YouSaid · the spoken record

Jerome Powell

lines on the record: 37
first: 2023-04-11
most recent: 2023-04-11
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Banks of even $100 or $200 billion in assets. The too big to fail goes to too bigger to fail. But how do we feel about several of them merging? I think that set of issues about the dynamics of the industry need serious thought before a lot of these policy questions are fully answered.”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“That business model may be vulnerable in some of the same ways that the community bank business model is vulnerable and that scale has become so important, then the policymakers are going to need to say, what are our responses going to be? Are we going to say, oh, we better lighten up on these banks so that they don't have high regulatory costs so that they can continue to compete? You can do that, but that brings along the kind of risks we've seen in the last several weeks. Are we instead going to say, no, we have to ensure financial stability, but as a result of that, the medium-term prospects are just diminishing. And if the latter is going to be the case, what's going to be the attitude towards mergers and acquisitions? You can imagine saying, gee, we're still worried about the multi-trillion dollar banks acquiring other”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“None of us should be so bold as to foreclose the possibility of another shoe dropping. There are presumably other portfolios that haven't been marked to market that have undergone the same impact from the Fed interest rate increases as SVB's was, particularly longer dated portfolios. So we really shouldn't foreclose that as a possibility, but putting that possibility aside. I think that the regulators, the Treasury, the Justice Department, the administration, everybody, they all need to be thinking about where the financial system and the banking system specifically in the United States are headed and what Silicon Valley Bank has done, I think, is to put front and center the question of the business model viability of banks between roughly 50 and 250 or $300 billion to the extent that an analysis suggests”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“Tarulo is similarly concerned about the possibility of another shoe dropping. He warns that regulators need to think seriously about where the banking system is headed, which may bring a new set of challenges for the industry. Here he is again.”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“And so, why do we have to relearn everything? You know, I mean, there's a famous saying that knowledge and physics and chemistry. Cumulative. Knowledge in economics is cyclical. We just have to relearn everything. So we're going to have to have a big financial crisis. And then everybody's going to go, why do we let these guys produce money? We shouldn't have been doing that”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“Would do three things I would seriously investigate ensuring uninsured deposits with the caveat that we only want to insure the transaction component. So if it's not a transactions component, you're not going to put it in the bank deposit. That's the first thing I would do. The second thing I would do would be to bring some crypto stuff into the regulatory arena, like OCC tried to do with fintech charters. And the third thing I would do is I would get serious about a central bank. Currency, which is not going to be vulnerable to runs, and that would eventually run stablecoins out of business. You got to remember, every country on earth, 100, 150, 200 years ago, decided that the government should have a monopoly on the production of circular Money. Stablecoins are the first time since before the Civil War that we see private”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“Problems that are going to lead to more financial crises, stable coins, uninsured deposits, some new form of short-term debt, variable denomination floating rate notes. There's all sorts of things that could lead to a financial crisis. So the system is not as compact as it used to be, where the main thing was household deposits. We insure those, and then we just claim victory that there's never going to be another financial crisis. So that turned out to be wrong. And the idea that we're going to have more capital requirements and more liquidity requirements, and that's going to solve the problem, that's going to be wrong. The idea that we seal off the banking system from crypto, that's going to be wrong. So why is the government doing so many wrong things? I think it's because they don't have clarity about what the problem is.”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“Can't solve everything with more capital and tying up more high quality assets A huge demand for safe assets out there. And you say, Well, every short term thing has to be backed by a safe asset. There's not enough safe assets for that. And so we don't want that because we don't want to drive issuing short-term debt into the private market. That would not be good. These solutions are not good solutions. And I don't think you want to adopt solutions. Push the risk out of the banking system into the shadows. I think Ensuring the uninsured deposits seems like something to take very seriously because the alternative is let's just have the risk of bank runs. Bank crises have been the norm in American history. Most of American history, we just have a big financial crisis every 10 years or so. And in that sense, I think the problems out there”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“Though, argues that higher capital and liquidity requirements can't solve everything. Instead, he thinks that policymakers should consider ensuring more uninsured deposits. Until that happens, he says more financial crises are likely.”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“Did not think would see a major increase in rates up to almost 5% in a year. So those are the sorts of things that people don't anticipate. And that's why you have strong capital, and that's why they need strong capital going forward, because there are going to be, I suspect, other problems that surface. You have roughly $23 trillion of banking assets in the United States, and you had one bank of $200 billion that caused this kind of disruption. So it's reasonable to expect that there are other weak points among the remaining 23 trillion of assets that you need to be mindful of. So the industry has to consider should we strengthen our capital so that on these uncertain times, we're better prepared for the unexpected.”