Sheila Bair on Government Digital Currency

Sheila Colleen Bair[1] (born April 3, 1954)[2] was the 19th Chair of the U.S. Federal Deposit Insurance Corporation (FDIC),[3] during which time she assumed a prominent role in the government’s response to the 2008 financial crisis. She was appointed to the post for a five-year term on June 26, 2006 by George W. Bush.



an analyst over at pricewaterhousecooper

called the post-stress test measures

quote not

too harsh what would make it harsh


well i i and i agree with that i don’t i

don’t think they were very harsh at

all i i was hoping for them to just say

for now let’s just suspend dividends


buy back dividends and discretionary

bonuses we need to conserve capital we

need to build balance sheets

let’s you know towards the end of the

year we’ll have a better sense of what’s

going on and maybe

make adjustments uh as a result of

further analysis but to now given the

tremendous uncertainties

to be allowing banks to distribute any

capital i think is they’ll advise so i i

was pleased that they

they did take some steps some some minor


but frankly i’m surprised the market

reacted the way it did i thought you


if anybody thought dividends were going

to increase that was just unrealistic

and certainly buybacks are going to be a

thing of the past for a while in any

impacted industry

so i i didn’t i think the market should

actually be happy about this

it was not harsh at all sheila talk to

us a little bit

about discretionary bonuses here there’s

been a lot of talk about dividends but

what is the case

to limit banker pay right well i think

it’s it’s part

it’s not a lot of money but nonetheless

if if your shareholders are taking a hit

i think management uh should should as


and it does conserve some capital it

aligns economic incentives so

i think it’s appropriate it was part of

the basel of the post

uh pro great financial crisis basel

ii framework to have these automatic

suspensions of shareholder distributions

and discretionary bonuses

when you get into highly distressed

situations so that was already part of

the pre-existing framework

that the fed and other regulators have

actually eased so that it is not kicking

in at this point

so remember earlier in the day yesterday

we did hear about the revised volcker

rule here

how do you pair off the fed’s uh warning

for the rest of the year with the idea

that the banks could also be taking on

more risk with these new ones yeah

good question good question the the the

timing on a lot of this is really


so yes this really opens the door for

banks to take much bigger stakes and

very high risk funds

funds doing things that got them into

trouble during the great financial


so uh it was pretty astonishing

and a public policy reason for doing

that at all particularly doing it now

when we want to make sure that banks are

focused on main street lending

supporting the real economy activity not


you know high-risk trading strategies

that’s not where we want them to be

focused but this

this opens the door for a lot more of

that now so it was

sure it’s going in london you just

raised a whole load of issues


that are germane for many people in the

united states right now

right if you were treasury secretary


what would you do to change the

relationship between the banks and


probably the secretary of the treasury

has a bully pulpit but in terms of

the relationship i think it’s much more

with the fed and the other banking


i do think that we need to have better

clarity around what is the role of banks

banks have special deals with the

government they have deposit insurance

they have access to fed lending


those with big investment and trading

operations are benefiting a lot now from

all the fed liquidity support that’s

being provided into financial markets

they have a special deal but with that

is special obligations to support the

real economy especially during downturns

and part of that is making some

sacrifices like shareholder dividends

and discretionary bonuses when you get

into a situation like this so i think

clarifying that relationship and the

role of banks and making sure

bank leadership and bank culture

understands that they have an obligation

in return for these benefits they get

through the through the government

safety net

has this obligation and i think that the

public is just very cynical about banks

right now and i think banks were hoping

that this would

this crisis would help rehabilitate them

but i don’t think that’s happening at

all i think all this deregulation is

making people more cynical

i think the the huge divide between the

real economy and financial markets

is making people more cynical about the

banking system

i i do wish people would differentiate

between banks that you know large

complex wall street banks that do a lot

of investment banking and trading and

that’s fine with that

but i’m not sure we need safety net

support for that and then the regional

community banks that are actually doing


the bank lending the kind that

households and small businesses rely on

we can’t access the corporate debt

markets right so small businesses and

households have to

rely on banks so understanding those

distinctions and understanding those

public obligations i i think is very

important and that that is the tone that

i think

anybody in leadership whether the fed or

the treasury department should be


and we’re going to get to that in just

