Tag: banks

Who Keeps The Money When AI Rewrites Bank Code?

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.

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Regulators Find Their Situational Awareness: Fed, BoE Probe Bank Exposure To Jane Street After AI Fund Meltdown

Better late than never…

Nearly two months after Leopold Aschenbrenner’s Situational Awareness went from a $45 billion AI juggernaut to a Citadel block trade after it dumped its entire public book on Ken Griffen’s doorstep at a 10% discount and six weeks after we learned that Jane Street lost $15 billion in July, its first down month in a decade, central bankers on both sides of the Atlantic have noticed that something may have happened.

According to the FT, the Bank of England’s Prudential Regulation Authority and the Federal Reserve have “stepped up scrutiny” of banks’ exposure to large trading firms and market makers. They are asking global lenders how much they have lent to Jane Street and Ken Griffin’s Citadel Securities, and presumably also to such HFT money makers as Susquehanna and Hudson River Trading.

Regulators want to know three things: the firms’ risk appetite, how banks’ exposure to them “evolved during the day,” and how risk controls held up. That’s a polite way of asking whether anyone at the prime brokers was actually watching intraday margin as the AI trade fell apart in July.

While the PRA, the Fed and Jane Street all declined to comment, Jane’s silence is the least surprising. Its last public word on the subject came from partner Turner Batty, who told investors, in the understatement of the year, that “July was a bad month.”

A brief history of a very bad month

For anyone who missed it (i.e., all the regulators), here’s the recap.

Situational Awareness is the fund Aschenbrenner, a former OpenAI researcher, launched in 2024 under the name of his viral essay. It had eight employees and ran long AI infrastructure / short software, with about 4x leverage through Goldman total return swaps. We described that leverage as “batshit insane”, but it was also extremely profitable, if only to Goldman. In a separate piece, the FT today reported that Goldman earned more than $200 million in fees this year from lending to Situational Awareness, the most of any client in its prime brokerage business financing hedge funds. 

As long as the market was going, up it was a party: the extremely levered momentum-chasing fund was was up 439% net through June, reached $45 billion in AUM, and counted Jane Street among its investors.

Then July happened. AI stocks rolled over, software rallied, and both legs of the pair trade lost money at once. Nebius, Sandisk and SharonAI each fell roughly half, and SK Hynix dropped nearly 50%. As the margin calls came in, the fund went looking for fresh capital. It failed to find willing “widows and orphans” and so within days it had exited all of its public equity trades. Citadel bought the whole book in under 24 hours at about a 10% discount, beating Millennium and, fittingly, Jane Street. The fund ended the month down about 78%, with roughly $10 billion of private holdings left, including a large stake in Anthropic.

Griffin did well out of it. Citadel’s Wellington fund rose 5.94% in July, its best month since 2022, and about half of its year-to-date gains came from the Situational Awareness trade. Over the next three weeks, Citadel flipped more than 80% of Leopold’s portfolio to dumb money through roughly 100 block trades worth more than $4 billion. When Griffin later described the unwind, he thanked “the trading and prime brokerage teams at the banks serving both firms” for their “extraordinary cooperation.”

Regulators are now asking those same prime brokerage teams some questions of their own.

Jane Street was the collateral damage: on top of its direct stake in Situational Awareness, its own book, which tends to, cough, be just ahead of whale and retail orders, leaned into the same momentum names: Sandisk, Micron, CoreWeave, Broadcom, SMCI, Dell and Bloom Energy, all the names that defined the momentum trade trough July. And when the AI trade reversed, it lost $15 billion in a month. Most firms wouldn’t survive a hit like that. At Jane Street it barely dented the year: by early August the firm had generated $40 billion in net trading revenue, already more than its record $39.6 billion for all of 2025.

That is also what worries regulators. As the FT puts it, the size of the loss “indicated that Jane Street… appeared to take far more risk than a typical market maker.”

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Revolut Leak Shows the Cost of Constant ID Collection

Online bank Revolut has revealed that it gave out sensitive personal and financial information of an undisclosed number of its customers in response to a fake government request.

The information that was handed over to an “unauthorized third party” reportedly includes names, dates of birth, occupations, addresses, phone numbers, account numbers, transaction histories (including Bitcoin), and even copies of government-issued IDs and onboarding verification selfies.

