 Welcome back from our short break. We will now move to our keynote session titled Building a Financial System for a More Inclusive Economy, a conversation between Federal Reserve Bank of San Francisco President Mary C. Daly and Head of Supervision Tracy A. Bassenger. My name is Tracy Bassenger. I'm the Head of Supervision here at the San Francisco Fed and we're really excited to be co-hosting this conference with the team from the University of Michigan. I especially want to thank Michael Barr and Adrienne Harris for inviting us to partner in this important dialogue on the role of central banks as we strive for a more inclusive economy. Our session now is entitled Building a Financial System for a More Inclusive Economy and we're very fortunate to have Mary Daly join us for this discussion. Mary C. Daly is the President and CEO of the San Francisco Fed and she also happens to be my boss. She's a member of the Federal Open Market Committee and will be a voting member in 2021. Prior to this role, Mary was Executive Vice President and Director of Research at the San Francisco Fed. She's an internationally recognized scholar with published work on a range of topics that include economic inequality and wage and unemployment dynamics. Welcome, Mary. We're really honored to have you join us today. My pleasure. Thank you. So as I mentioned, the title of our session this morning is Building a Financial System for a More Inclusive Economy. So as a central bank policymaker, a voting member of the FOMC, how do you think about what an inclusive economy means to you and why do you think that's an important concept in your role? When an inclusive economy to me is something really fundamental that everyone in the economy has an opportunity to be whoever they want to fully participate and that there are no barriers, no hurdles really to them doing that. And why it's so important to me as a policymaker and to us as a nation is that if people can't fully reach their potential, if they can't take the opportunities that they wish to strive for, then we just as a nation grow slower. So it's well beyond just being fair. Fairness is important, but there's a moral and an economic imperative to be inclusive. And then economic imperative is we grow faster, we grow the pie more generously, and we basically hand to the next generation a better future than the one we inherited. Great. So if you think about that in the context of the role of a central bank, can we take maybe a bit of a step back and talk about the role of the central bank? Because in this conference over the next three days, we're going to be looking at sort of what are some of the traditional roles of central banks and what are some of the nontraditional roles and how do we need to think about central banking differently? So when you think about the role of a central bank, how would you define what a central bank does? When you think of a central bank, you boil it down right to the essential, it's to promote a healthy and sustainable economic system. In the United States and in many central banks, that means we have three or really three core responsibilities. So the first one is monetary policy, basically moving the interest rates so we can achieve that strong and sustainable economy, but also ensuring that we have a safe and sound payment system and finally a safe and sound financial system through supervision and regulation. So those are our core responsibilities. They're the core responsibilities of many central banks across the globe and really doing those in a unique and innovative way is what we're thinking about now is how do you promote inclusive growth while you're fulfilling those three missions? But we also, and you asked this question, Tracy, what else do we need to think about? We really need to go beyond those three core responsibilities and recognize that so many of the things that we don't have a policy lever for are actually part of how the economy functions and operates. So in those kinds of contexts, using our voice, using our convening power, doing conferences like these to ask what are the fundamental building blocks and doing the research and the evidence-based work that then helps other policy makers figure out what they're going to need to do to ensure that we're all swimming in the same direction, which is a strong, sustainable and inclusive economy. Yeah, and I think, you know, using those powers and getting that kind of feedback were key components to the new monetary policy strategy that the Fed recently announced. So can you help our audience understand that a little bit and how you think this might help us move closer to a more inclusive economy? Absolutely, and I'm really glad you brought this up. So we did a framework review. One of the things that J. Powell, Chair Powell did right when he started his position as chair is to say we need to think about modernizing our framework, our monetary policy framework, which is really our reaction function to the economy and how we do go back doing our business. And then the real innovation came, not that we were just going to do a framework review, which we hadn't really done in 100 plus years, but that we were going to do it fully inclusively by going out and asking community members, business leaders, other policymakers, academics to come in and we had 13 events across the nation called Fed Listen. So we really brought people in to talk about what is the monetary policy actions we take, what do they mean to you and how do you think about them. After we gathered all that information, we came up with a new framework and that new framework is really focused on doing two things we haven't done before. The first is to recognize that we have a full employment mandate, it's one of the mandates Congress gave us, full employment, diverse price stability. On the full employment side, we're going to treat that as really only eliminating employment shortfalls. Our job is not to stop the economy from having more employment than we might in a model find is optimal. Our job is really to eliminate employment shortfalls. And then the second part of that framework is to produce price stability. And there we're going to really went out and said 2% is our target, but that's not a ceiling. It's a symmetric goal. In order to achieve that symmetrically, we have to have on average 2% inflation, which means that we're going to be above 2%, moderately above 2% for some time. And in fact, some overshooting should be expected. So those two types of things actually dovetail nicely with running a more inclusive economy, because part of what we learned in the last expansion is that if we learn about full employment experientially, as opposed to thinking we know what the number is and stopping there, we actually include so many more people in the economy, so many more people are able to work than we had originally thought when we looked at it a decade ago. And that's, I think, really a valuable lesson for us and other central bankers across the globe. Yeah, so I know we rolled out this new framework, sort of in the midst of this COVID-19 and the shutdowns. And the panel before our discussion, they talked about COVID-19 and the response of central banks around the world. And I know it's early in this crisis, but at this point, do you have any lessons learned so far, especially around inclusions in the role that the Fed can play? Absolutely. So the very first lesson I want to give, though, is really just about what actions are required and how quickly you need to