Christina Skinner on the Financial Stability Oversight Council and Central Bank Independence

Christina Skinner is a legal and financial scholar at the University of Pennsylvania, a former Bank of England official, and recently stepped down from her role as deputy assistant secretary in the FSOC office at the Treasury. Christina returns to the program to discuss her work with FSOC, the relationship between economic growth and financial stability, AI and financial regulation, central bank independence, the importance of democratic accountability, and much more.

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This episode was recorded on September 10th, 2026

Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to [email protected]. 

David Beckworth: Welcome to Macro Musings, where each week we pull back the curtain and take a closer look at the most important macroeconomic issues of the past, present, and future. I am your host, David Beckworth, a senior research fellow with the Mercatus Center at George Mason University, and I’m glad you decided to join us.

Our guest today is Christina Skinner. Christina is a legal and financial scholar at the University of Pennsylvania, a former Bank of England official, and just recently stepped down from Treasury as the deputy assistant secretary of the FSOC office. She joins us today to talk about financial stability and FSOC. Christina, welcome back to the podcast.

Christina Skinner: Well, thank you so much for having me back. I love coming on the show. I love our conversations, and at some point maybe we’ll get to the fact that you came to visit me at Treasury and were a guest speaker for me, so you’ve returned the favor at least one time.

Beckworth: Hey, it’s great, and it’s great to actually do this in person because up until now we’ve always done it over Zoom remotely, so it’s great to be in person, and we’re on your home turf. We’re actually recording here at Wharton, so this is your place. Now, you just recently returned to Wharton. You’ve been at the US Department of Treasury. You worked with Secretary Bessent. As you mentioned, you actually invited me there to one of your meetings with the deputies—

Skinner: The Deputies Committee, yes.

Beckworth: —and you put me in what I’ll call the OK Corral of stablecoin discussions. It was a lot of fun having a good time talking about stablecoins.

Christina, what was interesting is when I presented to your group, there were a lot of bank regulators who were very sympathetic to the banking industry, and they were firing away, as you can remember. They had a hard time processing some of the points I was making, so they were skeptical of stablecoins from their perspective. Two weeks later, I go to a Bitcoin conference where I was asked to talk about stablecoins, and I was attacked probably just as fiercely from them as well because that’s a sellout. There’s choke points. It’s not real crypto. I got it from both perspectives. It was a real growing experience.

Skinner: Well, we appreciated having you there to talk to us about your research. David, I should say, at Treasury, we are not skeptical of stablecoins. We are not.

Beckworth: That’s great. You guys were involved with the GENIUS Act and helping guide that through. That’s huge. I think for generations to come, that’ll be an important anchor piece for financial stability, financial innovation moving forward.

Skinner: Yes. That’s a really interesting piece of work that was going on, led by some of my wonderful colleagues in Treasury. Interestingly, maybe we’ll get to it at some point in this show, the GENIUS Act does have a lot of areas that intersect with financial stability. There is still work to be done in terms of thinking about what financial stability means in the context of stablecoins, and how the various financial regulators are meant to coalesce around that understanding and work together through the GENIUS framework. I think that’s a great piece of legislation. Stay tuned for what happens in the coming year.

I think I’m maybe putting the cart before the horse a little bit here and talking about, hey, what do we mean by financial stability? What was I doing at Treasury? Yes, you mentioned I’m back at work now. This is actually my first day back on campus. What a way to mark the date by doing a podcast show with you.

Beckworth: Welcome. Yes. Now, I also should mention you’ve been on the podcastmultipletimes. I believe this is your fourth or fifth appearance. You need to get some special gold jacket, or something we’ll hand out to those of you who’ve been on many times. You also had an appearance, I think your last one with Andy Levin was really great—we’ll provide a link to that—on central bank undersight. That was an incredible play on words there. Instead of oversight, we have undersight.

In fact, time permitting today, we’ll talk about a new book of yours. We’ll tease the book because it’s coming out, I believe, next year. I’ve got a sneak peek at some of the early drafts. It was exciting stuff on central bank independence 2.0. You’re very busy. You’re doing financial stability work. You were a civil servant. You’re a professor. You’re writing a book on central bank independence. You cover a lot of territory.

Skinner: I do. I do. I’m also a mom, so yes.

Beckworth: You’re a mom. Yes, you’re doing your part for the US labor force.

Skinner: Yes, I know. I always love talking to economists about my family because one of the first things I always point out is my service to the demographic problem.

Beckworth: You are a hero. You are a true economic patriot doing your part.

Skinner: Thank you, I try.

Beckworth: Also, just one other shout out here. You’ve done some great work with a former colleague of mine at Mercatus, Carola Binder. She’s now at UT Austin. You guys did some greatwork on the Fed. We’ll provide a link to that as well. You’re a very productive, active scholar. Honestly, I’m impressed you get so much done with everything on your plate.

Financial Stability Oversight Council

Let’s talk about something that was big on your plate recently, and that’s the Financial Stability Oversight Council, FSOC. You led that. You worked with Secretary Bessent in taking it in a new direction. Before we get to that new direction, maybe spell out for our listeners and watchers, what is FSOC? What is its history? Who leads it?

Skinner: Thank you for those generous compliments. It was truly an honor to serve at Treasury and work to lead the FSOC office for Secretary Bessent. Interestingly, I had been writing about the FSOC for a very long time. In fact, one of my first law review articles ever, I think I published it in 2016 or ’17—I think it was my third law review article—was about the FSOC and just taking a step back and thinking about its statutory powers. It was, at the time, quite a novel institution.

