Speaker 1: Hello, and welcome to the Votes and Verdicts podcast, hosted
Speaker 1: by the litigation and policy team at Bloomberg Intelligence. We
Speaker 1: are the investment research platform at Bloomberg LP. Bloomberg Intelligence
Speaker 1: has five hundred analysts and strategists working across the globe
Speaker 1: and we are focused on all major markets. Our coverage
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Speaker 1: cover it. This podcast series examines the intersection of business
Speaker 1: policy and law. And I'm Nathan Dean, an analysts with
Speaker 1: Boomberg Intelligence covering financials policy.
Speaker 2: And my name is Elliott Stein and I'm an analyst
Speaker 2: with Bloomberg Intelligence covering financials litigation.
Speaker 1: Our guest today is Todd Phillips, Assistant Professor of Law
Speaker 1: and the Robinson College of Business at Georgia State University.
Speaker 1: These areas of expertise include bank capital and financial regulation,
Speaker 1: deposit insurance, derivatives and securities, market structure, and the laws
Speaker 1: governing federal regulators. Before entering academia, and Phillips served as
Speaker 1: an attorney for the Federal Deposit Insurance Corporation, the Administrative
Speaker 1: Conference in the United States, the ioshoppers representatives, and the
Speaker 1: Center for American Progress. And if you've watched the CFTC
Speaker 1: or the ICEC or the House Financial Services Committee, you've
Speaker 1: seen Todd testify and provide expertise and information to both
Speaker 1: the regulators and the policymakers. Todd holds a jd from
Speaker 1: the University of Michigan and a BS at economics and
Speaker 1: political science from Arizona State University. So Todd, thank you
Speaker 1: very much for joining and welcome to the Votes and
Speaker 1: Verdicts podcast.
Speaker 3: Thank you, guys, glad to be here.
Speaker 1: So Todd, the first question we always ask is about
Speaker 1: our guest and their history. And I just read your
Speaker 1: official bio, but I'd love for our listeners to understand
Speaker 1: what actually brought you to the financial regulation sector, and
Speaker 1: especially what made you go into consumer advocacy and your
Speaker 1: work of the fdi C in the House and so
Speaker 1: forth like that.
Speaker 3: Yeah, So, I'm originally from Arizona. I really came of
Speaker 3: age during the Great Financial Crisis, and as your I
Speaker 3: guess older listeners know, Arizona was one of the states
Speaker 3: that was hit really really hard. I saw quite a
Speaker 3: few people lose lose everything they had built, really due
Speaker 3: to no fault of their own, just due to the
Speaker 3: faults in the financial system that we observed, and I
Speaker 3: wanted to dedicate myself to ensuring that something like that
Speaker 3: never happened again. The way I thought about doing it,
Speaker 3: the way I found to do it was to go
Speaker 3: to law school and to work in financial regulation, and
Speaker 3: I've been here ever since. It's been a really crazy
Speaker 3: ride with the ups and downs since the financial crisis,
Speaker 3: but it's great. I'm glad to be in this work
Speaker 3: speaking to folks like you, and as you mentioned, working
Speaker 3: for agencies testifying on the Hill. It's just been a
Speaker 3: great experience.
Speaker 2: Hey Todd, this is Elliott. You know I always enjoy
Speaker 2: reading your tweets and getting your insights, and you've also
Speaker 2: published several papers recently. And one of the papers you
Speaker 2: published recently, I don't know if it was a paper
Speaker 2: or an article technically, but I have to do with
Speaker 2: Chevron defference. So I want to start by asking you
Speaker 2: about that, since there are a pair of cases pending
Speaker 2: in the Supreme Court that the conventional wisdom expects will
Speaker 2: sort of curtail, if not get rid of Chevron deference altogether.
Speaker 2: I know a lot of our listeners are familiar with Chevron,
Speaker 2: but for those that aren't, I'll just explain it briefly.
Speaker 2: It refers to one of the most important principles in
Speaker 2: administrative law, named for a nineteen eighty four Supreme Court
Speaker 2: case Captions Chevron versus the Natural Resources Defense Council, and
Speaker 2: in that case, the courts set forth a legal test
Speaker 2: for when courts should defer to an agency's interpretation of
Speaker 2: a federal statute and and the holding the decision held
Speaker 2: that if a statute is ambiguous, courts should defer to
Speaker 2: the agency's interpretation so long as it's reasonable. And just
Speaker 2: as a shameless plug for BI for Bloomberg Intelligence, I'll
Speaker 2: mentioned here that our litigation and policy team has recently
Speaker 2: put out what we call a deep dive on the
Speaker 2: demise of Chevron deference and the various sectors and policies
Speaker 2: that will be most affected by the Supreme Court's anticipated ruling.
