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Dr. Jane Knodell

lines on the record: 84
first: 2023-05-15
most recent: 2023-05-15
sittings or episodes: 1
sources: podcast

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“Yes. But you're making a central bank out of the Federal Reserve. I found it and I recommend people follow in my footsteps and find it online. And of course, the book Second Bank of the United States. It's a must read you put on there, Professor, thank you so much and talk soon.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Guess my website, I don't have a lot of that paper's not open access, which you know is kind of too bad, but it's published in Review of Political Economy. And it's a special issue on the progressive era. So I think there's going to be a lot of interesting work in that issue.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Because the money was species, was silver. You know, people thought that was money. This is like a treasury bill. This is like a short-term treasury bill. Government”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“So, right now, I'm back to colonial monetary history. And there's a conference in Portugal. In fact, I have to right now go figure out what I'm saying in this paper about the bills of credit, the first paper money issued by Reportedly the first paper, not really, but Der Goldberg has a new book that is very interesting about the Massachusetts Bills of Credit. I'm going to have a little different take on it. Not really money, in my view, not money.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, if you have to do it to avoid a default, I would say do it. The fundamental problem is that That Social Security in Medicare have to be put on a long term solvent basis. And they're not. I mean, like already the Social Security has operating deficits. Is going to run through its surplus within 10 years. So The debt crisis is fundamentally a governance crisis. Because we don't have enough of a governing center. Of people in Washington. Going to be able to get together and say, okay, let's just solve this thing once and for all. And then everyone's, you know, people globally will say, okay, these are people who can take care of their fiscal problems.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Yes. Anything can happen in the same way that in the 1920s, the Federal Reserve owning U.S. Treasury debt was seen as ridiculous, and now it's extremely commonplace. Anything can happen. What analysts should think about it is the consequences. Does this make sense? Not the plum”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Mean, it makes as much sense as the Fed buying government debt and just creating reserves when it buys the government debt. By finding some asset for the, you know. But it has to be an asset owned by the Treasury for the Treasury to be able to deposit it in its account at the Fed. And then it has the money that it needs to Covered social security checks”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Okay, yeah, what do you make of that theory that, okay, Congress isn't going to, the Treasury is not going to issue debt. It's going to produce this coin. And the Federal Reserve can buy it for a trillion dollars. And it will be a very high quality platinum coin. So it'll be worth so much. Workaround”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Back to the interview. We started this conversation talking about the transition of what was money, what were greenbacks issued by the Treasury sounds like not interest-bearing, and that gradually what became money was the Federal Reserve note, which we still carry in our pocket. So for everyday transactions, money is cash, but now really bank deposits, credit cards. But in terms of large institutional investors, what is the accurate to say that what is money now are treasuries?”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“But right now it's a game of chicken, a very dangerous, destabilizing game of chicken because, as you know, US government debt is Permeates the financial system. In terms of collateral for all kinds of large wholesale financial transactions that are resting on having this safe asset As collateral, and if that's no longer safe assets,”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Exactly. So it was actually an improvement over the way they were doing it, right? So from their point of view, we still want to have some limit, you know, this is why you had to come to us every time to make, you know, we wanted to, because we're in charge of the fiscal soundness, right? Really Congress is where the budget is made. Not the White House. But of course, it's turned into something quite different. Historically, every single time the ceiling is lifted, it's just a question of how painful it's going to be.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so the debt ceiling now, people say it's just a chain on our neck. It's so bad. You're saying it was an improvement relative to anytime the treasury wanted to borrow, they had to approach Congress.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Yep, that's a great question and important piece of history. So the debt ceiling dates from their early 20th century. I don't know the exact date. And maybe like shortly after the Fed is created. I'm not exactly positive. But what I do know is that before the debt ceiling, The executive branch had to come to Congress every time it wanted to borrow money. The debt ceiling was like at the time, it was like that was an improvement. Because it was like you can borrow, you can just manage the debt, you can do what you need to do to run the federal government without coming to us every time we need to borrow.