The code most American banks run on was designed in 1959, the year Alaska and Hawaii became states. A committee of government and industry people wrote COBOL so that business programs could be read by people who were not mathematicians, and a good part of it was modeled on FLOW-MATIC, an earlier language from Grace Hopper, a Navy officer. I doubt anyone on that committee thought it would still be running banks in 2026. In 2017 Reuters estimated that about $3 trillion of daily commerce still ran through COBOL. In April 2020, when unemployment claims in New Jersey overwhelmed the state’s forty-year-old system, Governor Phil Murphy went on television and asked for volunteers who knew COBOL. The state had to go on TV to find programmers for its own unemployment system.
I bring this up because of a clip I posted last night of Bill Ackman talking with Shane Parrish on The Knowledge Project. Ackman said Cognition, the company behind the coding agent Devin, can rewrite a bank’s COBOL “in a matter of days as opposed to many months.” Someone replied asking me what I meant when I said commoditized lenders would compete the savings away. It is a fair question and I could not answer it in a tweet.
I do believe Ackman that the savings are real. Inside a large bank the core ledger still runs in batch. The balance a customer sees on the app at noon is an estimate (bankers call it memo-posted). The actual accounting happens overnight, when a mainframe works through a queue of jobs in a set order, posting transactions, accruing interest, charging fees, and producing files that every other system reads the following morning. The programs share data through copybooks, which are record layouts where a field is known only by its position. Cognition described one client where a single taxpayer ID showed up under dozens of different names across thousands of programs. Most big banks were put together through acquisitions, and each acquired bank came with its own core system that management was usually too nervous to shut off, so the old systems just piled up.
Replacing all of that has gone badly more often than well. Commonwealth Bank of Australia spent five years and more than A$1 billion replacing its core, and people in the industry consider that one a success. TSB in the UK moved customers onto a new platform in April 2018 and the platform did not work. Customers were locked out, some could see other people’s accounts, and service was not back to normal until December. TSB ended up paying £32.7 million in redress and £48.65 million in fines. Cognition’s own figure is that roughly two-thirds of COBOL modernization projects fail. With odds like that most banks built layers around the old core and left it alone. JPMorgan expects to spend about $19.8 billion on technology in 2026, and its CFO told investors in February that the priority had moved to “modernizing the underlying application code and data.” I would guess a large share of that budget still goes to keeping the layers standing.
Cognition is fairly careful about what its agents can do today. Devin is good at documentation, refactoring, and batch jobs, which are the parts of a migration where you can give the agent yesterday’s inputs and outputs and let it keep trying until the new code matches the old results. Cognition estimates batch is 30 to 50 percent of a typical migration. The real-time systems (card authorizations, for example) are still out of reach. Banks also have a security reason to hurry. Anthropic’s Mythos model, which can find and exploit software vulnerabilities, had bank regulators in the U.S. and Europe holding urgent calls this spring, and Reuters quoted security experts who named legacy bank systems as especially exposed.
Ackman’s harder point came a little later in the conversation. “The problem with money generally is it’s a commodity,” he said. For loans I agree with him. A company that wants a five-year term loan will collect six or seven term sheets and take the cheapest one, and a bank whose costs just went down will give up some spread to win it. Deposits have never really worked like a commodity, and I think that is where his argument is missing a piece.
The best explanation I have read is from three NYU economists, Itamar Drechsler, Alexi Savov and Philipp Schnabl. Their paper argues that banks have real market power over deposits. When the Fed raises rates, banks raise what they pay depositors slowly and only partway. Keeping that power costs money for branches, bankers and technology, but almost all of the cost is fixed. So deposits end up behaving like long-term fixed-rate funding, which is how a bank can hold thirty-year mortgages without being wiped out every time rates go up. It is also why the industry’s net interest margin has barely moved over several decades of rate cycles. The FDIC has it at 3.32 percent today.
Bankers measure this with the deposit beta (the share of a rate increase that gets passed along to depositors). Checking accounts have low betas. Online banks have high ones because, as the St. Louis Fed put it, their customers are looking for yield. During the 2022 hiking cycle the New York Fed found that super-regional banks passed through more than small banks did, while the very largest banks passed through less than either. After Silicon Valley Bank lost $42 billion in deposits in one day, money moved toward size, and the biggest banks did not have to pay more to get it.
Meta’s Muse goes right at this. It launched September 8, the same day Cognition announced it had raised more than $2 billion at a $48 billion valuation with run-rate revenue near $900 million. Muse is a personal agent that reads accounts at more than 12,000 U.S. banks and financial apps through Plaid. On Tuesday, September 22, Schwab fell 6 percent, LPL fell 7 percent, JPMorgan and Wells Fargo each fell more than 3 percent, and XLF, the largest financials ETF, was down 2 percent. On Sunday Torsten Slok at Apollo put out a note titled “Is an Agentic bank run coming?” He pointed out that the average checking account pays about 0.1 percent while Revolut, SoFi, Wealthfront and others pay between 3.3 and 5 percent, and he warned that banks “could lose a large share of the cheap deposits they rely on to make loans.”
Muse cannot move money yet. The Plaid connection is read-only, and Meta deserves to have that said. I still would not want to be running a bank’s treasury desk this month. Most people leave savings at a tenth of a percent because switching is a hassle. Opening a new account takes an afternoon, and nobody wants to be the person who breaks their own direct deposit. If an agent already sees every balance and can fill out the forms, most of that afternoon goes away.
