Hester Peirce on the role of the SEC, Financial Surveillance, and Crypto

Hester Peirce is a current commissioner at the Securities and Exchange Commission and serves on its crypto task force. Hester returns to the show to discuss her time and role at the SEC, the SEC evolving role in the regulation landscape, the problems with our current state of the financial surveillance, the state of crypto for a regulator’s perspective, and much more. 

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This episode was recorded on August 11th, 2025

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. I’m glad you decided to join us.

Our guest today is Commissioner Hester Peirce of the Securities and Exchange Commission. Prior to joining the SEC, Hester was my colleague here at the Mercatus Center, where she headed the financial regulation team. Hester also was a senior counsel on the US Senate Committee on Banking, Housing, and Urban Affairs, where she advised ranking member Shelby and other members of the committee. Hester, also served as counsel to SEC Commissioner Paul Atkins prior to that. Hester joins us today to discuss the evolving role of the SEC in the digital financial age, the importance of dissent in regulatory institutions, and her recent calls to rethink America’s financial surveillance regime. Hester, welcome back to the program.

Hester Peirce: David, it’s great to be back. I do want to start with my disclaimer, which is that my views are my own views as a commissioner, not necessarily those of the SEC or my fellow commissioners.

Beckworth: Yes, you were first on, Hester, if I check correctly, February 2017. You’re one of the first guests early on. You helped get this show started. Thank you for the early boost.

Peirce: I was also an early fan of the podcast, so I continue to be a fan of the podcast. I eagerly await Monday mornings when it drops.

Beckworth: Oh, that’s great to hear. I should let listeners know Hester was at Mercatus before I got there, so she was one of the poor souls who had to onboard me and rein in my enthusiasm, make sure it was focused in a very productive manner. I appreciate everything that Hester did for me and my colleagues at Mercatus. 

Hester’s Career

Hester, you’ve had quite the career. You’re at the SEC. You’ve been there during some interesting times. You’ve done a lot of fascinating work, and we’ll get to some of that in a minute. Let’s talk about your career. Remind us how you got on this journey.

Peirce: I got on the journey without really planning to be on such a journey. It was a little bit accidental. I did study economics undergrad, so that was something that I loved and enjoyed the way it helped me to think about the world differently. Then went to law school because I’m not so good at math, and so wanted to find a way to marry those two interests, and securities law was a great way to do that. When you work in an area like securities law, it’s very helpful to spend some time at the agency that does the regulation in that area.

I found myself at the SEC and really had a wonderful experience on the staff of the SEC, both of all things writing rules for mutual funds and then moving over to get a little broader view working on then-Commissioner Atkins’ staff. A natural next step from that was to go to work on the Senate Banking Committee, though again, that wasn’t something I had envisioned doing, but it was a really natural step to go from learning about how to write regulations to learning how to think about and write legislation.

Then I had the chance to take a step back. One of the things that drew me to Mercatus was the ability to work with economists to think about regulation from both a legal and an economics perspective. Then I found my way back to the SEC. Again, that was not something that I had planned to do. I had worked for a commissioner and knew I didn’t want to be a commissioner, but you never know where life will take you.

Beckworth: You’ve done a lot of interesting work, and again, we’ll get to your speeches and some of the issues you have contended with. Any intellectual influences or mentors that you’ve used to help shape your thinking as you approach these issues?

Peirce: I have lots of very helpful intellectual influences and mentors, starting from my undergrad days when I had great economics professors, including Professor Rossiger, who worked on innovation, technological innovation, and thinking about how that gets integrated into the economy. His influence on me was early. Under his tutelage, I looked at the steel industry and the technological developments in the steel industry.

Then, just more generally, I think, when I’m approaching issues, I often go back to Hayek and Bastiat, because I think they really helped me to think about the fact that knowledge is dispersed across society. It’s really important that whatever we do from a regulatory perspective takes into account the importance of not cutting off the knowledge of a huge percentage of the people in society, which regulation can do. I’m always coming back to that concept.

Beckworth: I imagine it must be hard or maybe tempting to be pragmatic here and there and to begin to compromise on your principles. You’ve stuck to your gun, so I appreciate it about you, Hester. I know your job is demanding.