move. So one of the things we learned in our review of the financial crisis and all the actions we took and all the research that came out of that from across the globe is that making your actions, taking your policy tools and using them to their full effect immediately actually serves the economy better than doing what has historically been called keeping your powder dry, holding on to your tools in the event that a newer emergency will come forward. So we took those lessons to heart. And when we saw that the pandemic was really coming on to our shores, it was going to indeed be a crisis for the globe, we took bold and immediate action, very forceful action, lower the interest rate immediately to close to zero, and then started opening a number of what we call in the United States facilities. And these facilities, these Fed facilities are really meant to ensure that our interest rate cuts can intermediate through all the economy by by fixing the dislocations that are interrupted in various financial markets, be them corporate bond markets or the treasury market or the municipal facilities market, the municipal bond market essentially. So doing those types of things are really, really important. But then we did something I would say even bolder, if you can imagine, even bolder was we went into lending, we hadn't historically done, we opened something called the Main Street lending facility. And that lending facility was really meant to to address firms, treat firms that don't have access to capital markets, but were too large, too large in terms of a poison value to access the pay tech protection program that the fiscal agents had taken up, and really making sure that our work is inclusive, and that we're not leaving any group out out of the equation that we're really doing everything we can. Now are we have lending powers not spending powers so we can only open those kinds of credit facilities with the partnership of Treasury. That's just the way that it has to be. So these are 13 three facilities. But these collaborations have really produced a tremendous amount of value in my judgment for the US economy and the people in it. So you talked about the Main Street facility, I want to do maybe a follow up question there or drill down in that one a little more. Because as you mentioned, it's a it's something we have not done before. And we have initially put out loan programs collected enormous amount of feedback from the industry and adjusted them probably three or four times now. And we're still at a point where the the uptake here isn't quite what we had hoped for. So what do you think we're learning from these facilities in this particular crisis? Yeah, that's a that's a great question. So the first thing that we did when we opened the facilities is we recognize that speed to opening is really important because there were needy firms out there. So then then we open them with the original offering. And then we were all of us in Tracy's team and teams across the United United States across the country were actively calling bankers calling firms myself I called many. What do you need? Why are why is it take up lower than we would have expected given the amount of need out there? And they continue to adjust that. So one of the big lessons is when you open something you've never done before, you have to follow up at every you can't you can't assume it's perfect right when you launch it. And I think it's really important to underscore that going fast and then collecting the data and changing the program is to my mind very good public policy. If we waited till it was perfect, we would have left even the firms who did take it behind they wouldn't have had access to it. So being in this model of opening something but then collecting the information be willing to change it be willing to take in the new data and make alterations. That's really critical. Another really critical part of it is to recognize that they're going to be all in a crisis like this they're going to be all kinds of groups that don't get exactly the sort of treatment that you think your programs make it's one thing in models it's another thing in practice. And so the only way you know that is to reach out and ask. So I will be taking away from this once we're beyond COVID who did we learn we were missing because they're not traditionally treated in in the financial tools we use and how do we start building platforms to reach those individuals those businesses should the next crisis come about. So it's both learning what we can do now so we can get people the health they need the firms the health they need in COVID but also learning from that how do we do our practices differently in the future so that the next shock that occurs we're better prepared for reaching everybody in a more speedy rate. Yeah so what one of the learnings that I know from the phone calls you mentioned we were all making was you know started with the PPP program and then it continued into Main Street was this idea of talking with institutions that perhaps we might not have spent as much time with our own communities especially minority young businesses. So while we're talking about inclusion I think you know we need to acknowledge the current racial justice moment in the United States. So how do you see the issue of racial racial justice as it relates to building a more inclusive economy and what role does the financial system need to play here? Yeah I think that's a that's a really it's probably one of the critical things we have to think about right now is that this issue of racial justice it's always been here and so but it happened to percolate up at the same time that COVID and you really see it in a bright way you see that the there's so many gaps between let's say African-Americans and whites let's just take them wealth income employment health wages housing access all of those things are different and it can't possibly just be random. So instead of thinking about it as I think what this moment is done for us instead of thinking about it as if this person only had more of this they would be equal we have to really recognize their systemic issues systemic barriers systemic differences that that make it such that certain groups are less able to access many things in the economy than other groups. So when I think of that I think of being incumbent on us not to just ask are we reaching businesses of different sizes but are we reaching people of different races people of different ethnicities people of different incomes look into our into our economies into our communities make sure that we are really saying that we're building the infrastructure for an inclusive economy and what you learn if you do that in my judgment in the early learnings is that we've known this for a while but community CDFI is Community Depository Financial Institutions Minority Owned Depository Financial Institutions fintechs these new ways of interacting with each other maybe square in their mini loans those are ways that we can reach a different population that if we just go through the traditional banking system and so it is really a time for all of us the central bankers to ask that question we're responsible for the financial infrastructure in many ways let's think not only about how to regulate it and supervise it but maybe how to foster its building yeah so you you mentioned fintechs in that response as well as a way to potentially reach underserved markets and I know we've had lots of conversations about this and thinking about this