Remarks by Mary C. Daly at the 2025 Conference for Community Bankers

Rob Nichols:

So, we’ve got a lot of territory to cover, but I think I would first react to your speech. I was listening intently behind the stage, and I thought the idea of aligning practices with ideals, right-sizing, tailoring, and preserving and protecting tailoring, which, in my opinion, over the last several years, has been kind of under assault a little bit, I think that was a very important point to surface, and I appreciate you lending and raising your voice to that. Anything else to share on that part of your speech?

Mary C. Daly:

Well, just that it was so important to me to share this, because I think that, while I don’t have a role, as I said, in regulatory or supervisory policy, I do have insights. And those insights are repeatedly confirming that community banks in particular feel a gap between what we want to do and what we are doing. And tailoring is one of the ways that you get some right-sizing, if you will, a fit-to-purpose model. And so, that voice matters. And as an economist, my training is a PhD in economics, I did a lot of public economics and labor economics, and you just know, again and again and again, right-sizing regulatory frames is the most important component of making sure that they’re successful. So, I think that’s just something that we can apply to banking pretty easily.

Rob Nichols:

I think so. I think you look at business model, risk profile, activities, and those should be the foundation of how you create a supervisory architecture, not so much just an artificial asset size or threshold. That’s my bias, we all know that. We’re going to go talk a little bit about the economy today, a little bit about interest rates.

Mary C. Daly:

I never get out of an event without talking about the interest rate, but I didn’t want to burden you all with a whole review of it.

Rob Nichols:

We’ll talk about something going on in California that’s near to both of our hearts. We’re going to talk about crypto a little bit. I’m going to ask you about Silicon Valley, obviously. But first, talk a little bit about, before we get into those meaty subjects, talk just a little bit about your own background. You’re from Missouri, I understand.

Mary C. Daly:

I am from Missouri.

Rob Nichols:

There’s a group from Missouri here.

Mary C. Daly:

Hi everyone. I grew up in Baldwin, Missouri, when Baldwin was not very… It was on the border of a rural area. That’s how long ago I lived there.

Rob Nichols:

And I was told backstage by someone that you worked at a donut shop. Was that one of your first-

Mary C. Daly:

Yes. Well, I had a little bit of a unique journey in my life, and as so many Americans do, I grew up, my family had some economic and health shocks, and I dropped out of high school at 15 to help support my family and did that. And luckily though, I met a mentor, and she helped me get a GED, encouraged me to get a GED, and then, Betsy’s kind of a nudger, so she nudged me to get a GED. I did that, because I wanted to be a bus driver. After the donut shop, I thought, “Well, bus driving’s going to be better. I can work during the day and get benefits, part of a union.” So, I tried to do that. And then, she said, “Well, why don’t you go to college?” And I went to a semester, and she said, “Well, you should really go to a four-year school.” And on and on it goes.

And in university, I fell in love with economics, and it always tied back to… Although I didn’t know it at the time. You get older, you start reflecting on the ties that have woven your life together. And one of those ties was that I care deeply about the communities that I had grown up in, where people live so close to the edge that a shock, economic or health, could throw them out of commission altogether, and then people are scrambling. And so, the idea that there’s some ways to support that in my role as a policymaker and as an economist and, honestly, community banks.

One of the things I saw again and again is I lived in an area where it was very subject to economic shocks, whether they were ag shocks or manufacturing shocks, et cetera. And shocks is just a way for economists to say something unexpected happens that leaves you unprepared, not able to do the same thing you were doing. And community banks were always there. They would help bridge people through these harder times, help people get back on their feet. And so, it’s a stabilizing force. And I guess I always wanted to be, Rob, a stabilizing force, and I do it through monetary policy and my work at the Fed. But I think the idea is we’re all participating collectively in ensuring that the economy, it doesn’t tip people over and then shortchange their lives and their livelihoods.

Rob Nichols:

Yeah, your point, the percentage of Americans who don’t have enough money to make an emergency expense, is alarmingly high.

Mary C. Daly:

It’s alarmingly high.

Rob Nichols:

Alarmingly high.

Mary C. Daly:

It’s alarmingly high. So, I think that’s something we all have to take in and try to improve upon.

