Transcripts For CSPAN Deputy 20240705 : vimarsana.com

To ai. Thank you, secretary, for joining us. We know this is an extremely busy period here for you, and we are really honored to have you. We are here to talk about mdis in the wake of Silicon Valley bank and mdis and investments of interest, to say the least, for the biden administration. Maybe just for context, can you give us a hint of the range of programs up to this point that have focused on mdis at the Treasury Department, just to sort of set the stage . I think we are losing your we have it now. Wally it is good to be with you. Let me start by saying thanks to chris and nicole for your leadership and to the nda for being such a great partner with the Treasury Department over the last couple of years with the Biden Harris Administration. I will start by saying mdis and cfis have never been better positioned than they are today largely because these largely because the leadership of these institutions have done a tremendous job in preparing them to both lend to the communities they serve but also to be ready for the challenges that happen in any economic cycle, but in addition to the leaders and the work they have done, the federal government stepped up by providing more than 12 billion over the course of the Biden Harris Administration. In addition, several rounds of grants that have been provided to these institutions have helped them do things they want to do most, be more prepared to lend to the communities and have more access to capital going forward, and because of those things, my view is that today, our ecosystem of mdis and cfis are prepared to face the headwinds the economies face while lending to the economies that need it most. Nicole mdis, like many of their customers, have had a tough time in todays economy. They face greater credit risk, higher firing costs. You started to touch on this with the 12 billion that came down from the Biden Harris Administration, but how important were the capitalization efforts and other programs in terms of preparing them for this very kind of test . And is there a sense there might be an issue with revisiting if the economy deteriorates . Wally you know the answer to this probably better than i do but thats because your and because your members are telling you this, but the money that was contributed by congress are real Game Changers in terms of providing capital, but not just capital for capitals sake, but capital that will allow them to help the communities that are being hurt most who are hurt most whenever you have economic headwinds, and i think the most important thing for us to remind people of his the reason we care deeply in the Biden Harris Administration is because we know that these institutions serve communities where the economy can be helped by helping to get access to credit, to help do what i think is the most important thing we can do, which is expand the economy and get money to places where you have unrealized potential. That is exactly what members are doing on a regular basis. My sense is that these institutions are better capitalized than they have been in a long time. For too long in our country, we were seeing a number of minorityowned depository institutions shrink, so i think the investment we make here is going to arrest that trend, and our goal is to make sure institutions that exist have the ability to grow because their growth will correspond to the growth of the economies in the places where they are served and part of that is to ensure these institutions have access to capital and also making sure they have access to deposits because ultimately, they need liquidity to do lending, and thats why im encouraged by some of the small efforts we have seen in terms of other institutions providing deposit to mdis and cfi cdfis. The key is to making sure these are sticky deposits that are around for a long time, but also getting grant money to make sure we have the ability to build up the Technological Infrastructure so they have the ability to do the underwriting that they need to do in order to get more of the underwriting in the economy, but my general view is that today, mdis are better capitalized, better prepared, better able to serve the communities that they serve than they have been in a long time. Where weve made progress, there is more we need to do and we are committed to working with you and others to make sure we are prepared to serve no matter the economic circumstances of these communities going forward. Chris that was such an interesting and really thorough answer, which begets all kinds of other observations, and maybe if we have time, we could circle back. The acting comptroller has mentioned it in our previous panel, but this is a theme about Silicon Valley bank, and we had lots of turmoil in the market obviously with signature and First Republic and the like. There have been challenges for regional banks and black and brown banks. I think most people would look at this as a story that played out in terms of policy responses , and that policy response sort of continues, but maybe again what has been the Treasury Departments sort of posture here for those events and in the policy conversation, and do you have any particular sense as to where we are, not just in terms of market unease, but where you are and where the Treasury Department is when it comes to thinking through the appropriate response . While wally looking back on my calendar, on the weekend of march 12, i looked at my sunday of that week, and it looked busier than any weekday because we were spending time not only thinking about what we would do about Signature Bank and Silicon Valley bank but thinking about what we were going to do to protect the system and banks doing exactly what banks are supposed to do, which is provide credit. Thats why the fed took Decisive Action to protect the uninsured and insured in these institutions as well as create a facility that would make sure