With that, let me give the listeners a little bit of background about FSOC. FSOC is what we call the United States macroprudential authority. After the 2008 financial crisis, a number of major economies, major jurisdictions established, essentially, financial stability bodies. In the United States, Congress, in the Dodd-Frank Act, created the FSOC and housed it within the Treasury. The council is truly a council. It’s not a formal regulator on its own. It’s comprised of 15 members, so 10 voting members, 5 nonvoting members. Across those 15 members, we pretty much cover the entire spectrum of the financial regulatory apparatus in the United States.

Some of your listeners may or may not know, we have, to put it very simply, a lot of regulators in the United States, which is largely an artifact of how our system came together in the 1930s, our central banking system. The United States is quite distinct in that way. We have multiple bank regulators. We’ve got markets regulators, but we’ve sort of straddled them between commodities, securities, so on and so forth.

The council was really created to bring all of these financial regulators together and create this bird’s-eye view, this literally macroprudential, macrofinancial stability view in terms of what’s happening across the entire US financial system. Congress gave the Financial Stability Oversight Council the mandate, the mission to monitor for financial stability risks, to respond to emerging risks to financial stability, and generally to raise public awareness and to inform Congress in terms of what’s going on in terms of the US financial markets.

There were efforts in other jurisdictions as well. I’ll mention them just briefly to give the listeners context. In the United Kingdom, the Bank of England was given the Financial Policy Committee, or the FPC. That’s one of the bank’s statutory committees that sits next to the PRC, the bank regulatory piece, and the MPC, the monetary policy piece. 

I say this only because it’s interesting that Congress chose to put FSOC within Treasury. That’s important because although there are 15 members of FSOC, the Treasury secretary right now, which is, of course, Secretary Bessent, sits at the helm of FSOC, sets the agenda. We at Treasury set the agenda. We coordinate all the regulators. FSOC has obviously been around since 2010. I think it’s a great time to be reshaping FSOC, to be working inside FSOC, and to be talking to you about it because we’ve also just gone through these years where the Supreme Court is reexamining and actively rethinking what it means to have executive oversight, executive accountability in the administrative state and with the financial regulators, inclusive.

Beckworth: Yes. You were there. You served under Secretary Bessent. I visited. You invited me. You also put out a report. Is that right? An annual report on the big macroprudential issues in the financial system. Then the secretary testifies about these before the Senate for Congress.

Skinner: Exactly. FSOC is statutorily required to produce an annual report. We produced the annual report in 2025, of course. I won’t front-run it, but before I left, we had a solid draft going for this year’s 2026 report. I can be confident that is also going to be excellent. Yes, we publish those reports. The secretary then does go testify before both houses of Congress on the report and adjacent or ancillary domestic finance issues. We get him briefed on all the principal issues to do that.

The annual report process is one of the ways that FSOC fulfills its statutory requirement to monitor various sectors of the financial system. We can get into it a little bit. One of the things that I did when I was at FSOC is I worked with the team to restructure the report. In a nutshell, what we did was make sure that we are covering the 10 really important sectors of the financial system with our monitoring work. Then we’re also making it clear where Treasury priorities are, where we think actionable recommendations might follow.

We also had the opportunity to work with the secretary to add his voice at the beginning of the report. He now authors a letter from the chair where he articulates his perspective on financial stability, the accomplishments of the FSOC from the previous year, and looking ahead.

Beckworth: What was it like to work with Secretary Bessent? Tell us who he is as a person because we see the man on the screen. What’s he like day to day as you run through the Treasury building?

Skinner: Gosh, it has been incredible working with Secretary Bessent. One of the reasons I was so inspired to come to Treasury—I’ve always been really inspired by public service since I was a kid, really—but I just felt so strongly about the mission and the vision that he had articulated from day one around the importance of growth, economic security.

Secretary Bessent is an inspirational leader because he’s a long-term thinker. He’s a big paradigm thinker. I felt that his leadership, his vision, the amount of experience he had in the financial system was really what the economy needed right now because there were a lot of points where we needed to press for realignment. I wanted to be part of that project. He’s got a very high bar. He’s got great talent, as you would expect from someone like him.

Beckworth: Yes. A previous guest to the show was Sam Lyman, who was a speechwriter for him. He came out and talked.

Skinner: Sam’s great.

Beckworth: He sang his praises as well. Then I know Dan Katz was his chief of staff, he’s another previous podcast guest. If nothing else, he’s picking up my Macro Musings podcast guests, the good ones to go work for him.

Skinner: Maybe he’ll agree to come on the show.

Beckworth: Maybe so. It’d be fantastic. Now, you mentioned part of what you did with Secretary Bessent is a realignment. If you had asked me before I had talked to you about this previously, what does FSOC do, in my mind, oh, they have designations for these systematically important nonbank financial institutions. Woe is you if you get that designation and a lot of big cantankerous discussions about it; views like, “David, we have a new perspective at FSOC. Let me sit you down and explain it to you.” Tell us about this new realignment. What’s the motivation behind it?

Skinner: I’m so glad you asked that question because that is a signature piece of work that I did while I was there. You’re right that I think for many years, if not almost all of its history, FSOC had been associated with this designation power. We’ll get to that in a moment.

