How to Regulate Big Tech: Lessons from Dodd-Frank

regulation Nov 11, 2020

In a snippet from his fireside chat with Kenn Cukier, Marty Chavez shares how his experience leading the implementation of Dodd-Frank at Goldman Sachs shapes his view of the ongoing debate on the regulation of Big Tech.


Transcript:

Kenn: Now, to get the standards that we need and to allow the data economy and the API economy to flourish, we need regulation because regulation can both restrict, but it can also enable. Washington DC is taking forays now, as well as around the world, at regulating the big tech platforms. It's not certain they know what they need to regulate or how. But at least they're now wise to the fact that they need to do something - that, actually, just looking from the sidelines isn't an answer. So let me turn to you and ask, what does wise regulation for the 21st century technology look like?

Marty: So, Kenn, I had a fascinating career experience, which I view as a peak career experience, which was the Dodd-Frank Act got passed, and then I was asked by my company to own the implementation of the Dodd-Frank Act for the trading business. That experience changed my life, and I think it’s a pattern for what can and must happen with tech. So every industry gets to a point where - not every industry, but lots of industries as there’s a whole pattern in history of this - get to a point where there's an oligopolistic, maybe monopolistic, concentration of market power.

And then there's always the question about does that lead to anti-competitive practices? And I am certain that that time has arrived for big tech. If you look at the current generation of companies, not all of them, but one way to describe them is they've happened upon this vast sea of data, which is human behavior. And nobody seemed to lay claim to that data. And so they said, “Oh, it's just there like a new world. And we are declaring it for ourselves and we are going to monetize it.” And there are essentially no constraints on that.

I think the analogy to financial regulation is there was a long period of time when there was deregulation. And the idea was let's just trust banks to look after their own risk. And that will be sufficient. And we don't need a regulator to tell banks what to do. And as we saw that didn't work out too well. And with Dodd-Frank, there's been - you know, my one concern about Dodd-Frank was it was an attempt to do about a million different things that got written into even more rules and regulations - I don't know that all that was necessary or useful, but there was something extremely useful embedded in Dodd-Frank, which goes back to where we started the conversation on software and modeling your reality and creating a mirror world in software of your business, that the Dodd-Frank Act and the Federal Reserve actually required banks...they didn't say, “You know, you might want to simulate yourselves nine quarters in into the future.” They said, “You will simulate yourselves upon request nine quarters in the future. And we'll give you a bad scenario, a severely adverse scenario, and you must demonstrate to us that even in that scenario, you still have enough capital to continue to perform your critical function of lending.” That changed the game completely. It is entirely why in the current crisis, you really haven't heard too much about banks. You've heard about struggles in almost every other industry, but the banks were forced by the regulation to be resilient. And the banks were forced to internalize a systemic downside scenario, meaning they have to have capital to absorb the loss amongst themselves without turning to the taxpayer for more capital.

And so I think you're going to see a similar pattern apply to regulation and big tech. And I got lots of ideas about how to do it.


Watch the full fireside chat here:

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