that institutions have access to liquidity that they can use to meet the demands of their depositors. Ultimately, this was done not because two institutions were done for the entire system. I recognize the vast majority of mdis deposits are mostly injured, but ultimately, in order for mdi and mdis and cdfis to grow, they need to grow their deposit bases, and in order for that to happen, people need to feel that their deposits are safe in these institutions. I think today, they are better capitalized than they have been historically because of the historic investments the Bidenharris Administration has made in them, but nonetheless, a key concern you always have when you are part of a larger system is that people will judge your institution as they judge the system. From our standpoint, protecting the entire system is what we did that fateful weekend in march, and by doing that, we think we put not only regional banks in a better position to continue lending, but we also put cdfis and mdis in a better position to continue lending. I think i realize there are headwinds. People think they can earn more money on deposits by moving them to other institutions, so there will be more competition going forward. Thats why i think it is critical to continue to encourage institutions to move more deposits to mdis and cdfis because it puts these institutions in a position to lend in communities where the capital can be well used to grow the economy and create opportunities for all americans. My sense is from the standpoint of the Treasury Department and the standpoint of the administration, the president has made clear he does not want to increase the Regulatory Burden that small institutions face, but we do want to create a Regulatory Framework that puts them in the position to continue to responsibly lend to the communities they serve and from the standpoint of the Treasury Department, that includes providing resources and working closely with mdis and cdfis to get them not only access to capital but also access to the technology and Human Capital they need to grow over time. Nicole we have had policy conversations on many issues from raising insurance limits or regulations for banks. Where do you see mdis and cdfis bidding into those conversations, and help tailored should responses fitting into those conversations, and how tailored should responses be . The president has made wally the president has made clear he does not want to increase the Regulatory Burden on the small institutions of our country that are often trying to serve populations that are underserved by traditional banking, and thats why we think the mdi and cdfi ecosystem is so important. We put capital into that system just a week ago by working with the private sector and committed to attracting more deposits to the system going forward, but i think the cdf i and mdi Community Benefits from a well regulated Banking System. Ultimately, confidence in the Banking System from the American People, from individuals is critical to making sure the mdis and cdfis have the ability to succeed as well, to be able to attract deposits, be able to attract capital, be able to do the business they care about in the communities they care about throughout the country. Fundamentally, this will mean we will have to continue to remain vigilant because the risk to the Financial System are things hard to predict, but we have to be positioned well to use the tools we have to deal with them. Thats exactly what we did in march when we addressed Silicon Valley bank and also Signature Bank. I think it is important the American People realize we have more than 4000 banks in this country, and we believe deeply that we needed the first ecosystem that includes big banks, mediumsized banks and small banks and mdis and cdfis because they serve different parts of our economy well. Traditionally, when you look at communities of color and rural communities, they have not been served as well, and thats why we think the ecosystem needs to be supported and needs to be put in position to provide credit to those communities. Chris over the course of our conversation today, we have had regulators and panelist leaders and ceos of mdis, we have heard on the one hand, really strong banks doing well. We have also heard about deposits overall in the systems continuing the layover effect of the stigma of accessing the discount window. When you think of a large macroeconomic, prudential perspective, number one, how healthy is the Banking System right now . We heard today from others keeping an eye out for commercial loans and commercial real estate loans and the like. What keeps you up at night when you think about risks to the Banking System . Are there any areas of particular concern for you . Wally we have to be vigilant, and that is the most important lesson we learn from the financial crisis of 20082009. When regulators and policymakers are no longer vigilant about innovation in the sector, thats when you face challenges. The strength and resilience speaks to the fact we have more than 4000 banks serving consumers, and credit is being created. One of the challenges you have is an economy like ours where you have seen rapid growth coming out. The covid19 pandemic, we knew that growth was going too slow and return to trend. When that happens, you want to make sure the credit creation continues in order to make sure the economy continues to grow, and we are continuing to see that not only coming out of the biggest banks. More than 50 of lending from the country comes out of regional and small banks, and our goal is to make sure cdfis and mdis play an increasing role. They are going to take deposits for excess money and place those in cdfis and mdis. Starting with 1 million, they expect the amount to grow over time as a sign of confidence in the Banking System but particularly in cdfis and mdis and demonstrating the Important Role they play in communities of color, rural communities, People