Do banks need less of a cushion in case of disaster?
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Why are regulators considering easing banking rules now?
Is now the time for banks to have lower cushions in case of disaster? I'm David Brancaccio in Los Angeles. The Federal Reserve is looking at easing rules for banks with the hope that means more mortgage loans. It also means banks may be more vulnerable to the next financial crisis. Marketplace's Nova Safo is here with details.
Well, David, this news comes from the Fed's Vice Chair for Supervision, Michelle Bauman. She was speaking yesterday at a conference of the American Bankers Association, and she said regulation with regards to banks issuing and servicing mortgages has become too onerous after the financial crisis, causing banks to largely cede that business to specialty mortgage lenders and non-bank institutions.
Fewer banks engaged in the mortgage origination and servicing process has reduced the consumer choice and competition that drives down cost. In addition, borrowers that experience financial distress seem to fare worse in a downturn with a non-bank servicer.
So what Bauman is proposing is easing capital requirements, the mix of cash, stock, and other assets that banks have to hold in case of trouble, as well as changing how risk is calculated with regards to mortgages, David.
Now, we've lived through some of this, Nova. Regulators tightened banking rules after the great financial crisis of 2008 and all the excesses and abuses in that mortgage system. Did Bauman address why easing the rules might be OK now?
Well, what she argues is that a lot has changed since regulations were tightened in 2013.
How might easing capital requirements affect mortgage lending?
She says now regulators better understand how banks handle mortgages, and they better understand the risks involved. And that's why she said that some changes can be made safely while keeping the banking system as a whole stable, David.
All right, Nova. Thank you very much.
People who make bets on the future of tech mostly want to hear just two words these days. Artificial intelligence, according to PitchBook and the National Venture Capital Association, AI startups got 65% of all U.S. venture capital dollars last year, $222 billion. A lot of that goes toward physical infrastructure powering the AI boom, especially data centers that do the calculations. Marketplace's Megan McCarty Carino has this tour.
Sometimes things are not as they appear. I understand this is actually a data center.
Yes, you wouldn't believe it walking by. And it has a very interesting story to how we shape the internet today.
We're in downtown Palo Alto, California for our series on AI infrastructure. Eddie Espinoza is the customer operations manager of the data center that is hiding inside this ornate old building.
What are the potential risks of lowering bank cushions?
Let's go inside, take a look.
It's owned by a company called Equinix, which is one of those companies that you might not personally have heard of, but without knowing it, you're connected to all the time. Equinix specializes in something called co-location, which is kind of like apartment buildings for computing power, where customers can lease space for their data traffic. Equinix has data centers all over the country, and they're building more in hopes of capitalizing on the AI boom. But this one is special.
It is a historical building in the historical society of Palo Alto.
It was built in 1929 by the Pacific Telephone and Telegraph Company as a place for telephone switchboards.
Over the decades, those voices changed to bits and bytes, but the need to connect never changed.
Once inside, Eddie took us into a room with racks of servers humming away.
This is the basement. So in the 1995 era, it was the home of AltaVista. It was one of the first major search engines in the 90s. So they're all office spaces down here, as you notice.
Wait, so they had their office spaces down here with all this machinery? Yes, yes.
How is AI influencing the current tech investment landscape?
It might be hard to picture, given the gleaming campuses of big tech companies today, but a lot of early Internet creators, like the founders of AltaVista, were in spaces like this one. It's kind of spooky down here. It was dark with creepy blue lighting and a maze of mesh cages to lock away servers.
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Chapters
5 chapters
1
Why are regulators considering easing banking rules now?
0:01–1:37
2
How might easing capital requirements affect mortgage lending?
1:37–3:06
3
What are the potential risks of lowering bank cushions?
3:06–4:20
4
How is AI influencing the current tech investment landscape?
4:20–5:41
5
What role do data centers play in the AI boom?
5:41–7:02