Now, in both the first Trump administration and this administration, both Secretary Mnuchin and Secretary Bessent essentially agreed that the designation power should be a tool of last resort. FSOC’s primary purpose should not be looking for individual institutions to single out for the designation. I’ll set that to one side for just a moment.

When I got to Treasury, I came in with these priors, so to speak, that financial stability had become a very amorphous term. It had enabled a lot of discretion, constitutionally inappropriate discretion in the bank regulatory agencies. I had also, as I mentioned before, come in with a view that the designation power was flawed. It was a flawed tool. It was too binary. There was a big realignment to be done.

At the same time, as I was just mentioning, Secretary Bessent had a very clear and decisive agenda around economic growth and economic security. On day one, we really started with what might seem like a very basic question, but one that had not been sufficiently reexamined since we started thinking about these macroprudential authorities right after the Global Financial Crisis. 

We needed to think, going back to basics, what actually makes a financial system resilient? The key insight that we had is that economic growth and financial stability are not competing objectives. We—the royal we, the global financial stability community—had a little bit fallen into this false paradigm, or false choice, if you will, that choosing growth, choosing innovation would come at the cost of stability. That was just the wrong way of thinking.

Growth—there’s a very strong analytical, historic, empirical case that growth supports resilience. Taking a step back, if you think about the financial system, a financial system or financial stability is not an end in and of itself. A financial system has a social purpose. It exists to allocate capital to productive uses. When it does that well, when it’s allocating well, when we’ve got good allocative efficiency, businesses are investing. Incomes are rising, households and business balance sheets are becoming stronger. Debt burdens are shrinking relative to earnings, and borrowers are just better able to absorb shocks without defaulting or dramatically pulling back on consumption or investing.

What does that mean? When the economy is primed for growth and is growing, we have a base case of resilience that’s automatically stronger. When there is a turn in the business cycle, as there inevitably will be because we know business cycles are business cycles, the economy has more of a shock-absorbing capacity. There’s more of a cushion there. In that way, we need to think about growth as the way of creating this buoyancy, this shock-absorbing buoyancy that is supporting financial stability throughout the business cycle.

Beckworth: I like this. You don’t have to sell me on it because, as someone who advocates nominal GDP targeting—and I know this is not where you’re coming from with this—just the idea if you can stabilize dollar incomes, you can meet your dollar debts pretty easily. I think one of the stories of the pandemic is we did not have a massive financial crisis. We could have. The economy collapsed so dramatically. We had a recovery. I think part of it is we stabilized dollar incomes. Now, we overdid it. I want to be very clear. We had high inflation.

To me, the lesson learned, if you can stabilize income, growth, you can avoid the worst downfalls. Now, your perspective is a little bit different. You’re coming from the ordinary, let’s put a little more economic growth, a little less risk aversion and tightening of the screws to make the system more robust. I think your point’s well illustrated, I guess, by what didn’t happen during the pandemic.

Skinner: Right. I think it’s the financial stability mirror image of what you’re saying in the macroeconomic sense because this idea that growth is necessary for financial stability that creates the preconditions to financial stability is also a reaction to what had been the prevailing ethos of macroprudential policy which was very precautionary, and not much cost-benefit analysis, not really thinking about what the marginal unit of a financial stability policy has on growth and how that’s on the cost side of the ledger. Not really thinking in terms of risk prioritization, as you might do in the national security field, so to speak.

All of these elements were missing. When you put growth into the equation, then you start to think, oh, we do need to think about the tradeoffs. We do need to think about the tradeoffs to credit and investing and business and consumer balance sheets because, to the extent those are weakened by a piece of regulation, and it’s perhaps unintended consequences, well, that actually could be de-serving financial stability.

This ultimately gets into this debate. Some people have referred to it as clean versus lean. There had been a longstanding debate and financial stability policy. Should we be trying to just clean up after a downturn, or should we be trying to lean against the winds of the buildup of a business or financial cycle? On the financial stability side of the house, it was a lot of what tools do we have to lean against the winds to try and anticipate and clamp down on the buildup of a financial cycle. Countercyclical capital buffers are a primary example of this.

I think what we were saying at FSOC is, well, there’s a third choice. It’s a fool’s errand to try and reduce vulnerabilities in the financial cycle. We should have learned that by now. We don’t want to just sit back either and just say, “Okay, we’ll clean up the mess after a financial crisis.” There are other ways that we can rethink about our financial stability paradigm so that we’re thinking about how to create those conditions for resilience, those cushions.

Beckworth: No, absolutely. As good economists that we are, there’s always tradeoffs. We can’t pretend there’s just one corner solution, and we’re going to stick with that. It’s understandable coming out of 2008, there was this pullback; we’re just going to be super safe at all costs. As time goes on, you need to have a review. In fact, I think of what you did there with Secretary Bessent, is a review, a formal review of FSOC. What’s its objective, given the world has changed dramatically since 2010 when it started? You’ve brought this change. How has it been received by people inside and outside of FSOC?

Skinner: I think it’s been received really well at the risk of touting our accomplishments. I am really proud of the work that we did both within Treasury and in the interagency. It has been received well. I think, domestically, one of the most refreshing things about my work, in terms of process and governance, is that the other principals on the council, the other heads of financial regulatory agencies, are also very aligned on the importance of long-term sustainable economic growth and economic security. Rethinking how FSOC plays a part in this was very, very well received.

