I just wanted to welcome everybody. Thank you all for hopping on. We're just giving that a few moments before we get started.
Hey Eric. Hey Lauren. Sorry. I completely got the time zone wrong. I am not where I normally am and I'm
off by an hour. So I apologize for showing up late. No worries. No worries. Thank you so much for hopping on. Excited to have you here. Just getting started in one second.
Alright, I think we're good on our end. So let's get started. Hello and welcome everybody. I'm your host Eric Lyons and I am here to welcome you back to another exciting episode of Metallic Is Live where we
the federal reserve of New York and current Metallicist advisory board member Lauren Hardrose. Lauren, how are you doing today? Thank you so much for hopping on. Hey Eric, hey everybody. Thanks for having me. I think this should be fun. I'm looking forward to it. I think
It's going to be so much fun too. So we talked a little bit beforehand that leading up to this call. But for those that are listening into the Twitter spaces right now or that are going to be listening to our podcast, can you please tell the viewers a little bit about your background please?
Sure, I'd be happy to. So, you know, I spent virtually all of my career at the Federal Reserve Bank of New York more than 35 years there. So that's like, that's the headline. But I think it's a little bit more complicated because I moved around a lot.
at the Fed. And if I have to explain it in a simple way, I'd say I'd have had three careers in one at the Fed. So I spent 13 years in the Fed's market area doing things like monetary policy implementation, foreign reserve management, the discount window and a bunch of
other things. Then I changed direction completely and it went on to manage something called the wholesale product office and that's where Fedware Funds, Fedware Securities and a lesser known service called National Settlement Services. This is where the Fed has all its high value payments
and security settlement services. And then my last 10 years at the Fed, I was in supervision and regulation where I supervise some of the largest banks in the US. So that's like a pretty short-term option of my career at the Fed.
I love it. I love it. Um, feel mind me asking, um, what made you, um, transition between, um,
like for better would you consider it departments or yeah they're their departments. I mean each one was a little bit different like in markets. I was I just have conversations with folks and an opportunity came available. I was able to move to Fed Boyer. I'm similarly
I had been in the markets group like, well, I had been in Fedwire for a while and it's kind of like post financial crisis and a lot of stuff was actually happening in supervisioning regulation. They had past Dodd Frank. We had new powers. And so I just, you know,
It was a way of keeping it fresh. I'm pretty intellectually curious. I like to go deep on things, but I also, after 10 years or so, it's nice to make a little bit of a change.
Absolutely, I hear you on that. I got to get some new scenery happening. So, I was like, would you say those are the three significant areas of the Federal Reserve? Yeah, so when I first joined the Fed in New York, the President of the New York Fed was a guy named Jerry Corbyn.
who then went on to work at Goldman for many years. He used to say that there were three legs of the stool of the Fed, right? There's monetary policy, there's supervision and regulation, and I'd combine that also with financial stability.
And then the third leg of the stool is financial services. So I kind of felt like I was able to get, you know, like the full Fed experience. And I wasn't, didn't obviously didn't work in every department in the Fed, but I did work in what I consider the three main business areas.
And it was a really terrific career. Really smart people who work there, people who care a lot about doing the right thing. So. That's awesome. That's awesome. So what would you say is the most challenging out of the three for you and why?
Okay, so that's a tough question because each one is, you know, they're challenging for different reasons, but I'm going to go with Fedwire. That's the most challenging because like at that time, we had decided to get off the main firm, so we're talking
We're getting off the mainframe. We're trying to adopt ISO 20 or 22, which is a new, better messaging standard. We had a lot of ideas about making Fed
where better and so forth. But kind of like the private sector, it's the one area of the Fed where you have to meet. I'm going to use the term profit and loss. It's like a PNL. There's a law out there called the monetary control act in 1980.
requires that the Fed financial services, FedWire, FedACH, all those kind of things that they have to recover their costs. So it's sort of like a P&L, but it does add this extra dimension to running a business.
So at the Fed you usually have to meet a budget, but it's way more complicated than meeting a budget. So I had to manage the day-to-day running of the business. We had that technology upgrade. We were trying to change the product a bit and we had to meet the PNL. And that's also when the great financial crisis happened. And so PNL was hard to get.
I like to work harder to project. But I like challenges. I like multitasking and I really enjoyed my time there. And it was kind of a unique experience because when you're on that side of the house, when you're working for the federal government, you don't often get that kind of experience. But for me, I thought it was really unique.