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“A negative equity position, I think That really is remarkable. So, Professor, the last time I'd like to approach with you is the debt ceiling. How much Congress allows the Treasury to borrow, I think. When did that practice become When did Congress sort of place handcuffs on the Treasury's ability to spend or borrow? And then I was put that in the context of for much of America's history, it was a surplus nation, not a debtor nation, meaning that it's exported more than it imported.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Just to put that in context, reading your excellent book about the Second Bank of the United States, just flipping through it today. And the second bank of the United States earned something like 4% on its assets. So it was very profitable entity. And you can remember that now to the Federal Reserve where they're paying the interest on excess reserves rate or reverse repo rate, which are very similar, connected to the Fed funds rate of now, let's say around 5%. And they own all these mortgage-backed securities and treasuries that they bought in spring of 2020 that are yielding 1.5% or 2%. So it's really a fine. And so you spend a lot of your time in the world of the 1800s, the second bank. So I can understand why what is going on now with the Federal Reserve seems so foreign to you.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Well, I just think that the system I mean, I don't really think that having all the money has been inflationary. But I think that the Fed. Loses control when there's all this, when there's so many reserves in the system because it means that Banks can go, and they actually have no reserve requirement anymore.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Either directly from the Fed or through a bank that was a member of the Fed. And the Fed, and also the Fed is That the Fed allowed the money start to contract, allowed the price level to fall, and didn't recognize that they needed to be buying government securities and kind of flooding the system with reserves, with new reserves. It allowed reserves to kind of be stable instead of just really expanding the monetary base. There's probably something to that too. Because expanding the monetary base helps all the banks, not just the banks that belong to the Fed.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“We are going to have stacks of notes back here, you know, because what happened during before the Fed was banks would try to get more More notes Their nose, national banknotes. But some of them are saying, but it took three months to get more notes because this huge bureaucratic process. And they literally had to print more. It just took time. And there's all these administrative steps to prove that you've deposited your government bonds and you've put gold into this redemption account. And I mean In a banking crisis, you need to get it now. Yeah. Okay. So, but the Lunder of Last Resort is, you know, what I mean is that There were a lot of banks that failed because they had runs on their deposits. And some proportion of those failures could have been prevented if they had been able to borrow from the Fed.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Sure. So if a member bank had a jump in the demand for currency in its local economy, okay, it could go to the Fed and get currency. And there was all, and the Fed met all of those demands for currency that came from banks. Now they had to have enough big enough reserve account to get the amount of currency that they wanted and they needed to have enough good collateral to borrow the currency, if you will. But from just a basic physical point of view, the notes were there. And they'd like to produce enough notes in advance, like right after the Federal Reserve Act, you read about them. We're printing a bunch of notes.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Earlier, you said that the Fed did a good job during the Great Depression of its original purpose of supplying ready currency, but they did not do a good job of being a lender of last resort. Could you just explain that difference for us?”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Could still use their bank, right? They could still use their right checks and deposit checks and stuff like that. They just couldn't get gold.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Exactly Exactly. Now Know when Bernanke and others kind of defend the Fed, they kind of say we're kind of hamstrung by the law. But in my financial history class, we read a book by Gordon and Tallman called Fighting Financial Crises. It is a good book. I recommend it. And one of their lessons is during a financial crisis, you should go ahead and break the law. Like before the Fed, what would happen when there were runs is the banks would just suspend species payments. They would just say, we're still open, but we're not going to give you our gold And we'll let you know when we. Resume species payments”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“So you're totally new and unprecedented monetary policies of March 2020, April 2020 where the Federal Reserve lent against commercial paper. They set up a facility to buy high yield bonds. All of that sort of, what before the crisis would have been seen as radical acts that was justified by the 13.3 exemption, right?”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“So some smart lawyer got that in there and the Fed's been using it as needed to kind of say if we just we have a situation in our hands that no one could have ever predicted so we need to do some new things. They use it extensively in the global financial crisis of course.