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“It's no secret that I have issues with risk weighted capital. I think it misleads. For example, there's really no capital necessary to fund your growth in government securities, the risk rates of zero or very low. And in the case of Silicon Valley, for example, had you required more capital in terms of the simple leverage ratio equity to assets, it would have had a slowing effect on their growth because for every dollar that they want to grow, they have to fund it with some of their own money up to 10 or 15 percent if you had higher numbers. And that would, of course, give you a safer industry overall for the regional banks, for example, and for the larger banks. So I just think it's focus on the leverage ratio, focus on how much equity you have to absorb the unexpected. And it's always the unexpected that becomes the crisis problem, whether it's subprime loans and everyone thought they were just great or government securities and duration risk that people”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“The various studies suggest a range I have said in the past at least 10 equity to assets, preferably the studies show somewhere in the neighborhood of 15%. The Brown Viter bill that was proposed following the Great Recession, which never went anywhere, said 15%. And yes, that raises the capital requirements, but it also raises the safety of the industry. And while there is an argument that I know the industry makes that would slow loan growth, and on the other hand, there's an argument that suggests that reduces the cost of capital because you have a safer industry, number one. And number two, on balance, it actually gives you more staying power when the economy goes into a recession, which inevitably does. And it also, on the margin, when you have to charge a higher rate to cover your capital cost, you actually discipline out the very highest risk activities.”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“Today, we talk about the banking industry being extremely well capitalized. I wish that were true, but saying it doesn't make it so. And these banks are still 6% capital to assets. And remember, in the great financial recession, the industry lost 6% of its capital. So I consider that better, but not necessarily adequate to the risk of this highly leveraged industry that it encounters.”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“Has it protection as the quote answer close quote, you're really taking on a much bigger change in the nature of the government's relationship to the financial system. And unless legislators are willing de facto to have a substantial public subsidy of the insured depository institutions, something has to go up. The premiums charged by the FDIC would have to go way up. the capital requirements imposed by the banking agencies in order to offset the fact that depositors really won't care anymore about the condition of the bank. Something will have to change substantially unless Congress is prepared to provide a public subsidy to the banks. So I think this is a very important debate and it seems to me as though there are likely to be multiple ways of addressing”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“It's important for us before we start talking about raising the deposit limit or indeed guaranteeing all deposits to do two things. One, to get a better handle on what the deposit profiles of other banks are. And that requires more than just looking to see how many uninsured deposits they have because you need to know the distribution of them. You need to know what the nature of those deposits are they used by a company that needs a bank because they're paying people, whatever it is, we need to have a better sense of that, number one. Number two, especially in light of the FDIC's revelation about the concentration of deposits at Silicon Valley Bank, we shouldn't delude ourselves that raising the deposit limit to $500,000, for example, is going to do anything about the kinds of runs we're worried about, which means that if you're talking about deposits,”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“To a no brainer to say that any securities in the available for sale portfolio need to be marked to market. There doesn't seem any good reason why an available for sale portfolio of securities shouldn't be marked. I think it's a somewhat more difficult question to decide what to do about the hold to maturity portfolio. And I think if you had asked me five years ago, I probably would have said, sure, we got to mark that one as well. The only thing that gives me some pause here is the continuing concerns about the health and robustness of the treasury trading markets. And so I just think we need to pause a bit before we say, let's mark everything in the hole to maturity book, because if that turns out to be a significant distinctive for large banks to hold treasuries, we may be exacerbating this issue that the interagency group and many academics and market participants have been concerned about for some years now.”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“I do think that it's a way better system if we have every bank with over $100 billion in assets participating in the Fed's stress test every year. And if that stress test has multiple scenarios to test for different kinds of vulnerabilities, I don't know whether banks would need to have higher capital levels. I'm just saying that they ought to be subject to a more rigorous assessment of their capital positions. So that's number one. Number two, we need to look at liquidity regulations. I'm for that regardless of Silicon Valley Bank. I've been worried about the impact of the liquidity regulations, not just on mid-sized banks, but on larger banks as well. We want to make sure that those regulations both protect the banks and the public and allow the banks to perform their intermediating role. The other thing I think is pretty clear is we have to do something about the absence of mark-to-market requirements for these big portfolios of securities that larger banks hold. It seems to me it's something close.”