Rob Nichols:

All right. In the things that we want to try to improve upon, let’s go directly to the economy. The latest data shows that the inflation remains stubborn and ahead of the Fed’s 2% target. Labor market still seems pretty solid, however. What’s your sense of the US economy right now?

Mary C. Daly:

Yeah, the way I characterize it is the economy’s in a good place. And so, let me unpack what that means. If you look at GDP growth, continues to be solid. Look at the labor market, really solid. There are very few indicators that point to concerns in the labor market at this point. That doesn’t mean we should stop looking. You never want to be inattentive to the incoming information. So, I’m looking at the elements of growth, I’m looking at the elements of the labor market. But right now, both are solid.

And then, inflation is coming down, although some months imperceptibly. But over time, you’re seeing a decline in inflation. It’s very gradual, and it’s quite bumpy, but there’s, in my mind, no reason to be discouraged about the progress on inflation to date, it just is going to take longer than anyone wants. And that’s an important thing for us to continue to do. So, that’s why our policy continues to be restrictive, continues to put downward pressure on inflation by bringing the economy’s demand back in line with the available supply.

Rob Nichols:

Monetary policy, would be remiss not to go directly there next, obviously. Should the community bankers here anticipate more rate cuts this year?

Mary C. Daly:

I think the world right now is uncertain about that, right? What I want to convey to you, most of all, is that we are committed, as the Fed, of the FOMC, to bring inflation down to 2%. And you’ve heard many of my colleagues and myself say that repeatedly, that we’ve got to maintain our efforts to get inflation down to 2%. My own view is we want to do that as gently as we can without injuring the labor market or growth. We have an opportunity to really deliver on that, and that’s what we’ve been doing.

So, at this point, policy needs to remain restrictive until, from my own vantage point, until I see that we are really continuing to make progress on inflation. At this point, policy’s in a good place. We took 100 basis points off the rate last year, that recalibrated policy put it in line with the economy we have, and now we want to be, in my judgment, careful before we make the next adjustment, so that we’re getting this right and we’re ensuring to put enough pressure on inflation to get it back to target, and we’re doing so in a way that doesn’t shortchange growth or the labor market.

One thing that I keep saying, I’ve been saying this for a while, and I think it’s important to restate, is that even though there’s a lot of uncertainty, and even though we’re not making a move right now, uncertainty is not paralysis, right? We’re still actively investigating the data, thinking about where we’re heading. We just don’t have the answer right now. And the easiest way to make a mistake is to jump to a conclusion. To say, “Oh, we’re going to have this many rate cuts. We’re going to have no rate cuts. We’re going to have to raise rates.” All of those things that get said, those are all just talk, because ultimately, we need more information to find out what we’re really going to do. And that’s what I’ll be doing, keeping a watchful eye and making sure that we’re careful enough, that I’m careful enough, in making that assessment that we don’t urgently get to an answer that we only regret.

Rob Nichols:

Gotcha, thank you. One more on the economy, and then, we’ll segue to some other things. While you don’t have oversight, obviously, over fiscal policy, how do you and your colleagues at the Fed think about fiscal policy? This year, there’s been a lot of debate, Mary, early about, of course, there would likely be a tax bill, I think there will be. It’s a policy priority for us at ABA. And again, acknowledging you don’t have oversight over fiscal policy, how do you guys think about fiscal policy?

Mary C. Daly:

Sure. So, let me share my own perspectives, because my colleagues and I, we offer our independent perspectives. Let me share how I think about it. The first thing that I recognize is that the Fed, we have our goals, the dual mandate: full employment, price stability. And that’s true whatever administration is in place. And all administrations, in my entire career, and probably through the history of the Fed, come in with a slate of things that they would like to do.

So, in the current administration, they really have four key pillars of things they would like to do that they’ve stated. One is tax cuts. Second is deregulation. Those can potentially be growth inducing. And so, that’s importantly positive. And then, there’s the tariffs, which could be slowing growth, could be increasing inflation, but it really depends on the details: the scope, magnitude, and timing of those adjustments. And then, there’s immigration policy, which could, if done in a particular way, bridle the labor supply growth. If done a different way, wouldn’t have much of an effect.