Speaker 2: So again, the conventional wisdom, of course, is that Chevron
Speaker 2: defference has been good for democrats, since democratic regulators tend
Speaker 2: to be more aggressive in terms of rule making and
Speaker 2: as a result, judicial deference to those regulators is a
Speaker 2: good thing in that view. But in your article from
Speaker 2: early May, I think you make a really interesting point
Speaker 2: that I think all also gets overlooked a lot, and
Speaker 2: that point is that Chevron deference has not been good
Speaker 2: for progressives when it comes to banking laws because crudential
Speaker 2: banking regulators like the OCC historically have taken an expansive
Speaker 2: view of the conduct that commercial banks are allowed to
Speaker 2: engage in, and courts have had to defer to those
Speaker 2: OCC regulations. So you know, the article is called Chevron
Speaker 2: and Banking Law. What's good for the goose isn't good
Speaker 2: for the gander. You published it in the Yale Journal
Speaker 2: on Regulation. I'd love it if you could, you know,
Speaker 2: sort of walk us through your article in some more detail,
Speaker 2: because again, I do think you make a very underappreciated point.
Speaker 3: Yeah, thanks for bringing this up, Elliott. So you know,
Speaker 3: as you mentioned, Chevron stands for the principle that if
Speaker 3: there is an ambiguous statue, courts are to defer to
Speaker 3: the executive branch, to the agency is to figure out
Speaker 3: how to interpret it. Recently, you know, it has been
Speaker 3: progressives really championing Chevron deference as the key to ensuring
Speaker 3: that strong progressive policies that push forward progressive values are implemented.
Speaker 3: But that hasn't always been the case. In fact, the
Speaker 3: original Chevron case in the eighties was about the Reagan
Speaker 3: administration's EPA trying to roll back some strong regulations from
Speaker 3: the prior Carter administration, and in that case, the Supreme
Speaker 3: Court said, sure, we'll let you go ahead and do
Speaker 3: this roll back. The argument I make in the piece
Speaker 3: is that progressives today are really wrong to be arguing
Speaker 3: that Chevron really is good for progressive values. I've spoken
Speaker 3: to a lot of folks in the environmental space who
Speaker 3: say that we need Chevron to allow the EPA and
Speaker 3: some of the other environmental agencies to solve the climate
Speaker 3: crisis and do all sorts of other really progressive minded things.
Speaker 3: And in the piece I argue that in banking we
Speaker 3: already have really really strong progressive banking laws on the books.
Speaker 3: The National Bank Act of eighteen sixty four really constrains
Speaker 3: what national banks are allowed to do. Congress further in
Speaker 3: the Glass Stegal Act of nineteen thirty three made clear
Speaker 3: that for state banks, they're also significantly constrained in what
Speaker 3: they can do, really limiting them to the quote unquote
Speaker 3: business of banking. And the piece goes through how starting
Speaker 3: in the eighties up through the early two thousands, bank
Speaker 3: regulators across both political parties use Chevron deference to expand
Speaker 3: the activities that banks could undertake. They expanded that definition
Speaker 3: of the business of banking with the approval of the courts,
Speaker 3: to allow banks to engage in derivatives activities, to offer
Speaker 3: products that mirrored securities investments. They allowed banks to issue
Speaker 3: deposit products that mirrored s and P five hundred index funds.
Speaker 3: So it gave you the same economics of investment of
Speaker 3: investing through a banking lens. And the courts blessed all
Speaker 3: of these things. And one of the things I argue
Speaker 3: is that it's this expansion of banking law under the
Speaker 3: Chevron lens that really led the Great findancial Crisis in
Speaker 3: two thousand and seven two thousand and eight to occur.
Speaker 3: It was this expansion of what banks could do under
Speaker 3: the lens of Chevron that caused all of the calamity
Speaker 3: that we saw in the mid odds. And so this
Speaker 3: piece really is a plea to my fellow progressive scholars
Speaker 3: and advocates to just not take Chevron deference as a
Speaker 3: de facto progressive good and promoting progressive values, but that
Speaker 3: we can and should make strong arguments without relying on Chevron,
Speaker 3: that agencies can do good things, or that courts should
Speaker 3: constrain agencies from doing bad things without Chevron. As you noted,
Speaker 3: the Supreme Court's currently figuring out what to do with Chevron,
Speaker 3: whether to keep it going in the future. We should
Speaker 3: have an opinion about that coming out within the next
Speaker 3: month or two. And I imagine that we will have
Speaker 3: a whole new world when when that happens, and we're
Speaker 3: going to have to figure out how to make progressive
Speaker 3: policy arguments without Chevron. And this is one way to
Speaker 3: do it.
Speaker 2: And and what do you think, uh, I mean, if
Speaker 2: you had a crystal ball, what do you think the
Speaker 2: Supreme Court is going to do? Like, where are we
Speaker 2: going to be after after this decision? That we're going
Speaker 2: to be sort of back in skidmore difference land where
Speaker 2: the courts, you know, sort of factor in all the
Speaker 2: different you know, possible interpretations but don't necessarily refer to
Speaker 2: to the agency or the executive branch.