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“So, what regulatory changes could strengthen the health of the banking sector and prevent recent events from repeating? Turillo advocates for more robust stress tests, a review of liquidity rules, and more mark-to-market requirements for bank asset portfolios. Here he is again.”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“$250 billion in supervisory and regulatory terms. Having said that, I myself don't see a strong direct connection between S2155 and Silicon Valley Bank's failure. And I say that because first, based on prevailing metrics, and they may need to be changed, it appears as though Silicon Valley's capital and liquidity coverage ratios may have been well within acceptable range had they been subject to full requirements for the liquidity coverage ratio. Secondly, even had they been required to be in the stress test a year earlier, which they would have been under the old system, the nature of the Fed stress test over the last couple of years would not have uncovered their vulnerabilities. The Fed moved to a single scenario. Stress test and last year that scenario posited a reduction in interest rates. And so the kinds of stress”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“First, you rightly note that I was opposed to S2155 as it stood on the eve of passage. I thought it went way too far in raising the threshold for banks that would get special kind of regulation. $250 billion in assets struck me then, strikes me now, is too high. And indeed, I think one could say that the legislation was based on the false premise that banks of between $100 and $250 billion in assets. As a group, are not systemically important. And indeed, recent events have proven the point that as a group they are systemically important. So the legislation, I think, was ill-advised, and it may have contributed to a kind of sense that the regulators, gee, we should ease up on the banks between 100 and $200.”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“Who actually opposed Bill S2155 that made the 2018 exemptions also doesn't see a strong direct connection between it and the failure of Silicon Valley Bank. Some observers have argued that these events were the result of the 2018 rollback of Dodd-Frank in exempting some of the smaller institutions from strict federal oversight. You oppose that rollback. What's your response to that? Do you think that played a factor here and could it have prevented these events?”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“Base to survive the stresses that they had to encounter. But there's nothing in the changes that were made in 2018 that keeps bank examiners or the supervisors from looking at the quality of bank assets and requiring more capital should the asset be higher risk. And there's nothing that kept the bank supervisors when the Silicon Valley banks' unrealized losses were mounting and they were reported in the June 2022 reports the size of the unrealized losses for them to say, hey, we have a potential issue here. You need to be thinking about your capital accounts and strengthening those. There's nothing that kept the supervisors from doing that. And therefore, I think that is a red herring.”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“Largest institutions, including regional institutions, which are exercises in what I'll call it best contingency planning, but turned out to be a very substantial paper exercise, which were in fact thousands of pages long. Dodd-Frank was meant to check a box, and therefore I think left a lot of issues not dealt with. And therefore, we ended up with more form than substance. And I think the stress test, while valuable, were thought to be more useful than understanding that we cannot predict where problems come from. So what Dodd Frank did is give you a false sense of security that you have a new regulation rather than a substantive change which would have required substantially more capital of the industry. And I think would have slowed the growth, for example, in a couple of the recent banks that did fail and might have given them a stronger.”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“Legislation was a substitute for what I'll call good market practices, which would have required substantially more capital in the banking industry and therefore left the industry weaker than it otherwise would have been in place. It put, for example, provisions requiring living wills of the”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“All that said, these events have pushed the Dodd-Frank regulatory framework that came out of the global financial crisis into the spotlight. In particular, they've raised the question of whether recent exemptions of smaller banks from some of the strict federal oversight that Dodd-Frank required contributed to the recent crisis. But Gorton, for his part, believes that Dodd-Frank never had a chance of preventing the recent crisis because it didn't address bank runs. Here he is again.”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“It's very easy to blame bank management. I don't think it is bank management as a general rule. Anytime something happens at a financial firm, that's the answer. The management was terrible and they engaged in moral hazard end of story. That's not an explanation of anything.”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“Gorton, however, doesn't agree that the blame mostly lies with bank management. Instead, he blames a broad lack of understanding among academics and policymakers about financial crises and what causes them.”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“Understand that, but in 2010, the Federal Reserve engaged in quantitative easing and a recovery. I understand that the pandemic, there was a major crisis and therefore you intervene. However, following the crisis for well over a year, you engaged in a zero interest rate policy and increasing the base money supply $120 billion per month. And then you decide that you've got an inflation problem, so you increase interest rates by a factor of 20 or more. You're going to get really bad outcomes, and we did. That was predictable, and that's a monetary policy error that we're now paying for.”