So, you see already that what’s really important for monetary policy is the net effect of those things. And to get the net effect, you have to have the details of each specific one, and you have to then think about scope, magnitude, and timing, none of which we know as of yet. So, that’s why what we have right now are ideas that are starting to be put into practice. And we have to be, how I think of it is those are things we need to think about and consider, but we can’t preemptively decide and then make policy actions based on guesses. We have to really, out of respect for the administration and the transition of government and how our country works, we have to take our time.

Now, you might say, “Well, couldn’t we get behind?” So, I’m going to preempt that question and just say policy’s in a very good place, and we can easily move with what we have. We also have our tools of communication and forward guidance. And the research all tells us that monetary policy remains a powerful tool. One of the ways it’s powerful is all of you lend with rates depending on the policy change. So, we have power, once we have more details. To use that power in advance is likely to end in a mistake.

Rob Nichols:

Let me segue now to Silicon Valley Bank. You’ve been asked about this before, of course. We’re at about the two-year anniversary of that event. The San Francisco Fed played a role in supervising that institution, as you know. Two years later, have we learned the right lessons? What’s your sense of, again, two months after the event, have we learned the right lessons? And what other responses do you have to that area?

Mary C. Daly:

So, let me share what lessons I take away. And there’s a lot of lessons one could look at, and policymakers, historians, economists will study this, bankers, financial people will study this for a long time. But here’s some things that I’ll share with you that are top of my mind in terms of the number one lessons.

The first one, and it’s not very spoken about, but I’m going to emphasize it, we have over 4,500 banks in the United States, and three failed: Silicon Valley, Signature, and First Republic. That means that the remaining banks manage their risks appropriately. And that’s something we should recognize. We have a safe and sound banking system with bankers who actually manage their risk, interest rate risk, liquidity risk, credit risk, on a regular basis. And I think that’s a success that is not spoken about. Weathering COVID, weathering the rise in interest rates, weathering the stresses from the banking shock of SVB and other failures, that’s something that’s really important. It’s a good lesson to remind ourselves of.

The second lesson is that Silicon Valley Bank, when you look at the reports by the OIG and the GAO, and of course, Vice Chair Barr did a report as well, but all of those reports say the same thing: Silicon Valley Bank failed for traditional reasons, interest rate risk and liquidity risks. That’s core supervision risks. And they failed because they didn’t manage their risks well as a bank. So, what does that mean about where supervision could have done better? And I think there, there are really two lessons I’ll raise to the top.

One is that when earnest people are doing their work against the playbook, then you have to ask, how does the playbook change? How can the playbook… And the chair said this in his testimony the other day, it’s the playbook, it’s the process that we have to really look into, and ask the question, are we being thoughtful enough about identifying risks, traditional core supervision risks, banking risks, credit, interest rates, and liquidity? Are we being aggressive enough or urgent enough in identifying those risks and getting them there?

And that brings me to the second observation: culture. And again, that was identified in all three of the reviews and ex post reports, that the culture has to be more thoughtful. I think of it this way, urgent. See something, say something, and then do something. And there’s a production chain between see something, and you’ve got to have people, even if they’re relatively new, raise their hand and say, “I see this.” So, they have to say something. Once they say something, you have to do something, and that do something can be leaders with lots of experience, or people at the point of the spear of decision making can say, “Yes, we see that, but we’re not going to treat it, because there’s other mitigating factors,” or, “We’re going to get right on that.”

But that chain was too slow, and there wasn’t enough raising hands to say something once it was seen. And then, once it was seen and somebody said something, there wasn’t enough doing. And I think that is just the accountability is there in individuals, but it has to be there in the process. As leaders, I would think you share the same view I have; when something that earnest people try to do doesn’t work the way we want, you can look back to process, culture, the way that you do a play, how you think about your frame. And that’s the lesson.

The final lesson I’ll talk about is really about what went on specifically that we all have to learn for the future. There’s two things that I really think are important. And banks, if you look at the uninsured deposits, have already learned this. We came into SVB, and this was true global standards, et cetera, thinking that uninsured deposits were only slightly less sticky than insured deposits. But that turned out not to be true. And so, thinking about those having different weights, and not relying so much on them, or contingencies if you do rely on them, contingency funding plans, that’s important.