Then, without getting too much in the weeds, I did a couple of official trips overseas, met with counterparts at the Bank of England and the ECB. I think, in their way, in their version, too, they’re also trying to think about how growth and competitiveness might want to play a larger role in how they think about regulation and financial stability in general. We might ultimately go about it a slightly different way, but the idea is gaining traction. I was really trying to exercise, on behalf of Secretary Bessent, some thought leadership there. The Fed goes through its five-year whatever framework reviews.

Beckworth: Yes, I know exactly. That’s why I was saying this is very similar to the Fed framework review.

Skinner: Yes, it’s important to do that because financial stability, just like the financial system itself, it has to be dynamic. Otherwise, you’re just stuck with the same methods.

Beckworth: Completely. Again, stepping back, 2008, maybe the decade after that, it was very much risk averse. It was also zero lower bound, growth prospects were low. It was just a gloomy time. Now, we have the opposite problem. We have high inflation, we have rapid growth. It’s just a completely different world. You need a different approach, a different set of tools.

I think the Fed framework review, I think of this big push. Another hobbyhorse of mine is the Fed’s balance sheet, but around the world, other central banks are looking for ways to shrink their balance sheets and to open up interbank lending again. There’s this rethinking of things because it’s a different world than it was, say, 2010s. You’re a part of that journey. You’re at the tip of the spear when it comes to FSOC; let’s see some change happen.

Priority Workstreams

Now, one of the things that you’ve talked about in your work are priority workstreams. Maybe explain that to the listeners and to me, what’s going on there?

Skinner: Yes, absolutely. We engaged in a sort of analytical shift to think about growth and economic security and how that should really animate or define financial stability. Following from that, our priorities were keyed. If that was the day-one project, what do we mean by financial stability, and what is going to be the crux of the analytical framework, then the second-order project was, okay, well, how’s that going to shape our work?

From there, we stood up a couple of working groups to house the different areas of focus, if you will, that we wanted to pursue. Those working groups were a Market Resilience Working Group. The purpose of that working group was to, as the name suggests, think about our critical financial markets, so Treasury markets, short-term funding markets, corporate credit markets, and equity markets.

Rather than looking for risks and vulnerabilities, of course, that’s a given—Congress asks FSOC to do that, so it’s a given that we’re going to monitor for structural or episodic vulnerabilities. In addition, thinking about opportunities for resilience. That can mean a number of different things. It can mean understanding, in real time, changes or nuances in a market so that we can better inform the secretary and the other principals on how to be a better coordinating body.

It can also mean thinking about the regulatory framework with other parts of Treasury and other regulators and saying, are there pieces of the regulatory framework that might be creating a suboptimal outcome, creating a disequilibrium, and therefore working at cross purposes to financial stability? That was the Market Resilience Working Group, and I’m happy to tell you a little bit about some of the specific projects we worked on.

A second working group, which was really brand new to FSOC, is called the Household Resilience Working Group. I really wanted to do something around household balance sheets because I thought it was important for financial stability to remember who the ultimate beneficiaries of financial stability are. Those are the households and businesses in the real economy. Again, going back to my comment earlier, which is that the financial system is an end in of itself, it has a social purpose.

I thought it matters for financial stability how households are doing. We wanted to engage in really an analytical project where we worked together with OFR and got some good data on household conditions. We created a chart pack called the Households Condition Chart Pack. That chart pack has a lot of different information and data points about, really, the liability side of the household balance sheet, and breaks down the data in geographic regions. We can get pretty granular cuts of how American households are doing.

Again, this is important because it goes back to that shock absorbency piece. If there is a shock and we do need to start coordinating across the regulators, it’s decision-useful information to know how the households in the US economy are doing. That was the purpose of the Household Resilience Working Group.

Then, in addition to putting this data together and presenting it to the principals, the working group is also a really good spot to examine specific issues that are relevant to households. Fraud is a good example of that. We’ve been working with other regulators who also have fraud projects to think about fraud in households. 

A third working group is AI. A lot to say on the AI front.

Beckworth: Yes.

Skinner: The AI Working Group, when I was at Treasury, did two big things which we can get into if you think listeners might be interested. The first was to work through the interagency process to literally coordinate how the financial regulators are developing AI in-house to be more efficient, more accurate in their own jobs. It’s a learning process. Really just to get the AI folks at the various agencies around the table and say, “Okay, what are you doing? What are you doing at your agency? What works? What doesn’t work?” And to put together a toolkit that we can share and update and so on and so forth. That was one purpose of the AI group.

A second purpose of the AI Working Group was time limited, so to speak. We conducted what we called an AI Innovation Series. We brought together about 100 different firms from different sectors of the AI ecosystem—the tech firms, the asset managers, banks, the G-SIBs, the regionals, the community banks, insurance companies, FMIs, pieces of financial market infrastructure and financial market utilities, rating agencies—to talk about different issues in AI ranging from strategy and governance to economic security.

Then lastly, is the Crisis Preparedness Workstream. That workstream did a couple of different things. One of the hallmarks of that was to develop some muscle memory for FSOC around engaging in tabletop exercises. This was a way that we sharpened our crisis coordination skills, and something that the FSOC had not done before. We ran two tabletop exercises while I was at Treasury.

Beckworth: Like wargaming. 

Skinner: Pretty much.

Beckworth: Oh, wow.

