Hill Says FDIC Won’t Rule Out Agentic AI Bank-Run Risk

When we consider the overall landscape, the stresses that appeared in the bond market, at least the government bond market right now, where yields are the highest they've been in decades. Do you see reason for concern? Do you look at what's happening right now and get a little nervous? Well, well, thanks for having me. It's great to be here. Um, so I think when we look at bond yields and the interest rate environment, um, it's worth worth looking back at what happened in 2022 as, as a distinction from where we are today, uh, leading up to the failure of Silicon Valley Bank. The fed funds rate went up by around 500 basis points over about a year. Um, by comparison, the ten year yield is up about 130 basis points since earlier this year. The fed funds rate is a much smaller amount. Um, so I think a just in terms of the overall magnitude, the increase in rates is a fraction of what it was a few years ago. And secondly, what we're seeing now is longer term rates are going up by, uh, by a larger magnitude than shorter term rates. And so banks are generally in the business of borrowing short in lending long, and so that's usually a positive story for the banking industry in comparison with 2022, where it was really short term rates had had a sudden and dramatic interest rate shock. Mr. chairman, we really want to talk to you about AI. It's a part of our conversation every day here. But when it comes to banking, it's unique. It's the industry that's I think, unless, correct me if I'm wrong is adopted I and integrated I more than any other in the name of efficiency. Now there is a worry that these AI agents in the age of news could create a disruption that allow people to move their money from day to day, hour to hour, based on who's got the bigger returns. It could be a deposit flight every hour based on some of the real concerns. We talked so much about rules of the road to protect consumers. Do banks need rules created to protect themselves? Well, I think it's worth recognising, uh, at the outset that, um, for consumers or businesses today that want to maximize yields on yield on their deposit accounts. Yeah, that's a very easy thing to do. There are lots of websites where you can go, and you can see all sorts of high yield accounts at different banks. There are a number of services today where you can give your funds to those services, and they will place it in a high yield account for the customer. But nonetheless, there are many consumers and businesses that don't do that for a variety of reasons. Especially when we talk about business accounts where there's significant amounts of funds. When you look at the overall banking industry, oftentimes there are various services that they're getting from the bank. There's a broader relationship. And so there's a lot that goes into the decision of where to put where to put funds in. And so I think it's worth just having that perspective when we think about the future of a superintelligence and these types of tools. Well, your point is understood that the information is already there. The concern would be that agents are able to access it more quickly and do it with more velocity. Torsten Flock, the chief economist at Apollo, put out a note over the weekend that said if every household used AI agents to optimize the return on their cash balances. Banks could lose a large share of the cheap deposits they rely on to make loans, which would be a problem for the entire financial system, Mr. Chairman. His note was entitled isn't a genetic bank run coming? Can you rule it out? We're not in the business of ruling out any risks. Um, but but again, I think that requires a dramatic move in terms of people a prioritizing that in their lives and be delegating that decision making authority to these types of tools. And again, I think what we see today is the vast majority of our, I shouldn't say the vast majority. A lot of customers value other things when they decide where to place their their bank deposits. Well, to your point on delegating to these tools, would you advise any depositor to be sharing that information with an AI model or an agent at this point? That's certainly not for me to advise advise customers on. I mean, I think, uh, I think these types of tools have tremendous promise and tremendous value, but whether people reach a point of feeling comfortable giving that kind of decision making authority to. That's going to have to be up to individual customers. It's really interesting. We wondered if there was a day when there be a consumer warning on products like these, and maybe we'll get there. Mr. chairman, but I have to go back to the bank failures from a couple of years ago, which I'll always associate with Kailey Leinz triumphant return to Washington, D.C., SVB and the rest so you can remind me of all the names, I'm sure. Caleb. Probably First Republic. There was a question about FDI seed bank insurance, and there was a thought that $250,000 might be a bit quaint. At one point, we were talking to lawmakers every day about raising that number. It never happened in the age of inflation, should it? Well, look, um, over the course of the history, Congress has revisited that, that that, uh, deposit insurance limit many times. And it's now been almost 20 years since the last time Congress raised it. Um, you know, we've been we've been engaged with various offices on Capitol Hill about potential deposit insurance reform. I think there's a strong case to be made for either expanding coverage through either raising the rate, or considering a category of deposit accounts that would have a higher rate. Um, there are lots of different, different alternatives on how to do that, but it's something that we we continue to engage with Capitol Hill officers on. I think you'll ever have to ensure crypto wallets. Or will you? I do not think that, um, we we, uh, we insure bank deposits, and I think it should stay that way. Well, I'm wondering what you're hearing from banks at this point of the administration, which obviously came in promising deregulation, having delivered on a great deal of that, as we consider the different, uh, capital requirement, uh, structure that has now been put forward by the federal rules that you have acted on around M&A and trying to make that process easier. What are banks still asking of you right now? What's left on the list? Um, so, so so we have a law, a long and always growing list of rules that we want to modernize and fix. I think from our perspective, we're focused on doing what we think is right for the broader economy and for the banking system and consumers at large. Um, we have a lot of things we're working on. We're working on finalizing our capital rules that we had proposed earlier this year. We're working on potential changes to our liquidity rules. We have a new proposal we at the FDIC just issued on on bank merger review and the bank merger review process. Um, we're looking at various things related to our deposit insurance assessment rules. Um, so we have a lot of things that we continue to work on, but I think all of it is in an effort to strike the right balance between ensuring a safe and sound banking system, but also enabling banks to drive economic growth. Do you think any of that work gets harder if Democrats attain majorities in the House and Senate after the midterms? I do not. Um, I think we are we have an agenda that that we think will withstand the test of time. Um, and so I think we will continue to pursue that regardless of, uh, of the environment that we're in.