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Very interesting timing the same year that the FDIC set up. So I think that what they realized was one problem in the Great Depression with the Fed being able to respond to the problems that the banks were having is they had very limited collateral. We were talking earlier about this for a loan from the Fed. And a lot of the banks that were in trouble, I mean, it started out with a little rural country banks with a lot of long-term loans to farmers and ranchers, right, who are actually producing the food that we all need to survive. And those guys need longer term loans, so they were very illiquid. didn't have the right collateral. I mean, a lot of them weren't members anyway. Problem one, but even those that were members didn't have the right collateral so they couldn't get discount loads.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“I don't think they have. It's there in principle, but they've never wanted to use it. And even in the global financial crisis, the banks did not draw on their line of credit. They found a way to get to Get the deposit insurance fund up from negative. Just positive territory without going to the taxpayers. Because they know, I think they just know that that's just political death.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Yes, okay. So they're kind of similar, but obviously one applies to the Fed, the latter, and the former applies to the FDIC. Under the systemic risk exception, it says an exception to the rule that you have to do the least cost resolution. So it says if you declare a systemic risk, then you can close a bank in a way that is not the least cost way to close the bank and that also covers uninsured depositors. However, if you cover the uninsured depositors, you can't, it's not the taxpayer who's going to pay for that. It's the banks, the surviving banks. So, I mean, I think an important point that people understand is that the banks pay for the insurance. Taxpayers there is kind of a backup, a line of credit, but this would be a question for Dr. Baer, which is the taxpayer ever actually had to cover uninsured depositors?”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“I'm actually very lucky to say I actually will be interviewing the former head of the FDIC, Sheila Baer. So if you have any questions that you can direct to me that would make it seem like I have the knowledge of a monetary professor history of FDIC, either on camera or off camera, I'd be very, very grateful. In the meantime, I want to ask you about the systemic risk exception. What does that mean exactly? And to what degree is that related to the 13 part of the Federal Reserve Act, which I think allows for unusual and exigent circumstances?”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“In terms of unemployment, people losing income, people losing their homes, people losing their businesses, you know, and you got to weigh the cost of undermining market discipline with the cost in the really economy of people losing income and wealth. But after the 1991 Act, you know, Congress like, really, we really want you to be get that market discipline back in there. So the question now is like, what is Congress going to say?”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“When it could, by saying that if the FDIC were to is supposed to resolve a bank at the least cost to the deposit insurance fund, even if it means not covering all the uninsured depositors. So before that, the FDIZ was really focused on stability, right? versus market discipline. And you could, you know, there's you can see why, you know, there's a case for that, right? Because it's hard to predict just how bad things are going to get. And severe financial crises impose huge costs on the real economy.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I think that, strictly speaking, those deposits were sitting at the bridge bank. The Fed said FDIC sets up after they closed down the bank. And so it kept those. I mean, in a way, it was good for the FDSC too because it keeps those deposits there at the bridgeback. Yeah, I mean, that's a big question. I mean, and this is a question really for Congress because the FDIC needs a lot of change for it to start to ensure all the deposits. And after the 80s and 90s, Congress was in 1991 adopted the FDIC Improvement Act, which sought to reinject market discipline from the uninsured depositors. It tried to kind of tie the hands of the FDIC in terms of”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Always fighting the last war. So how are you thinking about FDIC insurance? Because you said in the 80s and 90s, they didn't do the sort of hard sale, but they did engineer a merger, a takeover with a different bank. This is a step different. This is saying, actually, no, deposits over a quarter million dollars are going to be fully taken care of. I mean, you had venture capital-backed companies, famous names, famous that had a $5 billion bank deposit. And they were saved.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Yes, that is so correct. And sometimes they see people in the media stating that their loans went bad, but they didn't. I have said this many times, but yeah, their capital call, their main business line had, I think, one loan go bad in the history of the 30 years of doing business. It was that interest rate risk management, which they did extremely poorly. And the counterfactual that you posed, I think you're right. I mean, they owned over $100 billion of mortgage-backed security, which we know is eligible for the BTFP program and which we know could be pledged at par, which is a, I'm glad you reminded us of that because it is a huge factor.