Skinner: I think they were really useful, very well received. I hope, I assume that they will continue. It was institution-building within FSOC to do that kind of exercise. The first one was around cyber issues, and the second one was around a geopolitical risk.

Beckworth: These wargaming exercises, you had people from different agencies there like, “Hey, Fed, bring out your currency swap line.” “Hey, FDIC, we need to tap into that deposit fund.” Was that the kind of thing you’d go through depending on whatever the shock may be?

Skinner: Exactly.

Beckworth: That is so cool.

Skinner: It’s not open to the public, so I’ll keep it—

Beckworth: Okay, I won’t push you.

Skinner: —at a very high level. The basic idea was to simulate crisis-like scenario—

Beckworth: That’s awesome.

Skinner: —and to have responses. We had each of the deputies who were the most senior official representing the principal around the table playing the role of their principal. I got to play the secretary. Secretary Bessent, if you’re listening, I did a good job representing you, I promise. Then we had a red team who was comprised—

Beckworth: Bad guys.

Skinner: —of the bad guys, yes. It was really impactful. I have to say. I think it’s a really good thing to practice crisis coordination.

Beckworth: Yes. Well, kudos to you for starting that.

Skinner: It’s harder than you think.

Beckworth: That is so interesting. You know what? Also, I’ll say this. Kudos to the US government for putting themselves under a stress test. We do it to banks, to big G-SIBs. You’re not immune to it as well. “We’re open. We’re going to do it ourselves, because we think it’s an important exercise.” That’s so cool.

AI and Financial Stability

Now, I want to go to AI. This is a big deal right now. It’s a looming threat. In fact, as we record this, in fact, the past few days, you may have seen there’s an individual from Anthropic who quit over fears that there’s a greater than 10% chance these AIs are going to kill us within the next decade. Then what was crazy is that subsequently, some of the current employees came on and said, “Yes, it’s a real possibility.”

At first, you’re like, “What are they talking about?” I give it more weight because of what happened to the Hugging Face incidents, where they did an exercise where they let a bunch of agentic AIs try to solve a problem. They all got together, they coordinated, they found ways to break out of this sandbox into the internet. They shut them down multiple times, and they resurrected multiple times.

That story there then leads me back to the story where Claude Mythos came out, and Secretary Bessent and the Fed chair went and sat down with some firms. Maybe you were a part of this. Is this something we should be worried about? Are agentic AIs going to create financial instability in the future, or is this overblown?

Skinner: There are definitely a lot of intense stories in the news cycle right now. Look, I have no inside knowledge of those specific allegations from the firms. What I can tell you is that in the slice of work on AI that I did, we were not focused on trying to cabin AI as a financial stability risk. There are legitimate risks with AI and I won’t dismiss those. Just in terms of what we were focused on, Secretary Bessent has said a number of things that are mission-critical to US policy around AI. I bring them up because I think it indirectly gets at what you’re gesturing at in the big picture, which is should we think about AI as a financial stability risk or not?

I think not as long as we can, A, remain ahead in the AI race. The United States has to win the AI race. That is absolutely imperative if we want to secure stability. American tech leadership in AI is really important. That’s a really important thing for us to think through with our allies to make sure that we can all coalesce around a system that works and can be maintained secure.

Secretary Bessent has really repeatedly exerted thought leadership in the governance space because even the firms themselves are saying, we need some alignment, some clarity around governance standards. We need rules of the road so that everyone can proceed safely and so that we can continue to adopt AI to be competitive. I think that as long as we stay focused on those things, we will have the stability and the security that we need to keep moving forward with AI.

In the biggest-picture sense, AI is poised to work a structural transformation of the economy just like the railroad did. Historically speaking, when you look at these major structural transformations of the economy, what they do is they amplify human flourishing. There’s so much opportunity to be unlocked for people, and their everyday lives, and their experiences, and their intellectual and physical enrichment that AI is going to be a boon for growth. It’s going to be a boon for humanity. We just have to make sure that we can stay ahead in the technology race, and that we can continue to work toward governance principles for these firms.

Beckworth: I like that about you, Christina. Always glass is half full, not half empty. Let’s look at the prospect.

Skinner: Well, look at the facts.

Beckworth: No, it’s true. A lot of our problems can be solved by rapid economic growth from problems of inequality, to debt sustainability. More rapid GDP growth takes us a long way. Let’s hope AI does it. Your point, though, is there is a fierce race right now going on between the US and China. They’re just maybe six months to a year behind us, maybe closing. We need to keep our best A game on with that.

Besides AI, what else do you think we should be thinking about going forward? Any future FSOC report? What should be something that’s a serious macroprudential risk to keep in mind?

Skinner: Rather than thinking in terms of risks, I think that the best thing that FSOC can do going forward is, number one, really just continue to lean into its superpower as a coordinating body. I’ll get to the substance in a minute. That really is FSOC’s comparative advantage. We do have a lot of regulators, and we do have a need for executive accountability. FSOC is a statutory body. Congress created FSOC and asked it to do this. There’s so much interagency work that we got done while I was there. I think procedurally and how the FSOC should continue to focus, that is where its highest and best use is.

In terms of macroprudential issues, I think AI is really important, so continuing to work with the agencies to make sure that the government, the agencies themselves, adopt AI, thinking about what the supervisory posture toward AI should be. If we want our firms competing in AI, responsibly adopting AI, then the supervisory expectations need to evolve. I think we’re just stuck in terms of thinking about supervising for risk. How about giving positive points for using AI to detect fraud or cyber intrusions? We need a little bit of alignment. A lot of that work is under way. I have no doubt that it will continue.