And more challenging than just running a regular business. I hear you, I hear you, especially since you were definitely in the middle of the financial crisis and that 2012 time that's when subjectively the country was starting to like try
trying to pin itself out in a way. By chance, was there other challenges that the Federal Reserve faced, other within that time or before or even after that time frame? Yeah, so I was at the head 35 years or a lot of what I would call
financial stress or crises. You know, as I look back on it, there were two times that were probably the most stressful. One was 9/11 and for those of you who aren't familiar with Lower Manhattan, the
Fed sits about, I don't know, two avenue blocks east of the World Trade Center. So when 9/11 happened, we had a bird's eye view. We of course had to relocate, so did a lot of banks that were located downtown. So that was a stress, that was more of an operational stress at
a test of our ability to go to backup sites to find everybody. I was in the market group at the time, so we had to open market desk, we had to find the brokerage, some of the brokers were actually in the like, like,
Fitzgerald was in the World Trade Center. So it was just a stressful time. And it took a while. I mean, I'm going to say it took us about three months to even really sort of begin to have normal operations. The great financial crisis was like 2008 on on was like completely
different, right? That was for the first time I think we really felt like a systemic risk of a different size, if you will. It was so it was impacting so many of the banks, right? So first you heard rumors of like a bank here, a bank there, and then you realized
like so many banks are in trouble. What are we going to do? We just had to pull together and try and contain it as best we could.
Obviously, it lasted a lot longer than 9/11 and people really didn't have time to take a break. Even more so than just working hard. Talking around the clock, around weekends, people literally relocated. If you lived in suburbs, people were getting apartments in the city.
just to be able to do it. I don't have any money Monday morning quarterback advice from my former employer, but I do know some of the things we did like lending to banks and creating lending facilities that benefited other types of financial services firms. It created a lot of heat for the Fed.
So you asked about challenges. I think that's a different challenge in another sense itself. I think we've been, or the Fed has had to kind of grapple with that ever since the Great Financial Crisis. So those are two of the biggest challenges while I was there.
Thank you for that. Wow. It seemed like it just transitioned from the first event all the way up into the financial crisis without really even stopping. So for, I would imagine for some people, it was just years and years of just all hands on deck and the kind of a way
Would you say that or would you say otherwise? I mean it wasn't like that same level of stress you had you had weird things in between right like I think lower Manhattan we had a blackout one day I'm see you have these little sort of like I would say mini fire drill kind of things but I you know
I think 9/11, I think the biggest thing was that Washington came and said, "We had to, yeah, sure you did fine, but here's, you did fine because the situation was what it was, but here are all the ways that if it had come down a different way,
you wouldn't have been fine. And so we had to create much bigger out of region backup. We had a backup in New Jersey. Then we started using other reserve banks as our backup, so way out of region.
a crisis, but it was like a major change effort. And yeah, that pretty much finished up and maybe had a little breather and then the great financial crisis came. So it was a busy time, but busy is good, right? So.
I was saying I only agree if I think my mic muted so apologies on that. So I'm curious. You're talking about especially during these events working with a lot of these banks. If you can estimate how many banks have you worked with?
over your tenure. Alright, so 35 year career. It's going to be a hard number to ask of me. I'm going to say that I've worked with hundreds of banks because you know I worked at the Fed that long and I would say the vast majority of my career was external facing, meaning that I had
I was in businesses where we were interacting with banks, right? But some of that work really involved working with these like behemoth institutions in different areas, you know, like working with a large bank, pledging discount window collateral, or dealing with their broker deals.
subsidiary in the open market desk and then later, you know, dealing with their payments group and then, you know, at the end, I ended up being the supervisor of these big banks. So I may be over counting how many I dealt with. Yeah, kind of interesting.
And I don't know, maybe you want a little bit about thoughts on the banks and how they are different or similar, right? So I'd say that basically all the banks I dealt with, you know, it's pretty clear that banks are out there.
their main -- or one of the main things they have to focus on is making money. And so that means they're both thinking about how to increase revenues and on cost containment. And so like I see that across all like big banks, little banks, foreign banks that
That's similar. And whenever I didn't understand where a bank was coming from, I would step back and try and think about how they have to navigate their investor expectations and how that shapes their views on whatever issue we were discussing. So that's probably true for any private firm.
But I will say, like the banks themselves, the, you know, the, whatever, the hundreds of banks that I dealt with, they were different, like they had different personalities if you would have well different cultures. You know, some are real big risk takers, some are like super
organized, they're like the good student, right? And they try and manage the fed. And it kind of feels like they have some CRM type software because they seem to keep track of conversations you had. And I'll meet with one banker who will recount a conversation that he or she wasn't at, right? But they know what I've said to somebody else in their organization.
