AI agents could threaten banks’ deposit funding

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 27:34

   There's a practical AI question I want to ask you, which is that I've heard there's a possibility that with people using more of these AI agents to manage their money, for example, that it could start sweeping all their money out of banks. Oh, I take that very seriously. I'll give you an example from, so my wife and I, my wife, Ali, and I have our money at Schwab. Yeah. What I'm about to say would apply to a savings and checking account.

2. 27:57

   So we have all our money is at Schwab, and almost all of it is in stocks. But some of it's in cash. Let's say before I had the cash, I was 100% invested. And I'll make up a number. Let's say my account is a million dollars. And I decide I'm a little nervous. So I'm going to sell some stock. So I'm going to sell 20% of my positions. So now I have $800,000 in stock and $200,000 in cash. that now sits in my Schwab account as cash.

3. 28:29

   If I do nothing, Schwab will pay me 20 basis points on my cash. Schwab will take my money, sweep it with everybody else's cash, invest it in short-term treasuries, which today are like, let's say, 4.5%. So Schwab makes four and a half percent on my money and pays me 20 basis points. That's what happens. However, if I just touch a couple of buttons, I can buy. A money market fund, I can buy a money market fund with my $200,000 in cash.

4. 29:08

   Now, my cash is in a money market fund, and I make the 4.5%. Schwab gets a little fee. Agentic AI could do that automatically for me. For everyone. For everybody. Yeah. And that would apply to, you know, how much money do you really need in your checking and savings account? The agentic AI could come in and sweep it and put it into a money market fund. That's what people are petrified about. If I'm Schwab in anthropomorphic form, I'm human Schwab.

5. 29:39

   I'm human Schwab. Mr. Schwab. Thank you. Don't touch me. And I'm looking at this problem. I, Schwab, the anthropomorphic company, also went to grammar school and see clearly- Two experts. Two grammar school experts. That one number is bigger than the other. And if everybody's automating this process, I am seeing a massive loss if this applies across all of my clients. Massive loss. Yeah. Massive. And by the way, for Schwab, it's worse than that because when I covered Schwab in the 90s as a sell-side analyst, their biggest revenue item was commissions.

6. 30:18

   Today, they don't charge a commission. Their biggest revenue item is that sweeping of cash. Is that a lot of differential? That's their biggest revenue item. Wow. That's almost their entire business is basically sweeping customers' cash and investing it for themselves and getting that spread. And that's all the big banks. Well, no, no, no. The big banks are different. So the way the banks work is you put your money in the bank and you put some of your money in a checking account.

7. 30:51

   Let's say you put some money in a savings account. Yeah. Then the bank takes that money and makes a mortgage loan or makes a consumer loan or makes a corporate loan and makes a spread. The reason why that checking account and savings account is so important is that it's a lower cost of funds than if the bank went out and borrowed it in the disarmament. So, and it's the most, at least until this agentic AI, the most stable source of funding that a bank can have is deposits.

8. 31:28

   Right. People, you know, people, they don't pull their money out of the bank. You know, you pull your money in the bank because you wrote a check, but then you get paid. You put your more money in the bank. The point here is that how much money do you actually need in your checking and savings account? You could maybe instruct agentic AI to say, I don't want to have more in my checking account than $10,000 at any time.

9. 31:50

   Anything more than $10,000, go buy a money market fund. I mean, this would never be a service that, you know, Schwab or another bank would provide that service. but they're worried about me as an individual having some sort of AI client that does a bunch of stuff on my computer. So JP Morgan, a couple of weeks ago, made an announcement that said we are not going to let any outside agentic AI into our bank.

10. 32:14

    Forget it. Don't even think about it. Or as Adi Brasco said, forget about it. I mean, I can't help but feel, not to say that that is a bad decision in the short run, But I feel like that opens up an obvious opportunity for some more flexible party who's, like, willing to concede that revenue to pick up users over time. I think that's probably right. But, you know, the problem is that you're J.P. Morgan, you're Citi, you're Wells Fargo.

11. 32:42

    I mean, you have hundreds of billions in deposits. You don't have the luxury of destroying your franchise. No. I mean, somebody else could do it from scratch. But you don't have the luxury to destroy your franchise. Yeah. Okay, so what about on the other subject, private equity?