There are a lot of changes happening in Treasury markets and short-term funding markets, which are really interesting and important opportunities to further enhance the efficiency of these markets. Treasury central clearing rule is going to start to come online in December and then later next June. Thinking carefully about how Treasury market structure will change and supporting the agencies as they coordinate through that is really important. Yes, you’ll have to see what we say in our annual report for the rest of that answer.

Beckworth: When does that come out?

Skinner: December.

Real-World Experience and Teaching

Beckworth: We will come back and talk to you about it because I believe we’ll have you back on next year because we’re going to talk more in-depth about the book we’ll get to in just a minute. Before we get to your book, now you are back at Wharton. You’re a professor again. You’re doing research. You’ve got students. What do you bring back from that experience as you take on your old responsibility here?

Skinner: That’s such a great question. I learned so much. I feel like there’s so much value that I can bring to the students and the classroom. Most of my work, and I know we’ll get to that in a minute, had previously been focused on regulation, macroprudential regulation, and a lot of central banking.

I had been thinking a lot, in all of those conversations, thinking most of my scholarship was very anchored in the separation of powers questions. What are the limits of agency mandates? What kind of accountability is appropriate or necessary for differing of these agencies? What’s the line between Treasury and the Fed? Just working within Treasury and seeing how the different players really act in real time, I think, will forever change my perspective and be able to explain those dynamics to students.

I also think that being at Treasury at a moment in time where we are thinking through what things like independence and the regulatory state mean, I think I’ll have a little bit more realistic perspective when I write about those things within my scholarship. I think that’s the question in terms of how agencies really work, what the dynamics are. It’s really important that I learned that.

Then I gained a lot of substantive knowledge in the economic security, national security space just because there are certain issues that are all-hands-on-deck right now, for example, around supply chains or critical minerals, and they just permeate so many of the policy areas. Also, in this process of thinking through how economic security is tied to financial stability, that’s a really new concept for financial stability. I think that will definitely enrich my teaching.

What is the relationship between the financial system and certain public policy goals in this era of geoeconomics and geopolitics, and these really important strategic issues that the private sector is committed to? The public sector really wants to make sure that we are creating the conditions for the financing of certain strategic sectors.

I actually created a course that I’m going to teach in the spring called Financing American Power. It will think through corporate decision-making, financial decision-making through that lens. How should we make business decisions knowing that there are certain strategic financing needs in the United States, and how to marry these public policy goals with private corporate business decisions.

Beckworth: That sounds amazing. I’m wondering, do the students here know how good they got it? You have people like you. I just interviewed Patrick Harker, Peter Conti-Brown, people who actually have been in the world, who actively engage. I love where I come from, the University of Georgia. We’re a football school. You actually have people who’ve done the hard work, who’ve fought the good fight, who’ve been on the front lines. When students come to you, do they appreciate that? Do they say, “Oh, you actually did this in the real world, not just theorize about it”?

Skinner: I think they do. I think they do. Students, especially business school students, I think they really appreciate having a professor who can blend the academic theory with the practical application. That is why I love being at a business school. I went to law school. I’m a lawyer by training. 

Beckworth: It’s more practical, real-world applications.

Skinner: Yes. Being in a business school really suits me because of that blend of application and academia. Yes, I think so. We’ll see. We’ll see how the class goes. Yes, ask me in the spring.

Beckworth: All right. It’s been great because I’m visiting here. I’m here for a conference with you tomorrow. In fact, we’re going to a Peter Conti-Brown conference. Then today, I’ve interviewed you, Patrick Harker. I’m walking in and seeing all these Ivy League students. I’m like, “Do they know how good they have it here?”

One last question before we get to your book. You mentioned on the importance of geopolitical issues, global supply chains. As someone who worked at Treasury, so you were a senior person there—I also worked at Treasury many years ago. I worked in International Affairs. During my time there, the role of International Affairs was largely like, at least my office was dealing with IMF programs, World Bank. We occasionally had the big thing.

We were dealing with Argentina’s debt crisis, the early 2000s, this is George W. Bush’s administration. I’ll date myself here. We were dealing with that. There was the foreign exchange currency report. There was always the China question. I’m wondering, based on what you’ve said, is International Affairs now more engaged with these geopolitical global supply chain issues? They’re going beyond just the issues I covered when I was there. It’s more of this national security perspective as well.

Skinner: That’s a good question. International Affairs is such interesting work. I wouldn’t want to preempt them. What I will do, David, is I will introduce you to Erin Browne, who is a very good friend of mine. She’s the new undersecretary for International Affairs. She will come on your show.

Beckworth: We’ll get her on. She can answer the question. I don’t want to steal her thunder. It’s just curious because I had a great time there. It may be a little bit different than when I was there. 

Central Bank Independence 2.0

Let’s go and tease our audience with something really cool coming out. At least for people like us, it’s really cool, page-turner. It’s called Central Bank Independence 2.0. It’s a hot new book. It’ll be off the press sometime next year. I’ve been given a sneak peek at it. Tell me about this book. Why do this book now? What’s the back story?