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, that's a good question. I just want to add something about the bank term lending program, which I think is very interesting. So it allows banks to post collateral in the form of the long-term government securities. And they're allowed to value those securities at face value. Not of their market value. That's why Silicon got in trouble. They had to sell and take the losses and its assets shrink and becomes insolvent. So I don't know. I just keep thinking, well, if that had been in place for, you know, Silicon Valley, would it still be? Still be a bank. Yeah, I know it's like you know bad form to get too upset about banks, but signature and silicon both did some pretty good lending. There's a loss of credited remediation services. I go back to they didn't have loans that weren't getting repaid.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Which, by the way, headquartered at the San Francisco Fed, where you used to work, are you going to do the same thing for the uninsured depositors in my district in Arkansas? And she did not give a super clear answer to that. How are you thinking about whether the FDIC will continue to extend uninsured deposit insurance to banks that may fail in the future?”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Right. So that bank term funding program allows banks to pledge a certain set of assets, not all assets, and get loans with a duration of up to one year on it. So it allows them to tap liquidity, but it's my understanding that the banks that hold the greatest percentage of paper that is eligible, collateral that is eligible, are the Big Bank because they own a lot of agency mortgage-backed securities and on all these sort of Tennessee Valley bonds and stuff like that. Whereas the small regional banks, they own a lot more loans and whole loan mortgages, which can be eligible for federal home loan borrowing, but not the BTFP. So a moment that kind of went viral was someone from Congress, from Arkansas or Oklahoma, said, hey, Treasury Secretary Yellen, you bailed out Silicon Valley Bank.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“This looks bigger than just this one bank, and then they put in place new lender of last resort programs that help everybody else.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“That's probably smart. I don't know. So by Sunday, they're worried though about the run, about this thing spreading to other banks because they realize how many banks have a lot of this long-term, have this maturity mismatch and have a similar problem, maybe not as big a problem, but big enough problem. So they say we're going to guarantee all of the deposits of signature in Silicon Valley. And we're setting up a new Lending program. Members that might have a problem and that allowing banks to borrow up to a year. That's a very long term for a lender of last resort program. So that's kind of a pattern I see often with these crises is that there's a sacrificial land. There's somebody that goes down first. The authorities let it go, then they say oh, whoa.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Exactly right. What was so interesting about the Silicon Valley, they're both fascinating, but with Silicon Valley, on the Friday, the FDIC said it's a deposit payout. We're going to issue, we will let the integer depositors know what they'll get after we liquidate the assets. By Sunday, they're like, now we're gonna, we've declared a systemic risk exception, which requires the approval of the board of the FDIC, the board of the Fed, the and the treasury secretary and the treasury secretary has to consult with the president. Kind of gets the president off the hook a little bit, you know, they have to talk about it, you know.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Yes. And that is what happened with First Republic got taken over by JP Morgan. JP Morgan took over virtually all of the assets and virtually all of the deposits. The stockholders of First Republic basically got wiped out as well as the preferred equity holders. But the system worked for there. But I think in the case of Silicon Valley bank, the FDIC could not arrange a deal fast enough. So they did instantly declare, I think, on that Sunday that all uninsured depositors would be taken care of. And I think they did that for signature bank, which they closed and announced upon the same day.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“FGICs, thank you, would look for bidders, and they would make the deal sweet by saying the FDIC will take the bad assets that you don't want to take. As long as you take all of the deposits. The insured deposits and the uninsured deposits. So the uninsured deposits deposits get protected. by being now the depositors of a healthy, successful”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Shareholders are at the bottom of the list. So in that scenario, probably maybe the uninsured depositors get 50 cents on the dollar, something like that. So the people who really believe in market discipline would say, you know, that's what you need to do because people will learn their lesson. And then we're going to have a stronger system of market discipline at the end of the day. If they'd done that, probably the banking crisis would have been a lot worse. A word would have gotten around that uninsured depositors are taking losses. So instead of doing deposit payouts, the Fed would look for bidders, look for banks that...”