Peirce: I should say that everyone at some point comes to a point and says, “I’m going to be pragmatic here. This is not how I ideally would have designed something,” but we are where we are. I think because financial regulation is so complicated, sometimes you’re really only making very marginal improvements. It’s a question of, “Yes, my preference might be to scrap this whole thing and start over again, or I can make this marginal improvement here.” Sometimes I do opt for the marginal improvement.

Beckworth: All right. That’s a good economist, thinking on the margin and making marginal choices. In your role, though, you’ve had to deal with tough issues. Sometimes you’ve dissented with the rest of your colleagues at the SEC, something we can talk about in a little bit. I imagine your job can be challenging, stressful at times. I’m just wondering, what do you anchor yourself in? What do you turn to? Recently, I had a good friend, Peter Conti-Brown, on the podcast. We both talked about how we anchor some of our choices, or a lot of our choices, in our faith. I’m just curious, how do you wrestle with those tough situations?

Peirce: I similarly anchor my life in my faith. I’m a Christian. That’s a very important part of my life. It really does help me to think even about financial regulation. Again, it ties in with this Hayekian point that knowledge is dispersed across society. Something that I fundamentally believe is that every individual has unique worth, unique experiences and knowledge, and something unique to bring to society. It’s really important, from a human dignity perspective, to make sure that we’re creating a regulatory framework that allows everyone to have a voice.

That may just be a voice in saying what’s important to that person, in terms of what products and services she wants to buy. It may be a voice in terms of being able to speak up and express her views about something. I’m very grateful that we live in a country where religious expression of all kinds is welcomed. I’m grateful that I can hear from other perspectives as well. I think just this notion of making sure that our regulatory system is designed to allow people to flourish, that’s very important to me. That does tie back to my fundamental views of life.

Peanut Butter and Watermelon

Beckworth: Let’s jump into your work. I want to begin with a speech that you just recently delivered. The title of the speech is “Peanut Butter and Watermelon: Financial Privacy in the Digital Age.” You told a rather interesting story about your grandfather. Maybe tell us that story and why it’s useful for the rest of the speech.

Peirce: The story is that my grandfather, who was definitely a man who marched to the beat of his own drum, like me, he didn’t like watermelon, so he decided to make it taste better. You could slather some peanut butter on it, which is what he did at neighborhood picnics. Then, years later, he was making a call, and at that time, he made calls through a telephone operator. The telephone operator said, “Are you the Mr. Peirce who puts peanut butter on his watermelon?”

My point in recounting that story is that it’s really interesting to think of a time when every phone call you made would be mediated through someone who might know you quite well, and it might be very awkward if you’re making a sensitive phone call to have it go through someone who independently knew you. The switch to automated equipment instead of telephone operators was valuable from a confidentiality perspective. As I pointed out in the speech, the way that our law operates, when you give information to a company, to a third person, the government treats that as if it is not protected in the same way that information that you have in your house would be from a Fourth Amendment perspective.

What I was trying to get at in the speech is that I think it’s problematic, the fact that we’ve eroded financial privacy in the US, but new technologies actually may help us to reclaim some of that privacy because they enable you to disintermediate, to take out that centralized party. You’re not actually providing your information to someone else. They allow people to do things even more confidentially because it’s really a peer-to-protocol transaction or a peer-to-peer transaction.

I think from a privacy perspective, that’s quite valuable. I was making the argument in that speech that as a government of free people, we should not only be tolerant of those kinds of technologies, but we should celebrate them as a way to enable the citizenry in our country to protect their privacy and then choose to share information with other people only as they wish, not having to share that information across the board with everyone.

Beckworth: That perspective is quite at odds, though, with the prevailing view. You mentioned this third-party doctrine Supreme Court decided. Law enforcement, they think they have access, or they can get access to all your data if it goes through a third party. In some of the developments that you mentioned, like crypto, just recently, we’ve discussed stablecoins on the podcast and how they will facilitate cross-border payments, but then there’s questions of anti-money laundering laws and other questions, “Will this be a problem for law enforcement?” There’s this tension that comes up. Are you suggesting we need to do a serious rethink entirely of how we approach this question?