The second thing is we’ve ordinarily, you can look at any supervision playbook for forever, and you see that concentration risk is something to focus on, but we didn’t think of concentration risk as easily in networks. So, Silicon Valley Bank had different industries, but their industries were all connected through the venture capital network. And that network, one person has a confidence scare, and everybody with that has the confidence scare. And a good old-fashioned run, not so good, happens, and happens in a day or four hours, depending on who you talk to, as opposed to over a longer period of time. So, I think those are key takeaways that I would get from Silicon Valley Bank.

Rob Nichols:

Yeah, I think I’d add to that too, in addition to what happened at the bank and the supervisory components, I think another at least debate it sparked not just at ABA but across the country is whether or not our nation’s deposit insurance system should be modernized, or should be kept the way it is. So, that’s another thing that’s-

Mary C. Daly:

Yeah, the FDIC did a white paper on this sometime back.

Rob Nichols:

They did. Yep.

Mary C. Daly:

And I think revisiting that white paper and having… I’m not a decider on that, but clearly, as I said in my speech, regulation’s only as good as the continual assessment. And if we collectively decide, and by we, I mean as a society, that it’s right, well, at least we’ve reviewed it. But not reviewing it, I think, is not effective.

Rob Nichols:

Agree. Let me turn to something close to home for you and for many of the Californians in the room, and that’s the devastating fires in the LA area. What’s your sense of the economic impact from the fires and the recovery effort to come?

Mary C. Daly:

Sure. So, the fires have been completely devastating. I have some of my team from the LA branch here, and we had employees displaced, et cetera. We were a microcosm of the devastation that occurred. There are so many people, and that’s the first thing that you think of in any of these, is our hearts go out to the people who are directly affected: kids who don’t have the same school to go to, people who have lost their homes, people who’ve lost their lives or family members. So, that’s the top thing that I’ll say.

So then, the second thing is, how does the rebuilding occur? And what are the pressures around? And here, I’ll just give a shout-out. We do a look around, of course, to see if any of the institutions of banking are being directly affected. And what we’re hearing from our evaluation is that they’re right there on the front lines, helping intermediate financial services for the directly affected individuals and businesses. And so, that is really just a testament, again, back to the COVID response, of community banks are there in good times and in challenging ones.

In terms of the rebuilding, we know how to rebuild after tragedies. We do know how to do that. And the economic impact is big in the area, but not likely to affect broader GDP. But the pull through about this, and there was devastating floods in Kentucky, I have friends in Kentucky, the whole state is flooded, they’re going to get snow. We had the hurricane in North Carolina, in Florida. These are leaving a footprint on the insurance industry, which I’m sure you all well know. And businesses and homes are finding, households, are finding it harder to get insurance or insurance is getting higher priced. And so, there’s this reset that has a larger economic impact that affects all of us, including banks, that we’ll have to continue to evaluate. But insurers have to be able to repay the claims or rebuild, and things have become more expensive, there’s more of these events happening in a short period of time, and the magnitude of the events, especially when they happen in urban areas, are very devastating. So, I think those are the longer term impacts.

The other thing that I always think about is when there’s a big event like this, it usually displaces a large chunk of the population. So, that might happen in LA. It certainly happened in North Carolina. The one that everyone remembers is Katrina, but it happens in other places, not just in Katrina. It happens as we go.

Rob Nichols:

Yeah, we’ve worked closely with the California bankers on that response to help those who’ve been displaced, employees, family members of bankers. And we’ve done so with these other natural disasters that, unfortunately, have occurred over the last several years. Thank you for that answer.

I want to segue now to a hot topic in Washington. And I’m not going to ask you to comment on any of the specific legislative ideas around crypto and digital assets, but clearly, there’s going to be a supervisory architecture over crypto, which I think is a good thing. And you have just a ton of crypto companies in your district, so I don’t necessarily need a crystal ball on what’ll happen with the legislation and the twists and turns that may take. But what’s just your take on this debate, given the company presence that you have?