Skinner: Thanks for asking about the book. I’ve been working on this for a very long time. I started this project in 2023, I think. I had written a number of papers around this question of central bank expansion, essentially. I wrote a paper. I came on the show to talk about central bank activism. I wrote the papers with Carola Binder, you mentioned, in terms of the legitimacy of different things that the Fed was doing. All of these questions—my interest in constitutional separation of powers really kept coming back to the issue of central bank independence and what it really means.

For a number of years, I had been examining all of the debates worldwide on central bank independence. It seemed like we had come to an emperor-has-no-clothes moment in central bank independence, where all of the experts, all of the smart economists, financial, business people would say, of course, I support central bank independence in a very absolute way, and everyone would agree, but it seemed like no one really knew the legal or economic justifications in depth, really, for central bank independence, but it would be anathema to say that you didn’t support central bank independence.

Beckworth: Part of the dogma.

Skinner: Yes. Then I started thinking, well, maybe we’re asking the wrong question. The question isn’t, do you support central bank independence? The question really should be, independence to do what? Because that’s the question. Central bank independence was developed for a very specific problem. There’s rich economic, legal, constitutional support for the fact that there shouldn’t be political interference with monetary policy, things that can really affect the value of money.

Then central bank independence became the answer to everything. It was developed as a solution to a specific problem, but then it became the solution to everything. As central banks expanded and accumulated new powers and authorities, in particular after each successive crisis, so 2008, the crisis in the ECB, the euro area crises, and then COVID, central banks were looked to for quick solutions, accumulated more power, but then independence started attaching to these other functions.

In a nutshell, the book explains the long arc of central banking so that we can both get a very firm grasp on where independence came from, so that we can have a real conversation of what we want it to look like. I don’t think that we want it to look like what it looks like today, which is that anything that a central bank decides to do is given this really amorphous but supercharged version of independence.

Beckworth: Yes. It’s a great point because I think what you’re saying is ultimately we want to give it independence with regard to price stability. Most people can agree on that too, that democratic support for let’s keep inflation low. I think where it gets controversial is with bank regulation. In fact, you mentioned we have multiple bank regulators, and they have different accountability than the Fed does because they can invoke independence. Now, I know all the federal bank regulators don’t get congressional appropriations, like the FDIC has a fee it charges. They’re all insulated somewhat, but the Fed is particularly insulated with this extra cloak of independence. There’s a question about that. That’s where you’re getting at, for example?

Skinner: Yes, precisely. Supervision is a great example. I’ve written separate papers about the independence, or lack thereof, of bank supervision. I can tease that argument a little bit. There are a number of things that the Fed does that I would say are either fiscal or certainly quasi-fiscal in nature, which would imply the need for greater executive branch coordination or oversight: their supervision, their payments, emergency lending, balance sheet policy, quantitative easing.

There are a couple of other big things that central banks do that really don’t fall squarely within either the economic or the legal justification for central bank independence. The economic justification for central bank independence, I would venture to say 99.9% of your listeners know, is the time inconsistency problem. Does that translate to the other functions that the Fed does? No. I’ve heard versions of an argument that it can translate to supervision and regulation, which I don’t think are compelling, for reasons we can discuss. In broad strokes, no.

Then you get to the legal and constitutional justification for central bank independence. That’s actually pretty tricky. We just saw the Supreme Court gyrate to figure out how to make that work in the Cook case. The reality is that there are three branches of government. The administrative agencies, all of them, they have to fit into a branch of government. They go in the executive branch. That’s where they belong because they exist to help the executive take care that the laws are executed. That’s constitutional text.

This narrative around independence, it came from this old 1935 Supreme Court case that was recently overruled. Where does that leave us with central bank independence? I have argued that with Andy Levin, and in other work, that the constitutional justification for central bank independence in America comes from the Article 1 provision that says it’s Congress’s exclusive responsibility to regulate the value of money.

If you look at constitutional history, you can see that there’s a pretty clear case that the framers of the Constitution wanted to give this power exclusively to Congress because they were very familiar with the history of European monarchs essentially manipulating the value of currency for wars of diversion, or pride, or so on and so forth. That’s pretty clear.

The argument that I’ve made is that, okay, Congress can delegate that piece of its exclusive power to the Fed, and that’s why it’s independent because there’s a very clear original case that the president was not supposed to be able to affect the value of money directly. However, the other pieces of what the Fed do, there’s an equally compelling constitutional case that those exercises of power are executive in character, and therefore, if the Fed is doing them, there should be some kind of coordination and oversight and accountability with the executive branch.

Beckworth: Well, it sounds complicated. Leave it to a legal scholar like you. Let me ask you a question about this growing footprint of central banks that you’re talking about, that appears to have gone beyond the original justification for independence, at least the time inconsistency one. I want to ask this question because I’m thinking of the two in particular, like the Fed and the ECB. I think one reason the Fed has gotten so big is because there’s these demands of a global dollar system. It almost has to step in and offer currency swap lines. It has to step in and do these money market facilities, which begins to raise questions.

The ECB is also very unique because it’s a currency union, not a fiscal union, multiple countries. It’s been really given a lot of responsibility. Some would argue, it’s effectively doing fiscal transfers across states, keeping rates low and such. They are two unique, large central banks. They do, I think, fit this question that you’re raising very well.

If we go beyond them, let’s go to, say, the Bank of Canada or to the Reserve Bank of Australia, do we see them more in line with the original notion of independence? Are there fewer struggles, questions over, are we crossing that threshold, or is it just the big ones that have a unique mess on their hands?