Living in parts of the country that have not been served have access to the credit they need. My view is that the Banking System remains resilient, and im particularly impressed by the resilience of mdis and cdfis, and im encouraged by the fact that other institutions agree and are putting deposits in institutions. Nicole you have talked about three things that are priorities for antiochs capital, deposits, and grants priorities for mdis. We talked about the unprecedented capital coming from the Biden Harris Administration. You talk about efforts from the private sector to make deposits, and you also talked about the importance of grants to help bridge the gap between tech and talent, and that is really what is needed to help them scale and grow and push that capital out. Wally i would say we have and all of the above strategy because ultimately, we know that mdis are critical to the economy. We step back and talk a little bit about the way secretary yellen thinks about our Economic Strategy for the country, and it starts from this idea of modern supplyside economics, the idea of unlocking economics but focusing on things like a labor force and also places where we have unrealized potential of the economy. What we know is because of discrimination and other barriers, a lot of the unrealized potential in our economy lies in rural areas, in areas in minority communities, and the best way to unlock the potential of individuals in innovation is by making sure they have access to capital. Thats why we are focused on making sure these steps reach these communities. Thats why in addition, the fund has provided grants to cdfis and why we are focused on making sure deposits flow to those institutions. I think one of the most important things we can do, to your point, is to make sure these institutions have access to technologies that enable paraprofessionals to be able to make loans and make them at scale, and a big piece of this is making sure they get access to grants. I recognize this is something the private sector in collaboration with philanthropy can help do. We are very engaged in that conversation as well, but ultimately, the most important thing for this community will be making sure that you have ecosystem of businesses you can support with loans. I have not mentioned it yet, but the Small Business Credit Initiative that was started by the Treasury Department provides 10 billion in states to support Small Businesses with a particular focus on Small Businesses that are run by women and people of color. Its going to be a way from which credit can flow from these businesses credit can flow from mdis and cdfis to these businesses. As you know, as your clients grow, so do the banks and the cdfis they serve, and that is our hope in decades and years to come. Chris we only have a minute left, and i did sort of queue you up before. You did mention the technology issue. Everyone is talking about ai nowadays. Do you have any sense, your perspective about how that enables technology and transformation, but also risk . We talked about data and the challenges of data. I know this cannot be the first time you have thought about it. But this is a particularly important and interesting topic for small banks. Wally my view on this is one i know everyone today is talking about the importance of ai, and i think its going to be important. Its going to be transformative, but my view is that 10, 20 years from now, the most important thing to all our institutions is going to remain talent. Getting talented people on board who can use that ai and technology will be the one thing that transforms businesses going forward. I run the Treasury Department on trying to make sure i get the most talented people, as im sure all the institutions that, nicole, you work with and are part of of the mdis and cdfis ecosystem. Two, making sure you are in a position to take advantage of the revolution but organizing data. I think the data piece is something we underinvest in, and, frankly, we often think about our individual institutions taking advantage of this, but one of the things we have been very focused on is how can we create technological and ai solutions that you leverage by the entire industry . We need to make sure that industrywide, we have access to the types of technology that will allow us to do things like better underwriting. Ai has the potential to help us do that in massive ways, and it should not be something we try to do institution by institution because it can be quite expensive. Probably the most important thing we can do as a Banking Sector is because banking is based on trust by the individuals, is making sure that while we think about ai, we are also focused on cybersecurity, ultimately making sure the money people put in these institutions are secure will be a key piece of ensuring people are willing to put more money in. I know that for myself, im consistently thinking about how i make those investments, but i also think it will be critical to think about how we make those investments at scale so that mdis and cdfis have access to the protection they need. I think this is a key discussion we will be having in terms of how we take advantage of the opportunities ai presents but also how we protect ourselves as we think through how this will transform the way banking works. My view overall is that today, mdis and cdfis are better positioned than they ever have been to do exactly what you will have wanted to do since you went into banking, which is providing access to credit to the communities and businesses that need it most thank you so much, mr. Deputy secretary. I will put a plug for georgetown and we have enjoyed having you here. This has been aonderful and enlightening conversation. Thank you so much for joining us. Announcer coming up next on after words Michael Waldman examin t u. S. Supreme court 20212022 rulings of impacted americans. 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