Speaker 3: So I imagine that we will generally be back in
Speaker 3: skid Moore Land. Yeah, so what what Skidmore Difference says
Speaker 3: is that courts are the final arts of the decisions,
Speaker 3: but they are allowed to or should take into consideration
Speaker 3: the reason arguments of the agencies. If the agencies can
Speaker 3: make a compelling argument about why a statute should be
Speaker 3: interpreted a particular way, then courts should, you know, interpret
Speaker 3: it that way. One of the things I'm sure that
Speaker 3: your listeners are concerned about, and it's something I'm concerned
Speaker 3: about too, is what happens to all of the court
Speaker 3: cases that relied on Chevron. We have thirty forty years
Speaker 3: of precedent right now where courts have been applying Chevron
Speaker 3: to existing statutes like the ones I talked about with
Speaker 3: the Business of Banking, and if when the Court Constraints
Speaker 3: revises overalls Chevron, all of those cases are are likely
Speaker 3: going to have to be reinterpreted anew or under a
Speaker 3: new test that the Supreme Court puts forward. And and
Speaker 3: let me tell you, that's that's going to be a mess.
Speaker 3: I really don't know what's going to happen. I would
Speaker 3: love to be able to give the listeners some better
Speaker 3: sense of what the world will be like.
Speaker 2: It's fair. I mean, you know, if we'd all be
Speaker 2: billionaires if we knew exactly what was going to happen,
Speaker 2: you know exactly now. But I think you make a
Speaker 2: really good point. Just one last question on this, because
Speaker 2: in your art, in your in your article, you also
Speaker 2: said that you know, nevertheless, you hope Severn deference survives
Speaker 2: as unlikely that as that seems to be. But I'm
Speaker 2: wondering how you sort of thread that needle hoping for
Speaker 2: it to survive, but also you know, making the point
Speaker 2: that it has been sort of bad for the banking industry.
Speaker 1: Yeah.
Speaker 3: So I think from a from a philosophical perspective, I
Speaker 3: think that Chevron defference really does make sense if a
Speaker 3: statute truly is ambiguous, if courts really don't can't figure
Speaker 3: out what Congress intended when it wrote a statute, in
Speaker 3: my mind, it makes sense for the other elected branch,
Speaker 3: the executive branch, to have interpretive authority over that rather
Speaker 3: than giving it to unelected judges. So I think from
Speaker 3: a philosophical sense about just interpretation of law and the
Speaker 3: role of judges, I think Chevron makes sense. Even though
Speaker 3: you know as the article talks about, I think Chevron
Speaker 3: has been really really bad for banking.
Speaker 1: So I'd like to take the conversation over to a
Speaker 1: topic that our listeners know pretty well, and that's the
Speaker 1: Basle three endgame. For those of you who don't know
Speaker 1: what the Basle three endgame, you know, this is what
Speaker 1: if you've watched the NFL, you know you saw commercials
Speaker 1: on this. This is the last remaining piece of the
Speaker 1: Basil three Accords that set international standards for bank capital. Now,
Speaker 1: in July of twenty twenty three, the financial banking regulators,
Speaker 1: so this is the FED, the FDIC, and the Office
Speaker 1: of the Control or the Currency, proposed to rule that
Speaker 1: would increase capital requirements by as much as nineteen percent
Speaker 1: for those globally systemic banks like Bank America, City Group
Speaker 1: in JP Morgan, regional lenders you know, in our analysis
Speaker 1: could see around a five percent increase. Now, there's been
Speaker 1: intense industry pushback to the proposal, and we've seen statements
Speaker 1: from both the FED Chairman and the FED Vice chair
Speaker 1: Michael Barr that broad im material changes are coming.
Speaker 3: You know.
Speaker 1: JP Morgan went as far in the most recent earnings
Speaker 1: called by stating they felt the proposed capital requirements would
Speaker 1: drop by fifty percent in the next version. So my
Speaker 1: question to you is, Todd, should these broad and material
Speaker 1: changes come. If they are coming, what do you think
Speaker 1: the regulators are going to do? And do you think
Speaker 1: the regulators will finalize the rule or do you think
Speaker 1: reproposals in the cards.
Speaker 3: Yeah, so I am a proponent of what the banking
Speaker 3: agencies originally proposed. I think that we do need very
Speaker 3: strong capital requirements above what is in existing law. That
Speaker 3: being said, I'm not going to dwell on that because
Speaker 3: that's just not going to happen. It's clear from Vice
Speaker 3: Chair bars statement that the agencies are doing broad reconceptualizations, reconsiderations,
Speaker 3: and we're going to see something. My prediction is we're
Speaker 3: going to see something significantly rolled back. I'm not going
Speaker 3: to prognosticate about what we're going to see. I think
Speaker 3: that is a political compromise that's going to need to happen.