Peirce: I do think we should do a rethink of the importance of financial privacy in the US. I think we’ve ceded too much ground there as a people. This is a moment, because there are all these new technologies that are directly, in a way, challenging these traditions that we’ve established in financial surveillance, it’s a moment for us to reconsider. I think that the law enforcement objectives are very important, and no one, I think, would argue that they’re not.

I think it’s a wonderful moment for us to recalibrate and also to take a look at some of the technologies that are being developed that do really allow people to protect their privacy and then decide how much and when they want to share information. I think that kind of technology actually can be beneficial from a law enforcement perspective, because it will allow people to better protect themselves. There are going to be some tradeoffs. We have to acknowledge that.

Putting some friction in place before government can get information from its citizens, I think, is what the Constitution had in mind, the framers of the Constitution and the Bill of Rights had in mind. I don’t think it’s bad for us to take a step back and say, “Are we really capturing the spirit of what the framers had in mind? If we’re not, can we make some adjustments?” I think for someone in government to celebrate the ability of people to live free lives and to support that ability is entirely consistent.

Beckworth: Now, this goes back to your point about allowing and encouraging human flourishing, not being fearful that every move, every step you make is being monitored and questioned by those in authority. You referenced in your speech the Bank Secrecy Act, the BSA. A few years ago, there was talk of CBDCs here in the US. That’s largely been shut down. In Europe, they’re still talking about it. One of the concerns around the CBDC was this very question of privacy. There’s other issues as well. Some of my friends and your friends would point out, “Guess what? We’re not that far from that with the Bank Secrecy Act.”

They already monitor a lot. There’s already a lot of reports turned in that you don’t even know about. Millions of reports get turned in every year. Suspicious activity reports get turned in. Then also, on top of that, the has not been inflation-adjusted, I believe, the dollar amount for the Bank Secrecy Act. There’s a lot that’s gathered up already. It’s time, as you said, to maybe reconsider that, at least maybe pull that perimeter back a little bit so there’s more on the side of privacy. How would we proceed, though? Let’s say you’re in charge of some agency, and they want to still have law enforcement. How do we do a scalpel-like regime versus a sledgehammer approach that’s been done so far?

Peirce: I think we start by not presuming that people are guilty of some crime. I think that is how our system tends to operate now. There’s a very broad presumption of wrongdoing. Going back to this position of, if you have some credible reason for suspecting that someone’s involved in wrongdoing, then you go and you get the permissions to go look at that person’s private information. Let’s not just start with this broad view.

One example that I take is the Consolidated Audit Trail at the SEC. We’re monitoring everyone’s trading in the equities markets right now. We’re pulling in data about what everyone does. That’s a tremendous amount of data. There are other ways that we could do that that would not require us to take data about individuals in. Why don’t we go back to a system that requires us to have a reason to ask, “Who is it that placed this trade?” I don’t think that barrier is so high that it will prevent us from doing our job at the SEC. We were able to do it before with that kind of a system.

Beckworth: There are practical steps one can take along this front where you could increase privacy and still have reasonable law enforcement ability.

Peirce: The other thing is there are new tools being developed now that I think make that easier to do in some ways. I’d like us to explore some of those new tools. Zero-knowledge proofs are one example, but there are other examples of that. Again, we do have to recognize there are tradeoffs. When people create good privacy-protecting tools, bad people will use them to do bad things, and that is a cost.

I think the other cost that we too often just brush by the wayside is the cost to this country when we give up something that is very fundamental to us, which is the ability of people to live their lives without someone looking over their shoulder all the time at what they’re doing. Even worse, of preventing them from getting access to financial services because whatever it is about them triggers something.

The financial institution says, “It’s more of a pain to deal with you than to serve you as a client. We’re just going to get rid of you as a client altogether because that’s the cleanest and easiest thing for us to do.” That has really profound implications for people when they can’t even get access to financial services. It really does tie back to this financial surveillance overlay that we’ve put over everything.

Crypto Mom

Beckworth: A lot of this conversation is motivated by the fact that crypto has become such an important part of the landscape. Bitcoin now is in major portfolios. People who used to be skeptical of Bitcoin are now championing it. I think Larry Fink and many others on Wall Street who used to discourage it now are championing it. Bitcoin, crypto, stablecoins, all these things are generating this conversation that we’re having. You’re the ideal person to talk about this. You’ve developed a nickname. I know you’re not a fan of this, but I have to ask you about this, Hester. You’re known as the crypto mom, and this label has stuck. I know you don’t like it. Tell us about that label and why you think it’s not a great one.

