Cato Daily Podcast
When the Fed Hates Your Financial Innovation
Sep 16, 2024
Caitlin Long, CEO of Custodia Bank and a champion of financial innovation, discusses how Federal Reserve policies hinder progress in the banking sector. Joined by Jack Solowey from Cato, they delve into Operation Chokepoint 2.0, highlighting how banks face regulatory challenges that stifle innovation. They explore the Fed's protective stance towards incumbents and the stark differences between state and federal banking regulations. The conversation emphasizes the urgent need for a balanced approach to foster a more innovative financial landscape.
23:30
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Quick takeaways
- The Federal Reserve's increased discretion over bank access undermines competition and hinders financial innovation, particularly affecting state-chartered entities.
- Regulatory discretion and lack of transparency threaten trust in the financial system, demanding a framework that encourages innovation without overreach.
Deep dives
Federal Reserve's Expanding Control
The Federal Reserve has significantly expanded its authority over the payment system in the United States, moving from a straightforward granting of master account access to a more discretionary process. This shift is seen as a method to control access and protect incumbent banks from emerging financial innovators, particularly state-chartered entities. Historically, the Federal Reserve allowed equal access for both state and nationally chartered banks, as mandated by the Monetary Control Act of 1980, which deemed the payment system a public good essential for maintaining competition. However, the Fed's recent changes undermine this mandate, raising concerns about anti-competitive practices and the restriction of financial innovation.
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