Speaker 3: As an aside, one of the things that I think
Speaker 3: has been missing from the discussion about what a revised
Speaker 3: endgame is going to look like. Most media has focused
Speaker 3: on the political dynamics of the FED, and one thing
Speaker 3: I want to make clear to your listeners and perhaps
Speaker 3: reporters who are listening, is that this is a regulation
Speaker 3: that's really going to that is by necessity going to
Speaker 3: include a vote of the FED, vote of the FDIC,
Speaker 3: and a vote of the OCC And so whatever we
Speaker 3: see is going to have to have it's going to
Speaker 3: have to get the vote of J. Powell, and it's
Speaker 3: also going to have to get the vote of row
Speaker 3: hit Chopra on the FDICE. And I don't know how
Speaker 3: they're going to thread that, but just conceptually, I think
Speaker 3: what we're going to see is something that can get
Speaker 3: the approval of those two by necessity, just the way
Speaker 3: that the vote of the agencies is going to have
Speaker 3: to shake out.
Speaker 1: How do you think I don't want to use the
Speaker 1: word screw up, because this is not a screw up,
Speaker 1: but how did we get to a situation in terms
Speaker 1: of you know, this was probably the biggest thing that
Speaker 1: the FED was going to do under the Biden administration.
Speaker 1: And it comes out, it's proposed, and you see this
Speaker 1: industry push back, you see moderate Democrats pushing back and
Speaker 1: so forth, and it's almost like they're having to do
Speaker 1: an about face here. You know, was this a situation
Speaker 1: of an own goal or do you think that what
Speaker 1: the FED originally And I'm using the FED here just
Speaker 1: because you know a lot of it, Like you pointed out,
Speaker 1: it's a free agency. But you know, how did we
Speaker 1: get into a situation like this where the proposal going
Speaker 1: from proposed to finalized could change so drastically?
Speaker 3: So this is not abnormal or doing you know a
Speaker 3: revision is not abnormal. It's the way the rule making
Speaker 3: process is supposed to work. The rulemaking process is governed
Speaker 3: by the Administrative Procedure Act. Congress enacted it so that
Speaker 3: agencies would have to issue your proposal, receive feedback from
Speaker 3: the public, and only then can they finalize a regulation.
Speaker 3: And that's exactly what's happening. So I don't think I
Speaker 3: wouldn't call this an about face. I would call it,
Speaker 3: you know, the normal process working. Okay, But to your
Speaker 3: point about how how there was so much pushback, my
Speaker 3: understanding is that endgame really is Michael Barr's not white whale,
Speaker 3: but like it is the thing that he came into
Speaker 3: the position wanting to do. It's the thing he has
Speaker 3: been pushing or it's the thing he wants to do
Speaker 3: before he leaves the job. And because it's something that
Speaker 3: has to be voted on by the three agencies, my
Speaker 3: understanding is that the the rule is further to the
Speaker 3: left than it might otherwise have been because of the FDIC.
Speaker 3: And so, you know, I don't know exactly what happened,
Speaker 3: but I can imagine a situation where, you know, the
Speaker 3: three agencies move further to the left than two of
Speaker 3: them were comfortable with in order to get the FDIC
Speaker 3: on board, and said, all right, we'll see what kind
Speaker 3: of comments we get. We are receiving the comments, and
Speaker 3: there is some very significant pushback, and I imagine the
Speaker 3: folks at the FDIC who wanted to push it further
Speaker 3: to the left are are likely see this and thinking, okay,
Speaker 3: we need to moderate in order to ensure that this
Speaker 3: actually gets across the finish line.
Speaker 1: You know, you made it sound like I was just
Speaker 1: imagining myself when I negotiate with my child over at bedtime.
Speaker 1: You know, I always say something that I know that
Speaker 1: I'm not going to get, but I still get a
Speaker 1: push for it because there's going to have to be
Speaker 1: some negotiation, and virtually I'll get to a point that
Speaker 1: we're both agreed on that you will go to bed
Speaker 1: by this point exactly. But you know, I guess my
Speaker 1: last remaining question before I turn it back to Elliott
Speaker 1: is Bloomberg News is reported that they can finalize this
Speaker 1: by August.
Speaker 3: Do you think that's feasible? I don't know. So the
Speaker 3: industry has been pushing for them to do a reproposal.
Speaker 3: Reproposals not going to happen. It's it's just not going
Speaker 3: to happen. They are going to make changes based within
Speaker 3: the original framework. They are going to do everything they
Speaker 3: can to make sure it is legally compliant. That takes
Speaker 3: a while, and I don't know about by August, but
Speaker 3: I do imagine it will get done this year before
Speaker 3: the election.
Speaker 2: And do you think there's any chance the rule gets
Speaker 2: watered down so much that the industry decides not to sue.
Speaker 2: It sort of feels like litigation these days is inevitable
Speaker 2: whenever a rule is finalized.
Speaker 3: No, I mean, I think the industry is absolutely going
Speaker 3: to sue. And if you saw what happened with the
Speaker 3: SEC's climate disclosure rule, the SEC weakened it by excluding
Speaker 3: scope three. It seems in part to try to avoid litigation.