Peirce: I got the label very early on in my tenure when I first dissented from our denial of a Bitcoin exchange-traded product, which was way back in 2018. It took us many years after that before we let one of those out into the public. The reason that I push back against it is I think it is really problematic when people think about government as a parental figure. I know it’s a joke, so I’m not taking this too seriously.

My point is that I think I really have underscored, time and again, that I’m very supportive of people making their own choices about how they want to spend their money, about how they want to invest their money, about what they want their portfolios to look like. A counterpart to that is that I am not standing there taking a look at your portfolio and signing off on it and saying, “Yes, I think this is a good portfolio.” It is your decision how you construct your portfolio.

If you can’t do that yourself, which is totally fine—people are busy, and they have lots of things to spend their time on—then you can go find someone to help you with that. The someone can’t be the government. The government is not going to do that for you. If something goes wrong, that means also that you can’t expect the government to serve as a backstop for you, which is why I really do urge people to be skeptical when people come to you with promises that you’re going to make a lot of money very quickly, that this asset is going to be the savior of your financial future and you better invest today.

I just tell people to be cautious. As happy as I was to see something like the Bitcoin exchange-traded products get cleared through, because I thought that was consistent with our regulatory obligations as a regulator, we were just applying the same standards we’d applied to similar products, that is not a green light or it’s not an SEC seal of approval. We do not approve any products. People have to make their own choices. We don’t approve in the sense of we’re not saying, “Hey, this is a good product for you.”

Beckworth: It’s not your role. Let’s talk about some of the recent developments and laws that were passed. The GENIUS Act. President Trump recently signed that into law, and that’s a stablecoin. Any thoughts on that bill?

GENIUS Act and CLARITY Act

Peirce: That mostly is not ours. It’s primarily the banking regulators’ domain. We are looking at it to the extent that the entities that we regulate want to incorporate stablecoins or offer the ability to interact with stablecoins to their customers. We’re in the process of trying to figure out how we can make sure that our regulated entities are able to engage with them. That is part of our bigger project, crypto, where we’re trying to figure out how we need to adjust or whether we need to adjust regulations to allow crypto into our regulated perimeter.

Beckworth: Then there’s the CLARITY Act, which has cleared the House, but I believe is now in the Senate. It would define digital commodities to fall under the CFTC’s jurisdiction, and cryptocurrencies that qualify as securities would remain under the SEC’s oversight. I guess the goal here is to bring clarity and set markers down for people to know exactly how to engage with these securities and assets.

Peirce: Yes, the efforts in the House, the CLARITY Act, and then the Senate is looking at legislation as well in this area, are really a response to this concern that has hung over the crypto industry for many years now, which is there’s a lot of uncertainty about whether things fit within the security bucket or not. That has real implications for what people can do with them, for how people can interact with them. I think it’ll be very welcome to have some clear lines drawn so that people know we can do some of that work ourselves. That is part of what we’re busily working on. The CFTC is also working independently. There’s some of this work that can be done even before the legislation goes through, but a lot of people are looking to the legislation to provide more durable lines.

Crypto Task Force

Beckworth: Tell us about this task force that you’re heading on this issue of these assets.

Peirce: We have been around now for about six months, the task force. It was created right after President Trump took office, and we are a small but mighty team looking at all the different areas where there are questions about the SEC’s jurisdiction. We work with the staff across the SEC, and we’re working on providing some clarity. Some things are outside of the SEC’s jurisdiction, and we want to tell people that.

For things that are within the jurisdiction, we’re working on writing rules so that people can engage with crypto, so that people can do a token offering and know how to do that consistent with the securities laws, so that people can tokenize securities if they want to do that, so that people know how to custody these assets.

Those are some of the things that we’re working on. We put out a long set of questions. We’ve held a series of roundtables. I’m now on stage two of the roundtable adventure. We’re meeting with smaller projects throughout the US. We’re trying to collect as much information as we can and simultaneously to work on these guidance documents and rulemakings.

Feedback

Beckworth: When I was at the Bitcoin Policy Institute, I was sitting there, and I heard you talk about this, and you really encouraged feedback. You said, “Hey, come let us know in this task force.” Tell us why that’s important to you, because I know this is a big deal for you.

