@AaronDKlein of #BrookingsInstitution is providing #realnews in the #financialworld.

Payments & Inequality

I testified before the #HouseFinancialServicesCommitteeFiTechTaskForce’s provocatively titled hearing, “Is #CashStillKing?” Yes it is, but as the #economydigitizes those without #access to #digitalfunds will #suffer; the new #digitaldivide is not on-line access but access to #financialservices, particularly #digitalmoney. To see why, read my full written testimony, this summary of it or, re-watch the full hearing, which was covered by CSPAN here.

Continuing this theme, my op-ed in the LA Times, discussed how America’s payment system has become a reverse Robin Hood, rewarding elite credit card holders at the expense of low-income consumers who pay with cash, prepaid or debit. This was also the topic of my Brookings Mountain West lecture at UNLV this fall. This issue, hidden in plain sight, is getting more attention, and my thoughts have been featured in the Economist, The New York Times, and made Brookings’s list of 10 Things We Learned at Brookings in December.

The best solution, real-time payments, is making progress as I mention in the WSJ, NPR, and this Op-Ed which Brookings flagged as a top story for policymakers to watch in 2020. I even joined David Beckworth’s Macro Musings podcast to discuss the topic, listen here.

China’s Payment System

In the summer, I released an in-depth paper studying China’s new payment system at an event in Brookings. The stats are in, and I am proud to report that event was the most watched Economic Studies event of the year on You Tube, garnering almost 100,000 views. I also joined fellow Brookings scholar David Dollar on his podcast Dollars and Sense to discuss the paper.

But just how far will this revolution go? I spoke to the Atlantic about the difficulties in creating a global cryptocurrency, and participated at events and conversations at the San Francisco and New York Federal Reserve Banks on the future of payments.

Systemic Risk

My academic paper, “Incorporating Macroprudential Financial Regulation into Monetary Policy” was recently published in the Yale School of Management’s Journal of Financial Crises. The paper argues that all financial crises require both a fundamental mispricing of an asset and the build-up of excess leverage. So when you hear, ‘the next financial crisis may be’ ask first whether both conditions are met.

This fall Brookings hosted FDIC Board Member and former Chairman, Marty Gruenberg, who delivered a critically important speech on incorporating lessons for the next big bank failure. Laying out the facts, Gruenberg called for an expansion of loss absorbing capital (TLAC for acronym junkies) to large domestic, but not globally systemic banks. See his full thoughts or watch the conversation and subsequent reaction of our panel.

While no big banks failed this year a few small ones did, and I celebrated. As I’d previously written the lack of any bank failures in 2018 were a sign of worry not regulatory success. As I told the WSJ, in a provocative story they wrote, "The mark of a healthy industry is one in which some banks are trying new things and failing, … When herd behavior becomes pervasive throughout the system, risks brew or bubble up."

Where #Computers Meet: #ArtificialIntelligence, #CyberWar, and the #FutureofWork

The rise of #ArtificialIntelligence, #BigData, and #MachineLearning are challenging our legal, regulatory, and ethical framework for credit allocation. In this Brookings piece, I explore how new technology should or shouldn’t be used for credit decisions, a topic that I also spoke on at the Philadelphia Federal Reserve Bank’s Third Annual FinTech Conference, an event that Brookings co-hosted. Further thoughts of mine have been in the The Washington Post and Consumer Reports as the media focuses on specific problems in applying new technology come to light. 

One of the first laws I ever worked on was the Terrorism Risk Insurance Act of 2002 (TRIA). New risks in the cyber world compelled, Scott Anderson and I to write a piece in LawFare, exploring how courts, insurance companies, and the government are grappling with various interpretations of when terrorism is or is not an “act of war”, a topic that has major implications for the functioning of insurance and the nation’s economy.

Are #robots coming for our jobs? I took a look at a machine designed to automate its human predecessor, the bank teller, and compared it to a job never specifically targeted for automated destruction, the travel agent. What I found may surprise you. Read my piece here. 

Cannabis Banking

The #SAFEBankingAct passed the House this September, good news in the long quest to rationalize regulation and stop the insane position banks find themselves in, as I wrote here. During the debate about SAFE, I joined fellow Brooking scholars Makada Henry-Nickie and John Hudak writing in an op-ed in POLITCO on the importance of fixing this problem for communities of color. 

As the debate about cannabis reform spreads, I spoke to Newsweek this December about the hurdles that still impede remain. I anticipate this topic will heat up as more states pursue cannabis businesses, and voters continue to make their preferences known.

Infrastructure

Every election features widespread support for rebuilding America’s infrastructure, a bipartisan priority stuck in neutral. As the presidential race heats up, I shared my thoughts on Pete Buttigieg’s infrastructure plan in an interview with Yahoo Finance.

Infrastructure policy is more local than federal and over the last few months, I have spoken with The Toledo Blade on the rise of electric scooters, and appeared on Cleveland’s WKYC to talk about China’s influence, or lack thereof, in Ohio’s energy grid.

Bank Regulation:

FDIC Chair Jelena McWilliams came to Brookings to give her first major policy speech outlining changes she believes better reflect the reality of how banks handle deposits that are often characterized as brokered. Our subsequent panel of experts debated whether these changes will increase efficiency and promote technological advancement or increase risk to the deposit insurance fund. Who knew that a debit card tied to a health savings account was considered a brokered deposit?

On September 11th, Representative Carolyn Maloney (D-NY) gave a keynote speech at a Brookings event examining how our anti-money laundering (AML) regime has performed. She called for new legislation ending anonymous corporate banking, and a panel of experts including Rodgin Cohen and Juan Zarate debated how to enhance national security and bank regulatory efficiency. I was pleased to join my former co-author Karen Gifford on the panel, discussing our prior paper on this subject remains.

Looking ahead:

This year, I will focus on the role payments and income volatility play in enabling or precluding access to new technology, with a focus on potential health ramifications from this new payments digital divide. I am continuing to look into the role of Artificial Intelligence, Big Data, and Machine Learning on our financial system, with a focus on the potential and pitfalls that AI brings to improving how credit is allocated. The debate about bank regulation continues and comments on everything from CAMELS bank ratings to improving the financial system for working families will continue to occupy thought. Finally, 2020 means one big thing is coming, no not the election, although I did appear on CNBC to discuss that.

Dodd-Frank’s 10th Birthday. Brookings will be hosting a big Anniversary event with the authors themselves, Senator Christopher Dodd and Representative Barney Frank looking at what the last decade of Dodd-Frank has brought and what the future under Dodd-Frank holds. Save the date, June 30, 2020 and expect to hear more before then.