Speaker 3: And what did we see litigation happened. I mean, BPI
Speaker 3: has hired Eugene Scalia, who is one of the top
Speaker 3: administrative litigators in the country. You don't hire Scalia to
Speaker 3: not sue. I can't imagine that this rule gets finalized
Speaker 3: without a legal challenge. The other thing I note is
Speaker 3: that there are what thirty something banks to which the
Speaker 3: endgame rule will apply, maybe more, And it only takes
Speaker 3: one to sue. I mean, I think everyone's predicting that
Speaker 3: it's going to be BPI that sues. But if the
Speaker 3: consensus is that, you know, BPI shouldn't, it only takes
Speaker 3: one to actually, you know, pull the trigger and file
Speaker 3: the documents challenging the rule.
Speaker 2: Yeah. I tend to agree with that. And you know,
Speaker 2: litigation keeps me in business. That's good too. All right,
Speaker 2: let's turn to crypto and talk a little bit about
Speaker 2: the SEC's enforcement action against Coinbase. As I'm sure most
Speaker 2: of our listeners know, the SEC sued Coinbase in June
Speaker 2: of twenty twenty three, alleging that the company was operating
Speaker 2: as an unregistered exchange broker in clearing agency, and one
Speaker 2: of the company's arguments for getting the case dismissed was
Speaker 2: that the enforcement action violated the Major questions doctrine again
Speaker 2: for listeners who don't know. The Major questions doctrine is
Speaker 2: a recently articulated Supreme Court doctrine that says that if
Speaker 2: an agency seeks to decide an issue of major national
Speaker 2: or economic significance, its action must be supported by clear
Speaker 2: congressional authorization in a statute you and others filed in
Speaker 2: amicus brief. Some say amkus. I still say amicus an
Speaker 2: amicus brief in the case arguing that the SEC's enforcement
Speaker 2: action should not and does not trigger the major questions doctrine.
Speaker 2: And indeed, when Judge Bala ruled on Coinbase's motion a
Speaker 2: few months ago, and she rejected Coinbase's major questions argument,
Speaker 2: and she essentially adopted your reasoning at least part of it.
Speaker 2: Can you walk us through your arguments that you made
Speaker 2: in your amaricus brief in why the major questions doctrine
Speaker 2: should not apply to enforcement actions like the one against Coinbase.
Speaker 3: Absolutely so, I think you explained the major questions doctrine well.
Speaker 3: The one thing I would add is that in the
Speaker 3: opinions articulating it West Virginia versus EPA, the Supreme Court
Speaker 3: made clear that This is a principle or a doctrine
Speaker 3: meant to get at separation of powers and ensure that
Speaker 3: the legislature writes legislation, the executive brings enforcement actions, and
Speaker 3: the judiciary adjudicates cases and what and the Major Questions
Speaker 3: doctrine therefore applies to agency actions where the executive is
Speaker 3: kind of usurping the role of the legislature. And my
Speaker 3: co author bo and my argument is that, well, there
Speaker 3: is no separation of powers issue here with the SEC's
Speaker 3: crypto related enforcement actions because Congress wrote a law, wrote
Speaker 3: the Securities Act of thirty three, in the Exchange Act
Speaker 3: of thirty four, the executive branch, the SEC is bringing
Speaker 3: an enforcement action. An enforcement action is just the prototypical
Speaker 3: article to executive action, and they're asking a court to adjudicate,
Speaker 3: which is exactly what courts are supposed to do. So
Speaker 3: there is no separation of powers violation here. It's just
Speaker 3: every branch of government doing what that branch is supposed
Speaker 3: to do, and therefore the Major Questions doctrine doesn't apply.
Speaker 3: As you noted, Judge Fela seems to have agreed with that,
Speaker 3: and I appreciate it. I will also note that it
Speaker 3: seems like the crypto industry has also bought our argument,
Speaker 3: and we've seen the last couple of lawsuits that have
Speaker 3: been filed that Major Questions doctrine. The Major Questions doctrine
Speaker 3: hasn't been raised, which is great. The question, I think
Speaker 3: is what the Supreme Court will do. As I think
Speaker 3: you guys know from Twitter, I've been saying that the
Speaker 3: crypto industry's play here is to bring lawsuits in Texas
Speaker 3: and the Fifth Circuit Court of Appeals, which is clearly
Speaker 3: the most conservative court in the country, seems like they
Speaker 3: want to create a circuit split where the Fifth Circuit
Speaker 3: rules one way on crypto and DC in New York
Speaker 3: rule another way, and that circuit slit will cause the
Speaker 3: Supreme Court to uh to take up the case and
Speaker 3: rule on the issue of crypto for what it's worth.
Speaker 3: I don't think you need the Major Questions doctrine to
Speaker 3: get at that. I think the question is, you know,
Speaker 3: will will the court? Will the Supreme Court read the
Speaker 3: how we test as applying to crypto assets? And but
Speaker 3: between the three of us and the listeners, I think
Speaker 3: that's going to be a very hard sell. And I
Speaker 3: wrote a report for the Roosevelt Institute a couple of
Speaker 3: months ago, where I said that, you know, I think
Speaker 3: crypto proponents are making a a decent, not not perfect,
Speaker 3: but also not terrible argument that that how we test
Speaker 3: doesn't apply to crypto assets. I think that if this
Speaker 3: gets up to the Supreme Court, the Supreme Court might
Speaker 3: buy that. It might change the how we test to
Speaker 3: just say that the way crypto assets are initially issued
Speaker 3: these days just doesn't comply or they're not securities, they
Speaker 3: don't have to comply with the securities laws. And I
Speaker 3: think that could remove from the SEC a lot of
Speaker 3: its existing authority that has been relying on to regulate
Speaker 3: crypto I am, I am very scared of that happening,
Speaker 3: and I and I I give it a decent chance
Speaker 3: of happening.