Peirce: It goes back to how we started the conversation. We don’t have a monopoly on information or knowledge, or expertise at the SEC. We bring expertise to the situation. We know the securities laws very well, but it helps to engage with people who are actually trying to build things. We want to be able to create a regulatory framework that enables people to get to commercial viability, and so we need to hear from them where the pain points are. We need to hear their ideas about how to approach things.

One thing I’ve been really excited about is that there are a lot of people outside of the SEC who have been giving deep thought to how can we get to a good regulatory framework. I talked to people who have really been pioneering regulatory innovations outside the SEC, and whereas before the SEC was very closed to hearing those ideas. People would come in and they would say, “We have a disclosure framework or we have a framework for categorizing assets as securities or nonsecurities,” and we didn’t want to hear from them.

That, I think, led us to a very dark place because we were bringing all these enforcement actions, but we weren’t willing to work with the good actors who were trying to create a regulatory framework. I really want to emphasize that this is a group project with the regulators and people in the industry, and we want to get to a good place where investors are getting the information they need and where people are able to build without always thinking about or wondering where they fit within the regulatory framework.

Beckworth: This has to be a tough place because crypto and all those activities in that space are moving so rapidly, and as a regulator, you’ve got to try to keep up with it, so I can see why you’d want to go to them. Still, it must be a race where you’re just doing your best to keep up with the latest innovations, and before you know it, something else new is happening.

Peirce: It is. It is very hard. I am not a technical person, and so it’s especially hard for me. I try to learn as much as I can from people, and people are very patient. That does underscore why it’s so important for us to build rules that are principles-based, not tied to a particular technology. You can really get into the habit of thinking that the technology that I see today is the end-all and be-all, and there will never be anything better, and that is just not a good way for a regulator to think because there are people on the outside who are already thinking 10 years down the road, and they’ve got a better idea, and it’s being formulated, and it will get to commercial applications soon.

Being an SEC Commissioner

Beckworth: Let’s talk about the SEC’s, its role. We’ve been touching on this, and I meant to ask you earlier about what it’s like to be an SEC commissioner day-to-day, but as you bring in these suggestions, as you have ideas for changes, how does this unfold? As a commissioner, do you bring an agenda item up at the meeting, or does it trickle up from below? How does this all come together and turn into a regulation?

Peirce: I think it depends on what the makeup of the commission is. Right now, we have a chairman who’s very willing to work with me in this area. In fact, he gave a speech recently where he laid out the plan for Project Crypto at the SEC, and so he’s very amenable to the ideas that the Crypto Task Force generates. The staff across the building has been just fabulous in working with the Crypto Task Force to try to generate ideas but also move ideas forward to regulation.

I am probably the least important person in that whole process. It’s really the people who are in the nitty-gritty day-to-day, working on drafting regulations, working on meeting with people who have very specific needs, potentially for a no-action letter or for exemptive relief. Those are the people who are doing the real work. At this point, I am championing them, but they’re doing the work.

Beckworth: What would you vote on? Give me an example of a piece of regulation or something you would vote on.

Peirce: We might vote, for example, on a regulation that would enable people to do a token offering, provide a framework within which you could do a token offering where the token itself wasn’t a security, but it was being offered in a transaction that is a securities transaction. What would the disclosure requirements look like? I think that is very important for people who are buying those tokens, which are themselves not securities but are part of an investment contract, to be able to get information about what it is the project team is promising to do. That might be an example of where we would vote on something.

Beckworth: If you get great ideas from the Crypto Task Force, do you then send it to the staff, and they work on it, and then it comes up to you as a commissioner?

Peirce: Yes, it’s a very collaborative working relationship between the task force and the staff. The staff is doing a lot of the heavy lifting on drafting the regulations and meeting with folks, and asking the right questions. Ultimately, what happens is when a rule proposal is ready for consideration, the commissioners will consider it. Obviously, you need to do economic analysis, which I know you would not want me to leave out. There’s a lot of work that goes into writing a rule proposal, and then that can go out for comment, then we get comment, and then we consider all those comments and try to put together a final rule. This whole process can take some time.