And then the other interesting thing about dealing with all those banks was really seeing how they changed, especially not recently, but back a while back there was a lot, especially in large banks base, there was some, a lot of M&A. So like JP Morgan and Chase had completely different
cultures, pre-merger. I mean, JP Morgan was so kind of stayed and blended with Chase. Chase wasn't really a cowboy so much, but it did have a different, had a different culture. Another interesting one was the merger of Deutsche Bank and Banker Stratzware. I think
The old Deutsche Bank was pretty, you know, what's the word I'm looking for? You know, it's pretty state or I had a pretty, you know, buttoned up corporate culture and banker stress tended to be the cowboys back then. So watching them, those cultures meld were over the years was kind of interesting.
So, anyway, those are some thoughts about the banks that I've dealt with. Awesome, awesome. Now, I want to discuss some of your committee work, committee work, specifically with the at the bank for international settlements. Can you share some of the projects that you've taken on?
Sure, I'd be happy to. For a metallicist audience, let me focus on the work that I did related to cross-border collateral. Okay, so this dates back to the early 2000s. Sorry guys, it's a little bit of a history trip.
back then the Fed was accepting foreign-denominated collateral for emergency lending like the discount window and for our collateralizing intraday loans on payment systems like FedWire so you may or may not be familiar that when you send payments over the Fed you can over-drink
your account during the day, but generally we're looking for collateral. And so there was a bit controversial back then because that the Fed was taking this foreign-denominated collateral because some central banks felt like we were taking collateral from their markets and they
They didn't have big government bond market. Therefore, there wasn't collateral available for their banks to do transactions. I don't actually think this was true. I think it was a fear that it would happen when there's stress. When you have issues like that,
usually try and resolve them, you know, through the BIS. And we were working with this committee, a payments committee at the BIS. And we basically worked a crowd with the other central banks to develop some principles. I'm going to say it took years and years
But we did get the principles done. I'm going to say mid-2000s ahead of the great financial crisis. And so in theory, that should have helped because it really allows collateral to flow more freely without friction across borders. But I think for this audience,
What does this example say? The thing I learned, and I think it's relevant because I think people here probably wonder how policy going to develop in the blockchain D5 space. Policy takes time. Policy making takes time. There are a lot of people at the table
There are a lot of different views that need to be taken into account. And sometimes you end up agreeing to things that are maybe a little bit less than what you hope for in order to get agreement on anything and to make sure you move the ball forward a little
bit. So if you ever see or if you're ever like kind of confused by what you see in policy and you think that just doesn't make a lot of sense to me, it can it may be the result of don't let the perfect be the enemy of the good type negotiation. So I hope that example helps.
I think it does. Um, I don't care, Eosene. Um, what do you think, um, the Fed and banks are slower to adopt some of these newer policies or having these dialogues?
Yeah, so I think there's probably a bunch of reasons for the slowness. I think the first one was, you know, I think the first thing was of course Bitcoin and I think people
thought, at least you know you're you're talking about the Fed right the Fed look at your dollars what did they say they say Fedors are bank right the Fedors are so I think when you think of it like a currency I think people just thought like this isn't this is gonna go away right
I think there was just too much of a leap for people and kind of tradfied to understand what this was about. But obviously there's been staying power and there's been a lot of things happening. But when it comes
I think that there's a, I guess there's some fear and some and probably a little bit of misunderstanding about, about
what defy and blockchain are. So I think that's, you know, that can be part of it. On the banking side, so right, the U.S. has a bunch of different regulators and rather than having gaps, I
think there's probably more overlaps. So you have the banking regulators and at least when it comes to these kind of issues, they've been trying to work together and publish joint things. It's also their stuff happening at the BIS as well. And again, trying to be joint, but they're mostly focused on banks. Remember that the power
the bank. Then you have the SEC, the CFTC, you have some consumer focused, you have OFAC and FinSAN, so they're all focused on different things. And I think it
can get a little bit confusing. So let me give an example that I think has caused some confusion. So you had the BIS, so the Bank for International Settlements came out and
published some high level things that made it clear that banks would have to hold a lot of capital if they held cryptocurrency on balance sheet. But the banks looked at that and said, "Oh, but it looks like we couldn't probably do custody activity." So a lot of the custody at banks started moving
in that direction. But then last year, the SEC came out with the staff accounting bulletin 121. And that bulletin said that the custody of public key crypto assets really should be on balance sheet. So that kind of like through
water on the flames of those, the aspirations of those, those custody banks. I'm not going to say I don't, I don't, I think at some point this will all clear up, but 2022 didn't help. There was just, there
The kind of things that went on in the blockchain space really are the kind of things that regulators don't like to see. What happened didn't really have to do with the fact that it was blockchain and a lot of it was in central
And a lot of it had to do really with financial engineering using a lot of leverage, right? It's like traditional things that you see in Tratfai going on in crypto. And probably we're able to go on because there weren't really any regulations.