Speaker 2: Yeah, I tend to agree with that. I mean, I
Speaker 2: think it's inevitable that one of these cases that the
Speaker 2: SEC has brought against crypto companies, you know, whether it's
Speaker 2: coinbase or Binance or cracking, and there's definitely a few others.
Speaker 2: I think it's inevitable that one of them will go
Speaker 2: to the Supreme Court, and then how we test will
Speaker 2: be narrowed in some way. By the by this Supreme
Speaker 2: Court way. That aligns with Coinbase's argument, which is that
Speaker 2: you know, an investment, especially for sales on the secondary market,
Speaker 2: that an investment contract requires some sort of post sale
Speaker 2: obligation that travels with the asset. And you know, again,
Speaker 2: I'm not sure you have that with the type of
Speaker 2: secondary market transactions at issue in the coinbase case, but
Speaker 2: we'll see where it goes. And I and you also
Speaker 2: make the point that you know, it makes legislation even
Speaker 2: that much more important if you know you're an advocate
Speaker 2: of the sec having some jurisdiction here, because otherwise you're
Speaker 2: going to get a railroaded by the Supreme Court down
Speaker 2: the road.
Speaker 3: Absolutely, And you know we're recording this the same week
Speaker 3: that the House of Representatives past the FIT twenty one bill.
Speaker 3: I don't think that's the right bill. I think it
Speaker 3: poses lots of problems and I but I still think
Speaker 3: something needs to be done. I think there is quite
Speaker 3: an appetite in Congress to do something. Personally, personally, I'm
Speaker 3: a proponent of the Senate Agriculture Committee's dc CPA. I
Speaker 3: thought it was a good bill when it was enacted
Speaker 3: or introduced two years ago. At this point because it
Speaker 3: created a regulatory regime for crypto commodities while still leaving
Speaker 3: the the SEC's jurisdiction intact. It basically said that everything
Speaker 3: that is a security, and we're not defining what a
Speaker 3: security is. We're just leaving it up to the existing
Speaker 3: securities lawns. All crypto assets that are securities go to
Speaker 3: the SEC. All crypto assets that are commodities go to
Speaker 3: the CFTC. And I think courts are going to, you
Speaker 3: know it presumed courts are going to figure out where
Speaker 3: a particular cryptotoken lies, is it a security or not.
Speaker 3: I also think that Congress, you know, given what I
Speaker 3: talked to about what the Supreme Court might do here,
Speaker 3: I think Congress really should enact new legislation codifying the
Speaker 3: Howie Test and codifying a very broad view of what
Speaker 3: the Howie Test encompasses so that the Supreme Court can't
Speaker 3: rewrite it. I don't know if that's going to happen.
Speaker 3: I would put money on that not happening, but that
Speaker 3: that is my hopes and dreams.
Speaker 1: Well, the good news is is that at least in
Speaker 1: our view, the BI approach is that we think that
Speaker 1: the Fit Bill has like a thirty percent chance of
Speaker 1: passage this year. We don't think it's going to pass
Speaker 1: the Senate. So that I'm saying that good news from
Speaker 1: the standpoint that we can have you come back in
Speaker 1: twenty twenty five and we'll be able to talk about
Speaker 1: crypto legislation, because I'm sure it's still going to be
Speaker 1: going on at that point, so I want to take
Speaker 1: it when I move from crypto to the Consumer Financial
Speaker 1: Protection Bureau. You mentioned Rohee Chopra earlier, just because as
Speaker 1: our listener may not be aware, he sits on the
Speaker 1: board of the fdi C. But Director Choprah had a
Speaker 1: good month. The Supreme Court upheld the CFPB's funding is constitutional,
Speaker 1: you know, so that gives a little bit more extra life.
Speaker 1: I mean, I know there are more court cases the
Speaker 1: CFPB has to deal with out there, but CFPB knows
Speaker 1: how they're going to get paid. So if I'm an
Speaker 1: employee over the CFPB, I'm feeling a little bit better
Speaker 1: these days. So if I'm Director Chopra, what am I
Speaker 1: going to do now? Am I like just let out
Speaker 1: of the gate and I'm going to be running hard?
Speaker 1: Has enforcement threat increased any more?
Speaker 3: Rulemakings?
Speaker 1: You think you're going to come down the line.