Beckworth: By the time a rule comes up to your level, the commissioner level, it’s been vetted fairly well. Do you ever come to a place where you send the rule back down? I guess if it doesn’t get voted, it goes back down to be reconsidered or redrafted.

Peirce: The commissioners have an important role to play when they’re looking at a rule proposal. They will ask lots of questions, and we shape it. If there are pieces of it we don’t like, we’ll shape it, we’ll push back.

Beckworth: Before you vote on it?

Peirce: Yes. We spend a long time with the documents. Sometimes these rules are not short, so we spend a long time. We and our staff in our individual offices spend a long time looking at the details of those rules. It can be a very big job.

Beckworth: By the time you vote on it, there’s no surprises of the outcome of what’s going to happen?

Peirce: Typically, you’ve spent a long time with the rule, so you have an idea. It’s changing in response to comments that people make. People may be coming up with their ultimate voting decision. That may change because the document is changing over time. The goal is to get everyone on board so that you have all the commissioners comfortable with where it ends up.

Lane Drifting

Beckworth: Yes. We’re talking about the culture of the SEC here. You mentioned you have a leader now who supports your efforts. That wasn’t always the case. I recall a speech you gave, I believe in 2024, at the Hoover Monetary Policy Conference. That was the one year I missed it, Hester, I missed you there. Everyone told me, “Yes, you should have come to hear Hester’s speech, it was really, really good.” They all loved your talk.

I believe your speech title was “Lane Drifting,” remarks you gave at the Hoover Monetary Policy Conference. The key point I think you’re making is that SEC was drifting into prudential regulation and nonsecurities territory. Maybe just explain that real briefly. Do you think you’re veering back into the appropriate lane now?

Peirce: I do think that we’re getting back into the lane that we’re supposed to be in. It’s very tempting for the SEC to try to become a prudential regulator, because we look around at the financial regulators, the banking regulators, and that is what they do. It’s very tempting for the banking regulators to try to get us to act like prudential regulators. My point is that it is really important that we keep that distinction, because the nature of the markets that the SEC regulates is very different than the banking markets.

We don’t have an insurance backstop. The industry we regulate is intended to be dynamic, with people coming in and leaving. If they’re not able to keep up with competition, they should die, and that’s fine, and someone else move in and take their place. It is that competitive dynamic that keeps our industry healthy. That’s why I think so much about keeping regulatory barriers to entry low, because I want the new person who has a better way of doing things to be able to jump into the ring and start competing.

I want the incumbents who have new ways of doing things not to have to go through so many regulatory hoops that they say, “You know what, we’re just going to keep doing things the way we’ve always done them.” It is that dynamic that keeps our industry resilient, and it is when you layer on the possibility of government protection in the case of a stupid mistake or just it turns out you made a bad decision about how to run things.

If you offer up the idea that the government’s going to step in to catch you when you’re falling, that completely destroys the way the industry works, and it makes people lazy, it makes people complacent, makes them not pay attention to risks like counterparty risk and leverage. Those are the kinds of things that we need people to be very focused on. I think there’s nothing that focuses the mind like the possibility that you could fail and you could be out of business. That’s why I care so much about this prudential, nonprudential distinction.

Beckworth: It’s funny you bring this up. Going back to Peter Conti-Brown, I had him on recently, you may have heard this. He has a new book on the history of bank supervision. Near the end, I asked him, I said, “Look, there’s these two poles here where you completely protect banking industry, or on the other one, you allow them to collapse. Somewhere in between, you want some banks to die and to leave the industry, and you want some new ones.”

He said, “We don’t do enough of allowing banks to fail. There’s just too many that we keep.” They may take some good advice from your side over there into their sector. I know it’s a little trickier over there because they’re the payment sector. We don’t want that to collapse. It’s a little bit different story, but that’s an issue for them, too, to some degree.

Peirce: I’m really looking forward to reading Peter’s book because I have seen over the years how different bank supervision is than what we do. Part of what happens in bank supervision is it’s much more behind closed doors. Obviously, our examinations also occur behind closed doors. The goal in my view of regulation in our space is to let the market see, have a transparent view into the institution, so that they can make their own decisions about whether or not they feel comfortable investing there. That transparency is key. It’s just a little bit different on the bank supervision side. I’m looking forward to reading that.