issue and how to encourage responsible innovation is something that's that's near and dear to my heart so in supervision we're really hyper aware of the changing role of technology and financial services so how do you think about the role the intersection of technology and inclusion here in terms of reaching more communities and then our role as supervisors there to make sure that we're doing this in a that it's happening in a responsible way sure and I think there's a continuum of course right there's a place where you could like innovation go completely without riddling and then you would risk the the you know it's not it's not responsible and many many people can get hurt you know there's you're taking on liabilities people they know they are and then you can go all the way to the other side where you're so worried about that that you have no innovation at all and what I really think we need to do is have an approach where we recognize that responsible innovation if you come from supervisors and regulators probably that responsible is a really bold type and the innovation is kindier and really getting those things more balanced and if you if you want kind of have a story that goes with with that that concept in my mind I one of the trips I took with Tracy and her team was to Singapore and we go to Singapore and I really recognized how easy it is for individuals up and down the income distribution to participate in the financial part of the economy and transfer money borrow get you know exchange it's just it's so easy because they have built the platform that allows that ease of transmission to take place now they're a small country much more homogeneous than the United States so I'm not saying we should simply borrow the Singaporean model but what what I did learn is that innovation is beneficial and often beneficial to those we don't currently serve very well and so we have to take in the the welfare improvement of those individuals that the improvement in their life well-being and balance that against the risk so being very strong about how we manage these organizations that innovate but being very aware that we want that innovation because that of innovation often isn't just about cost cutting it's often about reaching populations that we don't traditionally serve it's outside of the banking system I've spent most of my career learning and understanding why there are so many people who are unbanked and what I realized again and again is that as much as the banking sector is integral to what we're trying to do not everyone is probably going to access the banking system so finding out the in the non banking systems where they can get a football so that they can build wealth and have ease of financial transactions that's really a top priority in my opinion yeah something you mentioned there about regulators not necessarily accepting incremental change I think that is something that is that is a big challenge in in our field it's something we should we should look hard at so all of these all of these things we've been talking about sort of tie into what what your vision is for the San Francisco Fed which is to be the premier public service organization and I know you talked to to all of our teams throughout the bank about being a thought leader on issues such as inclusion issues such as the previous panel was talking about climate change but but being a thought leader on issues that are going to make a difference in the communities that we serve in order to be a leader in public service so when you think about public service what do you think that means for central bankers in particular how how did you come to that that perspective and what does it look like to you so I will share with you right out of the gate that some of the most admired people in my whole life whether they're in history books are in my age ranger above in their living history are people who serve the public and the the ultimate piece of that service public is other focused and I see central bankers is is taking up that charge we're really we're really people who focus on others and we want to participate in helping other people live the life that they would like to leave and have access to the things that they need to have access to make that happen so when I know so that's the larger goal so think practically about this central bankers are first and foremost servants to the public and our service goes beyond just the simple roles we have those simple roles are essential we have to think about what those roles are and I told you talked about those already monetary policy supervision regulation of the financial sector and then the payment system so we have to think about those things and we have to look behind us and learn from history and figure out what we can do today to make sure that that is working to the best of its ability but that's only the beginning of public service if we're really serving the public if we're really thinking about it we have to think of the next decade the next two decades and that's when you start thinking about issues of climate change racial justice we need to hand the next generation I always come to work thinking this we need to prepare to hand the next generation a better future than when we inherit it so then we need to plan early and get busy at doing that and ensure that we're not just solving for today we're actually looking forward and solving for tomorrow and when I think of that I think of we need to be a combination of two things that seem completely contradictory we need to be fiercely impatient and by that I mean we need to be impatient that these problems that we're talking about climate racial justice I would actually put racial justice first long before climate change was even on the radar racial justice issues were with us and we decade after decade generation we hand them down so we need to be fiercely impatient about resolving those same with climate and then we also need to be patient and what do I mean by that fiercely impatient to get the problem solved but patient enough to take incremental steps build it up brick by brick by brick some of the my favorite stories in history is about these great things like pyramids that were built literally brick by brick by brick and I think well what a human feat but those are how you you tackle things in the central banks you know having a mission where we're going to get on the board and solve big problems and make sure we have an economy for everyone for the future but then recognizing that's going to take a daily plan how to do it and every year we're going to have to ask do we meet our goals those are the two simultaneous things that I don't think are contradictory I think they are they are complementary and we're going to have to think like that in my opinion if we're really going to be what I consider best in public service great thank you so much Mary I think that's a perfect note to end our talk on I very much appreciate you spending some time with us this morning and sharing your insights I think now we transition to a break and I turn it back to you Caitlin thank you so much for having me leadership and also for bearing with us as we shift to this virtual format of the conference so we now have another short break for everyone to stretch their legs and for those who want to see what fellow attendees are thinking about there's another brief poll available on screen our next panel will start promptly at 11 30 am pacific time and discusses the potential evolution of monetary policy