Speaker 3: I mean, yes, he had an absolute amazing month. This
Speaker 3: was the last final constitutional challenge to the agency, and
Speaker 3: the Supreme Court swept it away seven to two. I
Speaker 3: don't imagine there will be any other constitutional challenges from
Speaker 3: now going forward. As to what we'll see, I mean,
Speaker 3: I think in the day is following that the CFPB
Speaker 3: has started bringing lawsuits, it's ramping up its enforcement actions.
Speaker 3: It really is full steam ahead now on all the
Speaker 3: things that had been kind of backlogged. The There have
Speaker 3: been maybe about a dozen firms that had, uh, you know,
Speaker 3: moved to challenge enforcement actions or challenge civil investigative demand
Speaker 3: saying that the agency is unconstitutional. Now that the Supreme
Speaker 3: Court has pushed that aside, those existing challenges can go forward.
Speaker 3: I think Director Choper right now is on cloud and
Speaker 3: I and is doing just everything that he wants to do,
Speaker 3: knowing that there are no big hurdles, no more big
Speaker 3: constitutional hurdles standing in his way. I think we'll just
Speaker 3: see quite a few more lawsuits coming down the line
Speaker 3: and enforcement actions. We saw yesterday. I think it was
Speaker 3: that they put out a rule saying that buy now,
Speaker 3: pay later accounts or credit cards subject.
Speaker 2: To I think not a rule. I think it's just guidance.
Speaker 3: Yeah, it's guidance as an aside. Guidance is a subset
Speaker 3: of regulations.
Speaker 2: Now you know, the more you know.
Speaker 3: Uh, But I think we will see quite a few
Speaker 3: more things like that where they're going full steam ahead.
Speaker 2: I I'm not so sure the constitutional challenges are over,
Speaker 2: you know. Uh. There was there was a Wall Street
Speaker 2: Journal op ed I think by a Harvard law professors
Speaker 2: saying that, you know, because the because the Federal Reserve
Speaker 2: hasn't been been profitable recently, that that the c ip
Speaker 2: bs and then can't come out of its earnings or
Speaker 2: technically aren't coming out of its earnings just for the
Speaker 2: last couple of years at least. And I also am
Speaker 2: not you know, I have seen cases raise and non
Speaker 2: delegation argument against the CFPB's funding structure, which was not
Speaker 2: part of the payday lending case I went to the
Speaker 2: Supreme Court. So I think that argument is still alive.
Speaker 2: I'm not saying that they're gonna be successful arguments. I
Speaker 2: am just saying I wouldn't be surprised to see them
Speaker 2: raise in the future.
Speaker 3: They'll try. I don't think they'll be successful, and I
Speaker 3: think Director Chopra thinks that as well.
Speaker 1: You know, it's funny because our colleague Evan Weinberger over
Speaker 1: at Bloomberg Law put out an article prior to the
Speaker 1: Supreme Court case, and he was talking about smaller payday
Speaker 1: learning stores and he was talking about how there were
Speaker 1: a lot of smaller firms out there that were just
Speaker 1: ignoring the CFBB with the hope that the constitutionality was
Speaker 1: going to be dealt with and dealt with to the
Speaker 1: cfbb's detriment, and now that the CPB still here, I
Speaker 1: just I'm I'm not sure i'd want to be employ
Speaker 1: employed at one of those payday lending firms. But to
Speaker 1: your point, I think the CPBs here to stay. You know,
Speaker 1: the risk If you're listening to this and you're in
Speaker 1: the risk or compliance function, it's probably something that you're
Speaker 1: most likely going to have to be dealing with over
Speaker 1: the next few years. So I wanted to just turn
Speaker 1: this to more of a macro level question. And this
Speaker 1: is where I'm going to play my game of Todd.
Speaker 1: You are now the president of the United States in
Speaker 1: the twenty twenty four election, President Biden. President from however, scenario.
Speaker 1: They defer to you. You're in the new president in charge,
Speaker 1: and you are going to look at your financial regulatory
Speaker 1: team and the second administration, and you're going to say
Speaker 1: what should you do? And you know, I'm going to
Speaker 1: presume that it's going to be things like continue the
Speaker 1: Bosle three a game if it's not finalized other rules.
Speaker 1: But should private credit be a focus? Is there more
Speaker 1: work related to cus for protections? Should the incentive compensation
Speaker 1: proposal that come up be finalized? What would you do?
Speaker 3: Yeah, well, no one should ever make me president of
Speaker 3: the United States. So with that caveat, I do think
Speaker 3: it is to some extent stay of the course. I
Speaker 3: think the financial regulators are doing good. I think the
Speaker 3: executive or the incentive compensation rule needs to be finalized.
Speaker 2: That is a.
Speaker 3: Legislative command by Congress. The agencies have to do it.
Speaker 3: I got to tell you when J. Powell was up
Speaker 3: on the hill a couple months ago and said, you know,
Speaker 3: I need to be convinced of what we're supposed to
Speaker 3: be doing here, what problem they're trying to solve. I
Speaker 3: was just shocked because he is running an agency that
Speaker 3: has to comply with the law and the law says
Speaker 3: do it, so they have to do it.