Beckworth: Again, we’re talking about staying in this lane, one of the areas where the SEC expanded its mandate, previous administration, was in the ESG, climate disclosures, and more. Where are we now on that? Are we going back away from that lane, or are we still in that lane?

Peirce: That was definitely an instance of swerving out of the lane and trying to drive completely going the wrong way. I’m hoping that we have made a U-turn now. Really, what I think is important to emphasize is that the SEC’s disclosure regime is about materiality, and that’s really the touchstone for our disclosure regime. Moving away from that in response to social and political pressures is really dangerous.

I think what has happened over the years is that people have looked at the SEC’s disclosure framework and they’ve said, “Hey, that looks like a really neat framework. We could use it to get information out there about whatever issue we care about.” These are not investors. These are noninvestors who are just glomming on to the SEC’s disclosure framework. Our disclosure framework is for investors.

When we think about what investors need, investors encompass lots of different people with lots of different preferences about lots of different things. The one thing that unites them is their desire for financial returns. Materiality is tied to financial returns. When we peg our disclosure regime in materiality, I think we are doing what Congress asked us to do. When we start to try to do other things, I think we’re swerving out of the lane. 

Dissent

Beckworth: Now, you’ve often dissented publicly. We’ve talked about crypto with the previous leadership of the SEC, ESG. What role do you think dissent plays in a healthy, deliberative body like the SEC?

Peirce: My goal in dissenting is to encourage a debate outside of the SEC. Again, this all ties back to the idea that I don’t think we have a monopoly on wisdom here. I like to throw out dissenting views to see what people’s reactions are. Sometimes people react and say, “Hester, you’re just wrong. The majority is right.” Sometimes they react and they say, “No, you’re right. Here’s maybe a more nuanced way to think about the critique that you’re making.”

It’s really to stimulate this debate because I think the way to get to the best regulation in the US is to involve as many people who are affected by it as possible. Sometimes that means that we have to admit that we’re wrong. That’s hard for anyone to do. It’s hard for a regulator to do as well, but it certainly does happen.

Beckworth: Yes, it’s hard for a podcaster to admit he’s wrong, but sometimes I am. Of course, many people come back to remind me of it. You’re a public figure. It’s probably even harder when people criticize you.

Peirce: No, I think it’s wonderful. I get a lot of criticism. Sometimes it’s not what you want to wake up in the morning to find. The thing that I keep coming back to is that isn’t it wonderful that we live in a country where people feel so free to criticize a government official like me? I think that’s a beautiful thing. Much as sometimes I don’t like the comments on a particular day, I’m very grateful for them.

Beckworth: How do you handle those type of comments? I’m curious. Crypto mom, for many, it’s a sign that they love you, they support you. For others, it might be a pejorative term. I’m sure you’ve received other harsh comments. We talked earlier about how you anchor your identity and your security, and your faith in Christianity. What else do you do?  How do you handle a hard day at work like that?

Peirce: I think everyone has hard days at work. I have a lot of wonderful people that I work with. They give me a lot of inspiration. Again, it is important for me to hear even those comments that are critical and see if I can glean from them a kernel of an idea that maybe can help me do my job better. It may not make the person making that particular comment happy, but I’m taking that into account and thinking about is there something that I am doing wrong that I could do better?

SEC Moving Forward

Beckworth: What are the big issues facing the SEC moving forward over the next, say, four years, five years? What do you see on your radar screen that we should be looking out for?

Peirce: I think part of what we need to do is get back to focusing on capital formation. That’s part of the mission of the SEC, and it’s fallen off the agenda, but now is back on the agenda. This does tie to what you were just asking me about with respect to ESG and things like that. We’ve gotten a little bit distracted by those shiny objects. If we can focus on creating an environment in which companies, regardless of their size, can go to the capital markets and get funded.

That means, too, that companies feel that they want to enter the public markets, because that is a change that’s happened. Companies are waiting longer to go into the public markets. What can we do to make sure that we’re right-sizing the regulatory framework so that companies can graduate into the full panoply of requirements on them? I think that will be something that we spend time thinking about during the next few years. 