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Right, and it happened through these purchase and assumption agreements that the FDIC entered into. So, a bank is closed by its regulator, by its primary regulator Could be a state agency. Then that agency almost always designates if it's an insured bank. The agency designates the FDIC to be the receiver. So then the FDIC is like, okay, now what are we going to do? You know, and in a straight deposit payout, This is like the hardcore. Know we're gonna just We're gonna insure the insured depositors. And then we're going to liquidate the assets of the bank. And then once we know what we're getting for the assets, we will pay off as we can the uninsured depositors, then the, you know, there will be that priority, like you were talking about earlier.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“They didn't. Want to so in the 80s and 90s when banks failed you're saying for mostly on the asset side the FDIC hinted that they would take care of uninsured deposits or they actually did in other words there were uninsured depositors who based on the framework of the 1934 FDIC Act should have been exposed to risk had their capital risk but they weren't because of the FDIC. That's what you're saying”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“During there were very, very few bank failures until the 80s and 90s. So it seemed like, oh, this is great. Bank, you know, deposit insurance has solved the problem of bank runs that caused bank failures. So then we get into the 80s and 90s, and we've got banks failing really more for asset quality problems. Like they overinvested in commercial real estate or energy, agriculture, all that stuff. Then it's up to the FDIC to figure out how to So called resolve all these bank failures. And they end up resolving the bank failures in ways that Almost always ended up protecting all the uninsured depositors. and there were no bankrupts. bank failures, but no bank runs. Because they did this thing, we're gonna take care of everybody.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Clearly, initially, the limit on insured deposits was $2,500. Okay. Much lower price level than all that stuff. And it gets kind of adjusted up. But it was never the thought that we would insure all the depositors because you wanted some depositors thinking that the entities that had larger deposits would have the capacity to discern. Get the information needed to differentiate between good banks and bad banks, right? And provide that market discipline.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“The parallels are really jumping out at me. So Silicon Valley Bank failed in early March. And not only was the depositors under the FDIC limits guaranteed, but deposits beyond that were guaranteed, I think, two days after the Sunday on, I think, March 12th. Is that new? Also, yeah, the degree of question of moral hazard of should depositors be sort of playing the role of a cop who are regulating banks and If it's not good, you're putting your money somewhere else. Is that a truly good model? And yeah, I mean, how is this thinking changed throughout American history?”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“And the thinking was that because not everyone had a bank relationship, right? Lot of people just use currency in all of their economic life, it was just currency. And it was thought that people that use currency on average were Less well educated, lower income, and they needed protection Whereas the depositors is probably more businesses had deposit accounts. So the thought was they should be able to differentiate between good banks and bad banks. And so that thinking is still with us, still with us. So in all this conversation about these three bank failures, there's this idea that, well, maybe it's time to insure all the deposits. But people are saying Know debates about this because you'll have lots of economists to say that is a bad idea. You need the market discipline from those uninsured depositors.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“So that's super interesting. So, right now, people who have liabilities of banks, they have a different stack of who gets paid first. So who gets paid last equity holders, stockholders, then preferred stockholders, then bondholders, and then depositors, depositors, and particularly uninsured, excuse me, insured deposits below the quarter million limit if you have 249,000 dollars, that is safe, no matter what interesting variant. I didn't know this that in the 19th century to a great degree, that was the opposite where if you had owned a bond of the bank or a note of the bank, that could be guaranteed, but not deposits. And that's why you had all these bank runs.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT
“Shortages of currency would develop, and the Fed was created to make sure that there was always enough currency, there was an adequate supply of currency when there were spikes in the demand for currency, coming from whatever reason. And the way a bank would get more currency is by going to member banks, go to the Fed, and either take out a loan and get the currency, or they take their reserve deposits and say, I want to cash these deposits. Give me currency for these deposits. And in the Great Depression, the Fed did a very good job at that. Okay, but it's another example of fighting the last war. Then there are all these other new problems that it wasn't reallyn't responding to.”
2023-05-15 · Forward Guidance · The Fed's Playbook for Fighting Bank Panics, Now vs. The Great Depression | Dr. Jane Knodell · IDENTIFIED FROM THE TRANSCRIPT