Skinner: That’s an interesting question. I probably don’t know enough about those specific central bank mandates and their constitutional structures in Canada or Australia to say whether I think they’ve crossed the line. I do think that part of the point of the book is that I focus on the Fed, but use examples from other central banks as illustrative because central bank independence isn’t a one-size-fits-all thing. It’s going to mean and look a little differently in each jurisdiction because central banks necessarily play different roles in different societies.

Yes, there are some big picture guiding principles. You don’t want to have a central bank that becomes a central planner in any democratic capitalist society. You want to preserve the core of monetary policy independence to preserve your rule of law and the faith in your currency and sovereign debt. I do think independence looks different in different societies. 

I wrote about this in an article in 2020 with a former Bank of England colleague of mine, Michael Salib. We wrote about the differences between independence in the Bank of England and the Fed. The differences are actually pretty stark. In the UK context, you have the chancellor of the exchequer who formally writes annually to the Bank of England governor, here’s what I think financial stability means this year. 

Okay, we do that now too, but in monetary policy, this is the government’s economic agenda and here’s what I would like you to consider for monetary policy. They also have these statutory powers of direction. Now, granted, they’ve never been used to anyone’s knowledge. On the books, there are various ways that the government, acting through the Treasury, can override independent central bank decisions.

If you consider those facts totally out of context and without really knowing how the Bank of England comports itself in an independent way, you say, well, that’s really different from our system. No one, I don’t think, would say the Bank of England is less “independent” than the Fed or another central bank. One of the points in the book is there are different versions of “independent” because you can’t have a one-size-fits-all for every single economy and society.

Beckworth: Yes, and I guess that’s where I’m coming from. Maybe the Fed is very unique. Not to justify what it’s doing, but to say it’s hard. It’s hard to be the central bank behind the global reserve currency of the world. It’s hard to be the ECB when you don’t have a common fiscal union and there’s a lot of demands.

Just one more contrasting example. I recently interviewed Erik Thedéen, who’s the governor of the central bank of Sweden, the Riksbank. We talked about the independence of the Riksbank. It’s interesting. They’re able to think about that issue, I think, more easily because they don’t have all the distractions maybe some of the bigger banks do. They actually set up a facility there, which is really interesting.

They had gone back to the government to get recapitalized after the loss of some QE. They said, “We don’t like this. We don’t want to be going back to them because it’s going to be borderline in questioning our independence.” They set up a deposit facility at the central bank where some of the banks have to put their deposits there and earn 0% interest until the bank earns enough profit to be recapitalized, and it goes away. It’s cyclical. They did this in order to preserve their independence. They don’t have to directly go. They can reestablish it.

I thought, man, that’s really cool, but it’s also a privilege, or it’s easier for you to do that than, say, maybe the ECB or the Fed. That’s, I guess, the question where I’m coming from is, it might be easier for some countries than others to address the very, I guess, narrow time inconsistency question.

Skinner: I think that’s right. I think these sorts of relationships and dynamics and mandates are going to hit differently, so to speak, in different societies. I think the same is true of CBDC. We need another episode to talk about CBDC. In the United States, it’s constitutionally unacceptable for us to consider the Fed having a retail CBDC, but other jurisdictions feel differently for different reasons.

Beckworth: Yes, for sure.

Skinner: I agree with you. I think that there are reasons, and especially when you speak to people in government, when you work inside the spaces, you see that there are real practical reasons why central banks accumulate the powers and use the tools that they do in times of crisis. I think the question for me is not so much whether central banks should be doing these things, but rather, whether we have the right accountability mechanism in place.

For me, in a democratic society, we have well-functioning institutions, and that’s not something to bemoan necessarily. There are certain things, CBDC being a good example, that you might put on the other side of the line. A central bank should not do these things. In other cases, I think if there is a justification for the central bank exerting the power that it does, we need to make sure that there’s the right level of democratic accountability.

The article I wrote with Andy Levin was pointing out some of the shortcomings in congressional oversight of the Fed where it came to quantitative easing policy, and we particularly looked at the QE4 program. I think the book is taking a bigger look at that, and particularly from the lens of the executive branch. The major thing that the narrative around central bank independence does is it holds the executive branch at arm’s length from everything the central bank does. If some of the things that it’s doing are fiscal or quasi-fiscal in nature, then the independence paradigm is creating an accountability problem. That’s a big part of where the book is going and its destination.

Beckworth: That’s an important issue, the accountability. Let me just throw on top of that, if you don’t deal with that, you’re going to undermine your own independence. If it becomes politicized, the other side comes to power, they’re going to tear you down. The Fed’s own independence depends upon having proper democratic accountability. Can you tell the listeners again when this book will come out? We’re just teasing them with it because it’s not available now.

Skinner: Yes. I am aiming to get this to a publisher and publish it next spring. Hopefully, I can come back on the show and give you a fuller account.

Beckworth: We’ll see you next spring or summertime when we’re discussing it. Our guest today has been Christina Skinner. Thank you so much for coming back on the program.

Skinner: Thank you for having me.

Beckworth: Macro Musings is produced by the Mercatus Center at George Mason University. Dive deeper into our research at mercatus.org/monetarypolicy. You can subscribe to the show on Apple Podcasts, Spotify, or your favorite podcast app. If you like this podcast, please consider giving us a rating and leaving a review. This helps other thoughtful people like you find the show. Find me on Twitter @DavidBeckworth, and follow the show @Macro_Musings.