There’s also the chairman, he’s interested in many things. He’s put out a notice that we’re going to have a roundtable around equity market structures and questions there that we’re going to be looking at. I think we will definitely be busy. There are lots of other cleanup rules that we need to spend some time thinking about. We’re working on implementing Treasury clearing, which is a very important change in the markets. Those are rules that have already been adopted, but the implementation process does require some attention from the SEC. Those are some of the areas we’ll focus on.

Beckworth: Let’s just park here for a minute on that Treasury clearing mandate because I’ve had a lot of guests on the show talking about it. I know the deadline got pushed back, I believe, by a year. Fundamentally, in my mind, it addresses a symptom. It’s important, I think, to keep the Treasury market functioning and liquid, and running well.

Fundamentally, in my view, the bigger problem is we’re just creating too much debt. We’re in deficit year after year. All the regulatory fixes we now have under consideration, from making more central clearing to tweaking the supplemental leverage ratio, even one of the motivations for stablecoins. I love stablecoins. I want to see them flourish. One of the motivations was, “Oh, here’s another source for T-bill demand.” There’s just a lot of rhetoric out there that has me concerned. We’re trying to find dollar bills in our couch to help pay for the national debt, some regulatory fix. Can you tell us any more about Treasury clearing? Do you think it will make a meaningful difference? Is it something we can expect to see big changes in going forward?

Peirce: Yes. I won’t comment on the bigger issues because I would maybe be accused of getting out of my lane again. With respect to Treasury clearing, I did not support that rule change because I don’t think that it’s necessarily the answer. I have concerns about putting everything into a clearing house. There are new risks that arise when you do that. That said, I think there are a lot of people who are hopeful that this will make the markets function more smoothly. I certainly hope that is the case.

I think that’s part of the reason why it does matter that we be involved in the implementation questions now. There are a lot of questions about how to implement this and what the different clearing models will look like. I think getting that right is a good thing to do. Sometimes we just think you clear something and it’s going to clean up this market and make it work great. That isn’t always the answer, but it is an answer that a lot of people like to run to. I hope that it helps. I agree there are other factors going on.

Beckworth: Yes, it’s not going to be a panacea that solves the Treasury market. Yes. There’s been some recent work that has raised that same concern about you’re increasing all the risk into one node in the financial system. The other thing that’s interesting that I read in their paper is that there are, I think, at least two other firms applying to do central clearing.

What happens is the point of central clearing, if you’ve got multiple central clears, you lose some of that network advantage. Then they also brought up that some of the firms may not want to participate inside central clearing, if they can get away from it. It will be interesting to see what happens. And like you, I want to see the Treasury market function, be liquid. I just worry, though, that we’re not dealing with the core fundamental issue, which is a political question, not a regulatory question, for sure, going forward.

Also, just one last thing on central clearing. You can obviously see I care about this. The Standing Repo Facility at the Federal Reserve is another place where they’ve talked about using central clearing to access the number of counterparties who could engage there. There’s a lot of applications for this going forward. Hopefully, it will be used wisely and improve liquidity in function of the Treasury market. 

Hester, this has been a fun conversation. One question I’ve been dying to ask you. You’ve been there a long time. You’ve been there since early 2018. I remember, in fact, I was with you at Mercatus when you got nominated. You had to sit quietly at your desk. You couldn’t be too vocal, participating in conversations and debates. You left that to me. You sat there, and you finally got your slot in early 2018. Here we are in ’25. What is ahead for you? What do you see as your next steps moving forward?

Peirce: I certainly have been here a long time. I think taking it back to where we started the conversation, it is important to get a new voice into this role. Someone else can bring something new to the job, and so I’m looking forward to when someone does step in. My term is officially over, but given the way it’s set up, I can stay on for a little while. I do have some things that I am working on here that are very important to me, including trying to bring some clarity on the crypto side.

As to what I will do when I leave, that is something that it’s very hard to think about when you’re in this job as a commissioner. Not only are you busy, but I don’t want to do anything that would make it hard for me to work on things. I’m really focused on this job now. I do hope at some point to find my way back to Ohio, where I’m from. Other than that, I really haven’t given it too much thought.

Beckworth: We will be paying close attention. We’re excited for all the great work you’ve been doing at SEC. With that, our time is up. Our guest today has been Hester Peirce. Hester, thank you so much for coming back on the program.

Peirce: Thanks, David. It’s always fun to chat.

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.