Mary C. Daly:

Sure, absolutely. So, this is an emerging industry, there’s no doubt about it. It’s not fully baked, and there’s lots of experimentation and other things going on. But these are businesses that are growing, they’re participating, they’re trying to experiment and find new ways to do things. And that’s an important aspect of how our economy evolves: that new businesses come, they have new ideas, they emerge, and we assess their safety and risk, but we also want to participate and support them. And as I think about banking in that role, I think bankers are really good at assessing risks. And this is an emerging business, and so we don’t want to reflexively just cut that off from what banks could participate in. But we also want to recognize that there’s more risk to any emerging industry.

I think that it’s a very common thing for humans to think that the new thing they’ve seen is the first new thing we’ve ever seen. But we’ve seen many new things, whether it’s AI or computers or all kinds of different revolutions of technology. I think this one is like that, and we just have to get our arms around it, of course. But I don’t think we want to… My own view is, and this is my own view, bridling innovation or not allowing banks to participate in it at all until it’s completely risk-free is not actually how we traditionally do our business. Again, banks, it’s a risk-taking business by definition. Fractional banking is a risky business. And so, banks are particularly good at managing risks. And I think having that conversation where we’re really open about, yes, it’s not… Commercial real estate’s risky. We are living through that in San Francisco. So I think, ultimately, that’s where I go back to, is let’s not bridle innovation out of fear.

Rob Nichols:

Thank you. Yes. As we’re looking at the debate, and as I had mentioned earlier in my opening remarks, if entities want to… We’re pro-innovation at the ABA, obviously, and we must be and we have to be, but if someone wants to do bank-like stuff around deposits or payments or lending, they should be subject to some bank-like regulation. But Congress has focused on that, which is great, and I think there will be a supervisory framework.

Mary C. Daly:

Well, that goes back to the fairness point, right?

Rob Nichols:

Right.

Mary C. Daly:

That having a frame that levels the playing field and doesn’t unduly advantage or disadvantage any group of firms, I think, is always an important aspect of how you think about regulatory oversight.

Rob Nichols:

Absolutely. I’m going to ask you just a question about coordination. We have just about six minutes to go.

Mary C. Daly:

It goes fast with you.

Rob Nichols:

Well, your answers have been really, really interesting, thank you. So, the CSBS is an entity we work very closely with at the ABA. Talk a little bit about coordinating with the state bank supervisory entities, again, important partners and stakeholders for us. You guys at the San Francisco Fed must work with them. Talk a little bit about that.

Mary C. Daly:

Absolutely, and I think that one of the lessons that I’ve learned over my time in the Fed is that any firm does better when the oversight groups talk to each other and coordinate, and are in at least alignment. If they disagree, they sort it with themselves, not just with the bank or any firm, because otherwise, if you’re a firm, you’re playing kind of Whac-A-Mole, looking here and then somebody else tells you this thing. And that usually is not cost-effective. It doesn’t lead to effective and efficient outcomes.

So, our teams and teams across the country obviously talk with the state banking regulators regularly, also the other regulatory bodies, to ensure that they’re gaining more alignment and more collaboration. They don’t always agree, and I think that’s a healthy thing, because more people disagreeing and debating, it can help us, but it has to be a coordinated disagreement and debate. Of course, if you’re in the room, I’m sure you’re thinking, “There’s a lot more they could do.” So, I acknowledge that this is a journey, not a destination, and more could be done, and we could always get better at it. But I think that the main principle I would take from this is absolutely these conversations have to take place and more of them, as opposed to fewer of them, is better, both for the banks and for ourselves. We learn by talking to each other.

Rob Nichols:

So, final two questions. I want to go back to community banks. So, one is we’ve seen a meager amount, an amount too small, of new bank formation, de novo banks. Under Jelena McWilliams, who was the FDIC chair three ago, she had taken steps to make it easier to create new banks, in terms of the amount of capital needed, the paperwork process, streamlining it, trying to make it easier, more efficient, more effective. Those were steps we applauded. We thought those were good things to do. Do you have a take on the importance of new bank formation? And should we, as a nation, say that should be a policy priority, an outcome that we want to achieve and see happen?