one quick second i just wanted to follow

up so a bully pulpit though might not be

bad so if someone were to say offer you

the head of the treasury

would you be interested in that job no i

would not you know

my years of government service are over

i’m enjoying doing what i’m doing now

i’m doing more writing i’ve got several

children’s books coming out next year uh

so i’m i’m very happy to do what i’m

doing i’m hoping to stay

involved in public policy through

writing and through relationships i have

with people in government who are kind

enough to reach out to me from time to

time for advice

but i see that as my role and uh so but

you know i i hope

look i respect all the regulators uh who

at a lot of them i know i’ve known for

years but i do think this whole trend

towards deregulation which

even continues now that we’re in this

terrible pandemic is ill-advised i think

long-term it’s going to hurt them and

their agencies i really wish they would

rethink some of the strategies they’re

using right now

sheila i want to take on your regulator

hat one one more time on this one

what is keeping regulators from pushing


into overseeing the non-banks where

we’ve seen

leverage really rise in the hedge fund

industry and the private equity industry

can there be greater

limits there there could be and i think

that’s that’s

another lesson that there were some

tools in dodd-frank that really were

never used very aggressively

there are regulatories you can

regulatory tools you can

use as as bank regulators in terms of

the intersection of large banks with

these these non-bank

hedge funds private equity uh that are

you know

the source of frankly some systemic risk

in the system right now so we haven’t

used those tools very well

i think uh you know knock on wood again

the fed’s liquidity facilities is

papering over a lot of the problems that

otherwise a lot of these funds would be


how long that will last i don’t know

fingers crossed that the fed can keep it


but longer term we get past this we need

to say it again we need a holistic

approach to financial oversight

and if somebody’s acting like a bank if

they’re using a lot of leverage if

they’re you know they’ve got short-term

liabilities and long-term assets

they need at least some basic uh safety

and soundness prudential oversight

including capital requirements which

should not apply to most of them right


do you think uh sheila that on that note


we need to think more about the way that

government policy particularly fed


works right now the fed has done an

awful lot since the start of this


and in some ways and you alluded to this

earlier it is easy to perceive that

as a rescue for wall street is that how

you perceive it i

they’ve bailed out companies by

supporting the credit market that has

got to help the banks at some point

if you’re sitting outside this world i

how do we change that perception

well i think the fed has really tried

this time to be more accessible to main

street but it’s just hard they don’t

really have the tools first of all as

jay palace said they land

that’s what they do we really don’t need

more debt right now

because i have a lot of that already you

know low interest rates a lot of debt

those are the tools they have

so we need to rethink monetary policy

and use of money supply to support

uh times to support the real economy in

times of economic turmoil

i’ve been a big big advocate of digital

currency central bank backed or or

issued digital currency that

actually could be distributed directly

to households in times of stress

give them cash you know don’t give them

more debt

and and find what technology will allow

you today to have a transmission

mechanism that goes directly into

households and obviously congress needs

to authorize that there need to be very

tight controls around it

but nonetheless in a situation like that

we’ve seen how the the government and

the irs on the fiscal side has struggled

to get eip funds to households those

those payments notwithstanding some of

the problems and transmitting the


have done a lot of good for the economy

and so but having some type of automatic

stabilizer where where

cash could actually be distributed

through digital wallets which are which

are fairly easy to set up right now

right into households that would be so

much more efficient

than pumping all this money into

financial markets and seeing this this

giant chasm

right between you know what’s going on

the stock and bond markets and what’s

going on with with main street

sheila the digital currency idea is

super interesting because there’s a real

concern that the u.s is behind

especially compared with other countries

notably china are you concerned

about that race to create a digital


well i am i think you know we are we are

privileged to have

the world’s global reserve currency i

don’t see that changing anytime

soon but i do think one of the

undercurrents of what china is doing at

least especially in developed countries

that have unstable currencies

is is to uh default to the rmb you know


as the currency of choice that they’re

using their own countries

through through their central bank’s

digital currency so yeah i think that’s

exactly what’s going on i think we need

to wake up to it we shouldn’t be too

complacent about our leadership position

i think you know or the strength of our

system the strength of our fed and its