Speaker 1: And this law was from twenty ten, that Dot Frank Act,
Speaker 1: and here we are recording in twenty twenty four.
Speaker 3: Right exactly, so you know they have to do it.
Speaker 3: It's a statutory mandate. They should get it done. Other
Speaker 3: than that, I think that private credit and the expansion
Speaker 3: of bank like activities really needs to be on the
Speaker 3: forefront of the regulatory agenda, just figuring out how to
Speaker 3: tackle all of these things. Private credit is becoming a problem.
Speaker 3: We have a well effectively regulated public market for securities
Speaker 3: and the fact that private credit is existing really outside
Speaker 3: of that, outside the purview of the regulatory regime. I mean,
Speaker 3: I know, we have more disclosure now so that FSOC
Speaker 3: can see what's happening, but we need more oversight and
Speaker 3: regulation of that. The other thing I'd say, which is
Speaker 3: really just coming on the scene now, is we need
Speaker 3: to deal with FinTechs and banking as a service. I
Speaker 3: don't know if you or your listeners have seen the
Speaker 3: whole meltdown of synapps that's going on right now, where
Speaker 3: we had a kind of a middleman for banks somehow
Speaker 3: seem to lose customer money and go bankrupt. I'm still
Speaker 3: trying to figure out exactly what's going on, but the
Speaker 3: fact that there are customers who are who are relying
Speaker 3: on FinTechs for their deposit accounts and can't get money
Speaker 3: out and the bank regulators seem to be inhibited from
Speaker 3: acting is a really big problem. And just in terms
Speaker 3: of pure consumer protection, this is a giant blind spot
Speaker 3: that seems to be imploding right now, and we need
Speaker 3: to do something. We need our bank regulators and or
Speaker 3: the CFPB to really get their arms around making sure
Speaker 3: that that that neo banks, FinTechs that are moonlighting as
Speaker 3: banks are well regulated, and that consumers are well taken
Speaker 3: care of.
Speaker 2: Thank you, President Phillips. All right, so we're gonna move
Speaker 2: now to our grab bag questions, moving away from the
Speaker 2: substantive portion of the conversation. If you were stranded on
Speaker 2: a desert island, what are three pieces of music that
Speaker 2: you would want to take with you? And we asked
Speaker 2: this of all of our guests, so you know, you
Speaker 2: can it can be an album, a song, a soundtrack.
Speaker 2: You know, we leave it up up to you. What
Speaker 2: would you want on a desert island?
Speaker 3: Yeah, so this was a good question. And I spent
Speaker 3: about an hour yesterday thinking about it because it's just
Speaker 3: so good. So I have three albums i'd want to bring. One.
Speaker 3: I'm a big fan of the indie group Metric, and
Speaker 3: they have an album called Fantasies that came out in
Speaker 3: two thousand and eight, two thousand and nine, which is
Speaker 3: just absolutely my jam. I will tell you I once
Speaker 3: saw them open for Imagine Dragons at some theater in
Speaker 3: the DC area, and I was pissed when the people
Speaker 3: in front of me were talking while they were playing,
Speaker 3: because I'm like, who is here to actually see Imagine Dragons.
Speaker 3: I'm here to see Metric.
Speaker 2: So that's one I'll confess. I've never heard of Metric.
Speaker 2: I have heard of Imagine Dragons, but I've never never
Speaker 2: seen them.
Speaker 1: Yeah, I'm going to check out Metric now.
Speaker 2: Yeah. This is actually just a pretext for me and
Speaker 2: Nathan to learn about new music.
Speaker 3: Perfect. The second is the album led Zeppelin four. I'm
Speaker 3: a big Zeppelin fan, yes, and I would I would
Speaker 3: love to bring that. And I figure, I mean something
Speaker 3: a little bit softer, calmer, and so I was thinking
Speaker 3: the Simon and garfunk cal album Bridge over Troubled Waters.
Speaker 2: From the sixties, great stuff.
Speaker 3: Yeah, so those are those are my three my three
Speaker 3: records I bring. Those are my jams. But it's a
Speaker 3: great question. Uh, it's it's a great question you ask
Speaker 3: your your So.
Speaker 2: I think this so our our last episode was with
Speaker 2: Senator Dick Durbin and one of his choices was Paul Simon.
Speaker 2: He chose Graceland. So I think this may be the
Speaker 2: first time that we have the same artist mentioned on
Speaker 2: back to back episodes. Yeah, am I right, Nathan, We'll
Speaker 2: have to go back to our records in check.
Speaker 3: Well, well that just makes me like Senator durban even more.
Speaker 2: I doubt he's been to a metrics show.
Speaker 1: Now, okay, well you know with that, I think we're
Speaker 1: going to wrap up this episode of withs and verdicts.
Speaker 1: We are extremely grateful Todd, thank you very much for
Speaker 1: appearing on this episode. As a reminder, you can read
Speaker 1: all of our Bloomberg Intelligence research on the Bloomberg terminal
Speaker 1: ATBI go. Thank you again and have a great day.