Mary C. Daly:

Because this is where it’s always a little bit awkward, because I don’t have any authority over these things. And so, I don’t want to weigh in on decisions that the people who have been given that authority make. But let me take a different lens and say the question to ask is, why is there so little de novo banking, right? And when you see so little, it’s usually because there’s some barrier to entry. And as an economist, I don’t like barriers to entry. If nobody wants to go into banking, that’s okay. Because then you say, “Well, nobody’s interested.” But if people are interested and can’t get in, that’s a barrier. And barriers usually end up in misallocations and inefficient outcomes for society and the economy.

So, I think that’s how I would start as an economist, is there’s very, very little of this activity. That seems different than… Well, it is different, it doesn’t seem different. That’s very different than other sectors, where there’s a lot of new business formation and dynamism in those. Some fail… Businesses, not banks, we don’t talk about bank failures. Some fail, some come in. But there’s that constant dynamism, and it meets the economy we have and the one we want to have. So, that’s where I would go. And whether it’s a policy that we go after or just we remove barriers so that people naturally go into it and do it, then I think it has to be a priority to focus on.

Rob Nichols:

Super. One more from me and then I’ll give you the last word too-

Mary C. Daly:

Oh, the last word.

Rob Nichols:

… in case there’s something I didn’t put to you. But back to regulation, because you talked about this in your speech, but I don’t want to put words in your mouth, so I’ll ask you the question. Many of the community bank leaders in this room have felt overwhelmed, frustrated with what I’ve dubbed this tsunami of regulation that’s impacting their business model and making it harder for them to serve their customers, clients, and communities. We think it is time for that regulatory pendulum to swing back into something a little more fair, more balanced, a little more thoughtful. Would you say that’s a fair statement that you would agree with?

Mary C. Daly:

Okay, so now you’re going to watch the magical way that I’m going to navigate this. So, I think I’ve said it enough, I don’t have any authority on these things. But let me say this. One of the things I do, as an economist and a policymaker and a leader, is when I hear something a lot, I look for supporting evidence that says, “Yeah, there’s something there.” And so, in my speech, I talked about the survey that you all did, that puts regulatory burden up there with cost of funds. And then, I looked at the FDAC report from 2020, which isn’t even fully updated.

And when you think that there’s one new rule every 28 days, and they’re not scored in a totality of the burden, they’re scored as individual cost-benefit burdens, and maybe not even tailored as much as you would like, well then you can start to say that there’s evidence for the call. And my own view is if businesses of any type, and in this case, banks, are saying that they’re squeezed, and that’s affecting their ability to thrive and grow and continue to serve their communities, then we need to look at it as a society. That’s what I think.

Rob Nichols:

Thank you. All right, the final minute. President Daly, I want to give you the last word. We have another minute. What would you like to share with this audience that you haven’t had the opportunity yet to share?

Mary C. Daly:

Okay, so I’m going to switch to the economy, because when I’m out in the communities and I’m talking, we just had our CDIAC meeting, and all of our other council meetings, our Economic Advisory Council, our Community Advisory Council, and there’s this pervasive sense of uncertainty. And that makes everyone feel a little anxious. So, I want to leave you with this. We do have uncertainty, but I have lived, in my time at the Fed, the East Asian financial crisis, 9/11, Y2K, a global financial crisis, a pandemic, the March banking stresses, and now some potential policy changes. In the scheme of what the uncertainty looks like, relative to my own career, which is not historically forever, it’s uncertain, but it’s not debilitating. There are things happening, and it will require carefulness and patience, but it will also provide opportunity.

And it’s the opportunity that ensures that we continue to grow. The economy’s in a good place, monetary policy is in a good place, we have the tools we need, and the future, if you’re just looking at it and you look at any surveys, it looks bright. So yes, uncertainty is there. It’s not a paralysis, but it’s also not a reason to hide, in my judgment. We’ve lived through uncertain times before, we’ve thrived past uncertain times before, and I don’t see why this one would be any different.

Rob Nichols:

Well, here’s to a bright future. Please join me in thanking San Francisco Fed President Mary Daly.

Mary C. Daly:

Thank you.

Rob Nichols:

That was great.

Mary C. Daly:

Thank you very much.

Rob Nichols:

Thank you.