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.
Transcript
an analyst over at pricewaterhousecooper
called the post-stress test measures
quote not
too harsh what would make it harsh
enough
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
let’s
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
steps
but frankly i’m surprised the market
reacted the way it did i thought you
know
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
well
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
astonishing
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
crisis
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
speculative
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
particularly
that are germane for many people in the
united states right now
right if you were treasury secretary
hypothetically
what would you do to change the
relationship between the banks and
society
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
regulators
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
facilities
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
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
setting
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
further
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
experiencing
how long that will last i don’t know
fingers crossed that the fed can keep it
up
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
now
do you think uh sheila that on that note
that
we need to think more about the way that
government policy particularly fed
policy
works right now the fed has done an
awful lot since the start of this
pandemic
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
payments
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
currency
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
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
perspective
kind of there’s urban legend that
somehow it’s it makes uh illicit
transactions easier actually makes it
harder
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
effectivelyleverage 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
really
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