
Speaker 3: of the house, if you will, and that you know,

941
00:52:18,000 --> 00:52:23,440
Speaker 3: the elasticities of demand are faster and larger than the

942
00:52:23,480 --> 00:52:28,319
Speaker 3: elasticities of supply. So what we're really seeing is, you know, overall,

943
00:52:28,800 --> 00:52:31,560
Speaker 3: our country has not had enough housing supply for a

944
00:52:31,560 --> 00:52:35,440
Speaker 3: long time. We've been you know, behind that was true,

945
00:52:35,880 --> 00:52:37,800
Speaker 3: you know, before the raid hikes, it was true, before

946
00:52:37,840 --> 00:52:40,680
Speaker 3: the pandemic. It's been true for a while. So we

947
00:52:40,760 --> 00:52:43,719
Speaker 3: do need just overall in our society to see more

948
00:52:43,760 --> 00:52:47,680
Speaker 3: housing supply come in in order to catch up. But

949
00:52:47,840 --> 00:52:51,640
Speaker 3: right now, the major effect, the shortest term effect, is

950
00:52:51,680 --> 00:52:55,719
Speaker 3: really on tamping down aggregate demand so that supply has

951
00:52:55,719 --> 00:52:58,120
Speaker 3: a chance to catch up. And I think there is

952
00:52:58,200 --> 00:52:59,960
Speaker 3: evidence that we were talking about before in the day

953
00:53:00,000 --> 00:53:03,600
Speaker 3: at that supply and demand are coming into better balance overall.

954
00:53:04,800 --> 00:53:08,200
Speaker 1: Well, Joe, I think we've effectively achieved a random walk

955
00:53:08,320 --> 00:53:09,759
Speaker 1: through a whole lot of.

956
00:53:09,800 --> 00:53:11,680
Speaker 4: Topics, crossing back and forth.

957
00:53:11,960 --> 00:53:15,239
Speaker 1: Yeah, thank you so much to Michael for being a

958
00:53:15,239 --> 00:53:18,279
Speaker 1: wonderful guest and you know, playing ball with us on

959
00:53:18,320 --> 00:53:20,000
Speaker 1: a wide variety of topics.

960
00:53:20,040 --> 00:53:20,880
Speaker 2: Really appreciate it.

961
00:53:21,080 --> 00:53:22,680
Speaker 3: It's my pleasure to join you on the show. I

962
00:53:22,680 --> 00:53:23,160
Speaker 3: really enjoyed.

963
00:53:23,239 --> 00:53:41,000
Speaker 5: Thank you, Thank you.

964
00:53:46,320 --> 00:53:49,560
Speaker 4: That was our conversation with Michael Barr, the fed's Vice

965
00:53:49,680 --> 00:53:54,040
Speaker 4: chair for Supervision at the Clearinghouse Conference in New York City.

966
00:53:54,440 --> 00:53:57,320
Speaker 1: I'm Tracy Alloway. You can follow me at Tracy Alloway.

967
00:53:57,400 --> 00:53:59,600
Speaker 4: And I'm Joe Wisenthal. You can follow me at the

968
00:53:59,640 --> 00:54:03,479
Speaker 4: Stall War. Follow our producers Carmen Rodriguez at Carmen Arman,

969
00:54:03,719 --> 00:54:07,480
Speaker 4: dash Ol Bennett at Dashbot, and Kelbrooks at Kelbrooks. And

970
00:54:07,520 --> 00:54:10,840
Speaker 4: thank you to our producer Moses Ondam. For more Oddlots content,

971
00:54:10,880 --> 00:54:13,560
Speaker 4: go to Bloomberg dot com slash odd Lots, where we

972
00:54:13,600 --> 00:54:17,319
Speaker 4: have a blog, transcript and a newsletter. And I'm sure

973
00:54:17,320 --> 00:54:20,080
Speaker 4: there's gonna be a lot of conversation about this episode

974
00:54:20,200 --> 00:54:23,040
Speaker 4: in the Odd Lots Discord one of my favorite places

975
00:54:23,080 --> 00:54:26,960
Speaker 4: to hang out online, Discord dot gg, slash offline.

976
00:54:27,239 --> 00:54:29,600
Speaker 1: And if you enjoy odd Lots, if you like it

977
00:54:29,680 --> 00:54:33,040
Speaker 1: when we record these live conversations, then please leave us

978
00:54:33,120 --> 00:54:36,239
Speaker 1: a positive review on your favorite podcast platform.

979
00:54:36,280 --> 00:54:37,040
Speaker 2: Thanks for listening.

980
00:55:06,600 --> 00:55:07,279
Speaker 5: In e