independence and its integrity

i think will always give us the edge but

we need to effectively use this

technology domestically i think it’s

insurgently needed but we should also

think about how the dollar is used

throughout the world

the other thing nice about digital

currency if it’s cryptocurrency if it’s

traded on a on a distributed ledger

you have a much better audit trail of

transactions so from a law enforcement


kind of there’s urban legend that

somehow it’s it makes uh illicit

transactions easier actually makes it


because with the central bank issued or

back digital currency you can actually

trace the transactions where that that

digital money is going through through

the distributed ledger so

from a law enforcement perspective it

also has huge advantages

but we we do need to be very aware of

what’s going on in other countries and

and the real risk

of that that is posed to us if we don’t

leverage what you know what is is

happening now i mean i think between in

12 and 18 months we could probably have

a system of digital currency if people


put their mind to it and again it needs

to be authorized by congress

uh but the fed i know has been looking

at it for a while and i think we need to

VISA: Advancing our approach to digital currency

As a global payments technology company, Visa is focused on delivering the greatest value to people, businesses and economies everywhere, regardless of currency, channel or form factor. We’re reshaping how money moves across the globe, and that means pursuing a broad array of technologies and partnerships. In that regard, digital currencies offer an exciting avenue for us to continue doing what we do best: expanding our network-of-networks to support new forms of commerce.

The concept of digital currency — or a digital version of cash controlled by a private key — was created more than a decade ago, with the launch of Bitcoin. Today, fiat-backed digital currencies, commonly referred to as “stablecoins,” have emerged as a promising new payment innovation, combining the benefits of digital currencies with the stability of existing currencies like the US dollar. It’s a concept that is gaining traction beyond fintechs, and now includes financial institutions and central banks. Consumers and businesses are also adopting digital currencies and circulation is growing rapidly, reaching over $10B in May.1

Visa has been working closely with licensed and regulated digital currency platforms like Coinbase and Fold to provide a bridge between digital currencies and our existing global network of 61 million merchants. Around the world, more than 25 digital currency wallets have linked their services to Visa, giving users an easy way to spend from their digital currency balance using a Visa debit or prepaid credential — anywhere Visa is accepted.

Similar to other digital wallets, digital currency wallets are looking to use the full range of Visa’s capabilities, including Visa Direct, which makes it faster and easier for consumers to convert digital currency and push those funds to their Visa credentials in real-time. Much of this work is happening through Visa’s FastTrack program, which helps fintechs, including those in the digital currency space, integrate quickly with Visa’s global network.

Through these efforts, Visa has become the preferred network for digital currency wallets, which are eager to deepen their value to users by making it quicker and easier to spend digital currency worldwide.

We’ve been advancing and evolving our digital currency strategy for quite some time. Last year we made an investment in Anchorage, a company building security infrastructure for the digital currency ecosystem. Our research team has been exploring the science of blockchain technology for several years. Their work has yielded several promising innovations, including Zether2 and FlyClient.3 Today their research is focused on new mechanisms to improve scalability and enable offline digital currency transactions.

We know that policy leaders and regulators continue to have questions and concerns about digital currencies on a range of issues, from consumer protection to payments resilience. We believe the best way to address these concerns is by working closely with leading companies and the public sector. For more than 60 years, Visa has invested in building and maintaining a resilient global network that delivers best in class functionality to our clients and consumers. Extending this legacy into the decades ahead requires continuous innovation and collaboration with a range of partners.

As part of this public sector strategy, Visa has been engaging with policy makers and global organizations to help shape the dialogue and understanding of digital currencies; this includes our work with the World Economic Forum and our collaboration on a set of policy recommendations for central banks exploring the concept of Central Bank Digital Currency (CBDC).

As our product and research teams continue to evolve our offering in this space, Visa’s digital currency strategy will reflect a set of key values:

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We believe that digital currencies have the potential to extend the value of digital payments to a greater number of people and places. As such, we want to help shape and support the role they play in the future of money. We look forward to sharing more with you on this work in the months that follow.

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