So I think at least on the banking side, you see the regulators and the supervisors probably being pretty cautious because to them they look over and they think it looks a little bit like the Wild West. So I think it's going to take, you know,
firms in the blockchain space who really just have kind of normal aspirations as a business, right? To be able to work with the regulators and help bring them along and try to understand, you know, try to separate the
from the shaft. What are the real concerns about what's going on in the D5 blockchain space and what are things that are really can be put to bed with just a little
education or more transparency. In fact, that's one of the things I like about Metallicus, right? Like you have Marshall out there saying things like, you know, proof of reserve, proof of liabilities, trying to be as transparent as possible. I think it's just going to take a little bit more of that and a little bit less of
three hours capital or FTX and Alameda. But unfortunately, being a good corporate citizen doesn't usually get a lot of headline news. And so that's a little bit of a challenge.
I do think it will take some time. You see a number of not just blockchain but a lot of the fintechs really moving into the banking space as well and I think those conversations as
as reputable firms do that and demonstrate that it can be done, I think that will help help in a bit, help a bit. But it is basically on the banking side, the regulators have said, you know, come to us on a case-by-case basis, which I know has to be frustrating to this community.
That it is. That it is. So, do you, by the chance, you keep in contact with some of your old colleagues? If so, have you ever asked them how they look in the crypto like themselves? Like how do they feel about it? What are their thoughts behind it?
So I'm prohibited from talking policy with them for like a couple more months. So I talked to them about it back when I was there. That's sort of how I, you know, why I was interested in joining the advisory board with Metallicus.
At the Fed, they tend to give you like other jobs. So what I called it my side hustle, my side hustle was a small group of people that looked at kind of new the way the banking system was things that were happening. There were new changing things that were misunderstood. And so there are a bunch of people
who did some analysis on crypto. I want to say most of them were guys and they were really into crypto and they were sort of helpful to me to understand it. And I co-managed this with another colleague and so he and I both went out and bought really small amounts of crypto and we
started blogging about it because we thought part of it was education and what's kind of interesting I think for all of you to hear is that you know the views inside the Fed are very different when we started blogging about it we I have to say that we had to blog about a lot of things that had to be the one that we got the most response on and then and they
I would say there are a lot of people at the Fed who were either really active in crypto or who were, I'd say they were crypto curious and they were really interested to see what happened because my colleague and I were kind of trying to see, we kind of went out
and bought, not going to say which ones we bought, but not, it wasn't the big names. We weren't like going head to head with Bitcoin and Ethereum. We wanted to try some newer things. So the idea was we were going to show who made more money, but at a certain point they had
they asked some of the people who worked for us to work on policy related to digital assets and they asked us to divest. So we never got to finish. Well, I say we didn't get to finish. My colleague says we finished because he was ahead of me when we had to divest, but it was fun while it lasted. So they, I would
say there are some people, there's a small community who's very, who I think is pretty knowledgeable within the Fed. They're generally not working on policy though because they don't want to divest their assets. So that is a little bit of a conundrum.
Got it got it that makes a lot of sense and And so by way of that you said that you were looking into I Don't want not necessarily all coins, but everything outside of the big point of theory around that's what you said About how many different
places and the avenues have you stopped at before coming across metallicists?
Yeah, so that was really for work. And so Metallica's, I came across it was kind of like a very different roundabout way. You know, I came across Metallica's, I had kind of decided like I had been at the Fed a really long time and I wanted
I wanted to go and I was kind of struggling to go on to full-time work or not. And so I ended up hiring a career coach, if you will. And I had figured out that I wanted to do something probably not full-time and that what really interested me was where
things in the FinTech space because you know it felt to me like the world is changing right like that the world of finance is going to be very different 15 years from now and I wanted to sort of find a way to get a seat at the table and so I
I ended up networking with a bunch of people. Like every week I would just make sure to reach out to different people, people who had left a Fed or people that I had worked with, cold-called people. And anyway, one of my former bosses had spoken to Metallicus and I think she had been interested in it, but she
She is working full time and her employer wouldn't let her sit on an advisory board. So I had a nice conversation with Lee, but he was at the time looking for somebody like right away and I was still like six months out from leaving. So, you know, we
said our goodbyes and I didn't think anything of it. But then Lee reached out again in 2022. Just as I was retiring and the timing was right, the rest is history and it's been really fun to be involved with Metallica's.