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“Ultimately, the bank management should have managed their organization appropriately, and had they done so, they would have had more capital, number one. Number two, to supervisors in watching some of the hearings and in some of the reports, we're aware that Silicon Valley Bank was at greater risk and did actually cite them for it. However, I think the questions that will follow is why wasn't there a written agreement signed and why wasn't the board of directors put on notice through that written agreement that they had a high risk problem? I think monetary policy errors were also a major contributor to this scenario. You cannot have monetary policy that has effectively a zero or very low interest rate for over a decade and then change the equilibrium from a zero rate environment across an economic system the size of the US or the complexities of the US economy and not have adverse consequences. And so understand that we had a crisis in 2008.”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“Has taken appropriate remedial steps. So based on what we know to this point, it does seem as though that last form of supervisory failure was at least to some degree present. We know that the supervisory team from the San Francisco Fed did identify some of the very issues which clearly lay at the heart of the Silicon Valley Bank's failure. But it appears, and I underscore appears, that they may not have followed up quickly enough given the magnitude of the problem and the fast-growing nature of Silicon Valley Bank. Are there any of those other forms of supervisory failure present? I suspect that there is an element of direction from the Board of Governors over the last four or five years to pull back some on the supervisory process generally. And that general Effort to relax the supervisory culture, I think probably.”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“Expect them to do. They don't look at things they should look at, they are slow to react, something of the sort. The second kind of supervisory failure is one in which the overall supervisory policies that have been set in place by the agency as a whole, in this case the board of governors of the Fed, themselves fall short of what's needed. And that could either be because of a message from the top to go a little easy on banks, or it could be because the supervisors hadn't yet identified some new vulnerabilities that the on-site teams need to be looking for. And the final kind of supervisory failure is one in which the dedicated supervisors do identify a problem, but then they fail adequately and quickly enough to follow up to make sure the bank”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“Oftentimes rapid growth outstrips the risk management capacities of the institution. The top 10 depositors at Silicon Valley Bank had an aggregate of $13 billion with a B in deposits. Under those circumstances, for the $200 billion bank, 10 depositors accounting for $13 billion of uninsured deposits, it's not a stretch to say that's an unusual or anomalous situation. It's also not a stretch to say somebody should have noticed that beforehand and zeroed in on what kind of vulnerabilities had been created. But it's important to note that there are multiple ways in which the supervisory process can fail. The most obvious is that the group of people at a particular reserve bank or a particular regional office of the OC fail to do the kind of job”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“In the first instance, responsibility lies with management. And from what we know, there was a very inadequate handling of liability side of SVB's balance sheet. But beyond that, obviously, everyone is interested in the ways in which supervision and regulation fell short of anticipating the problems at SVB and then containing them at an early enough stage so that we didn't have the kind of contagion that the government appeared to fear was occurring. And a good bit of the story, I think, remains to be understood, to be honest. But I do think a couple of things are already reasonably apparent. One, there was a supervisory failure of some sort anytime a bank grows fourfold within just a few years. That should be a warning sign to regulators because”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“We then dig into who or what was responsible for the recent crisis. Terulo believes that the primary responsibility lies with bank management, but he also thinks it's apparent that the recent crisis was a failure of supervision. Who or what was responsible for this stress?”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“Banking panics and financial crises synonymously are due to bank runs. So banks are firms that issue short-term debt in various forms. And those forms of short-term debt are vulnerable to withdrawals or failure to roll over the loan. And this problem exists in all market economies throughout history, in developed economies, emerging markets, economies with and without central banks, with and without deposit insurance. And there was a brief period in U.S. history, 1934 to 2007, where we didn't see a bank panic. And that was because the dominant form of short-term debt was demand deposits and that was insured. And starting in 2007, 2008, we see that the system is morphed to be significantly more of a wholesale system. So for example, in 1985,”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“Basis of some information, it is rational for depositors to pull their money out. And that happened in small deposit amounts with banks in the 1920s and 30s. And now it, of course, happens with the uninsured deposits.”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT
“In broad terms, there was nothing unusual about this bank run, that is, the bank run proceeded exactly as textbooks suggest bank runs proceed. There's a question raised with some piece of information provoking the question or the uncertainty on the part of some depositor. And the depositor says, you know what? I'm going to get my money out first and I'm going to ask questions later. other depositors have a similar reaction here instead of other depositors seeing their fellow depositors lined up outside the bank waiting for their money. Here we had venture capitalists calling all the firms in which they had investment saying if you've got any money in Silicon Valley Bank, get it out with social media. So it was a much accelerated process, but the dynamic was eminently familiar, which is on the”
2023-04-11 · Goldman Sachs Exchanges · All about bank(panic)s and the implications for policy · IDENTIFIED FROM THE TRANSCRIPT