That's awesome. We're so excited to have you here with us as well. First of all, and shout out to Lee, of course, doing amazing work on what our team and our company. So I don't care, Yossi, what do you expect to happen in big in this year? You talk a little
bit earlier about education being a focal point, but do you think that's going to happen this year or do you think something different altogether is going to come about this year? So just banking generally, you mean? Banking generally, yes. Yeah, so that's a
pretty broad question, everything it really depends on the economy. So, you know, we've got inflation, rising interest rates, right, those kind of go hand in hand. You have the after effects of the pandemic, the ongoing war, Ukraine, who knows what's going to happen with, you know,
China's changing policies on COVID, right? Is that are those going to be big enough to have an impact? So, so usually when interest rates are going up, the stock answer is, oh, that's good for banks. And I don't know that it's true normally, but some of these other things may offset it, right? So,
If the economy is slowing down, you may see that banks have to increase their loan loss reserves, that's going to impact their profitability. And so they're going to try and think about ways to maintain their profitability in the faces
those risks. You know, we saw layoffs with tech firms last year. This week we already saw Goldman Sachs announcing layoffs. So I think it's going to be a challenging year. But linking back to your part question, you know, like sort of about like banking
in and defy. We may see, I don't know that will, will Banks dabble in defy this year? I mean, some may, but I think that when uncertainty is high, it's unusual to see banks making those
kind of big investments. I could see them maybe adopting some kinds of FinTech, especially if it can help reduce costs quickly or if it can bring on a lot of new customers, but it's really, it's a really tough call this year. It's really unlike anything we've faced before.
not, you know, there's recession risk, but the the the the the if we fall into recession, it's a it's a very different path than we face before. So so sorry, maybe you can interview me next year and you can point out all my bad projections. Metallica's you heard this first.
please put it on the calendar. We're going to be back this time this year, this time next year. That's awesome. So we brought this up a little bit earlier during the chat, but I would love to just ask again, what can Metallica do to help?
if it's not possible. Yeah, so I think the kind of things that Metallicus has already started to do, right, like by doing, by being transparent, by having dialogue and educating
That's helpful. I think, you know, even when, so I listened to the last one of these and where Marshall and Arena were talking and they talked about, you know, the future and hopefully at some point, you know, getting that fourth leg of the stool.
So when they, if Metallicus gets a bank, I think that's when the dialogue can really get a little bit deeper and help clear up some of the misconceptions. So I think there's that. The other thing
that, you know, like my personal view, when I look in this space, right, in, in DeFi, there's so many, there's so many different chains, there's so many different coins, like there's even just like traversing across that can be hard, like, and, and, you know,
to really understand not all coins are created equal and you really have to read the white papers behind them to really understand them. At some point I do think there may be, and I think I'm seeing a little of this, I saw something on LinkedIn, right?
developing standards in the crypto space, not so that everything is homogenous, but at least that they're working together so you can understand more easily the difference between the different types of
of coins, chains, projects. If standards start to develop, I think it would be perfect to have Metallic as a half seat at the table. But I think that from what I can tell, those seem to be at a pretty early stage.
Even the blockchain industry has a whole still, still very early on, still much to be done, but progress is happening every day at times. Sometimes we go backwards, but then we go forward, that works.
being optimistic, but out of curiosity, before we wrap up Lauren, do you have any final past breaths?
that you would like to share? No, I'm just really encouraged by all the people that showed up today. So that's really thank you for coming to listen. You know, I think Metallica has a lot of promise and there's, you know, they've got a nice vision forward.
I really think it's great that you're out here trying to communicate with the community and make it transparent about what you're doing.
and really happy to be a part of this however small I'm playing. But anyway, thanks for having me on today. It's really fun. I'm not so sure it's a small part. I think you're playing a big role here tonight. I don't want to speak for everybody out here, but I'm truly grateful for having you here at the talk.
It's been awesome just getting to know you a little bit about your background and just learning about expertise and what you're looking forward to seeing in the future. But thank you so much, Lauren. This is all the time we have today. I want to give another big thank you to you, Lauren Hargrays, for your time here
I heart radio, Amazon, etc, etc. And for those of you who are going to be listening in on our podcast, feel free to give our Twitter follow up. We are Metallicist and that's what we are. We are Metallicist. This has been Lauren Hargraves, my name is Eric Lyons and I will see you all later.
Thanks Eric. Thank you. Thanks everybody. Take care. Have a good weekend. Thank you, you too.