Revolut claims that derived biometric face data was not.

The company said that the data was handed over in response to an email that came from a real government agency’s domain, but was not actually sent or authorized by that agency.

The email passed several authentication checks (SPF, DKIM, and DMARC) that are designed to establish the authenticity of a message’s origin and integrity, but do not verify the legitimacy of the legal request itself.

Revolut said that it complied with the request “under the reasonable belief that it was an authentic government agency request” – and only later found out that it was not.

Revolut said it later realized its mistake, blocked the email address, and reported the incident to the relevant authorities.

Revolut said that only a “limited” number of its customers were affected by the data leak, and that the company’s systems were not hacked, nor was any money stolen.

The story broke on September 11 when Revolut customers started receiving an email notice about a data leak, and the news was picked up by media outlets the following day.

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Brussels’ Version of Democracy: Pick a Bird

Europeans finally get to vote! Brussels has discovered democracy. Do they get to vote on the war in Ukraine? No. Immigration? No. Sanctions on Russia? No. The endless climate regulations coming out of Brussels? No. Do they get a referendum on whether they even WANT the European Union to continue swallowing national sovereignty? Certainly not. But the European Central Bank has graciously decided that the people may express their opinion on what pictures should appear on the next euro banknotes. This is what democracy has been reduced to in Europe. You may not decide the policies that govern your life, but please select your favorite bird.

The ECB is currently allowing the public to rank ten preselected designs for the next generation of euro banknotes. The choices have already been narrowed to two themes: “European culture” and “Rivers and birds.” More than 1,200 designers originally applied, 25 were invited to produce designs, and an independent jury of 21 experts selected the ten finalists. Now the public gets its little moment of participation before the ECB Governing Council makes the FINAL decision around the end of 2026. The ECB itself says public opinion will merely be one of several inputs alongside the jury’s conclusions and a technical assessment. So even when they finally allow you to vote on the appearance of your own money, THEY STILL HAVE THE FINAL SAY.

Christine Lagarde declared that euro banknotes are “one of the most tangible expressions of Europe” and that the new designs will reinforce a “shared identity.” There is the entire problem in two words: shared identity. What identity? Europe is not a nation. It never has been. A Greek is not a Finn. An Italian is not an Estonian. A Spaniard is not a German. Europe contains different languages, histories, cultures, religions, traditions, economies, and national experiences stretching back centuries. Brussels has spent decades attempting to manufacture a single political identity from the top down, and even designing a piece of paper exposes how impossible that project really is.

Look at what they have selected for the “European culture” notes. Maria Callas appears on the €5, Beethoven on the €10, Marie Curie on the €20, Cervantes on the €50, Leonardo da Vinci on the €100, and Bertha von Suttner on the €200. Immediately you encounter the problem Brussels can never solve. Where is YOUR country? Where is YOUR history? Where is the person your nation believes represents its culture? Twenty countries use the euro, and this proposed series has only six denominations. Somebody will be excluded because there is no such thing as a single national European culture that can be represented on six pieces of paper.

They have already stumbled into controversy over something as basic as Marie Curie’s name. Polish MEP Joanna Scheuring-Wielgus objected to the way the ECB identified her and pressed the institution to recognize her Polish heritage and birth name, Skłodowska. Lagarde eventually responded that the ECB would refer to her as “Marie Curie (born Skłodowska)” while it continued considering how names might appear on the notes. There you have it. They cannot even put ONE famous European on a banknote without immediately encountering national identity because national identity actually EXISTS.

This is why the alternative is birds and rivers. The ECB’s own research found that people considered nature “neutral,” “safe,” “borderless,” and unlikely to create controversy. They have been forced toward politically neutral wildlife because depicting actual European civilization exposes the fact that Europe is composed of independent nations.

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Bank Of England Spends £85k Researching How Best To Erase Churchill

The Bank of England has spent more than £85,000 of research money to justify wiping Winston Churchill, Jane Austen, J.M.W. Turner and Alan Turing off Britain’s banknotes and swapping them for hedgehogs, foxes and puffins.

A Freedom of Information trail shows Savanta was paid £49,000 to run focus groups that told officials historical figures were “elitist and divisive.”

Another £22,500 went on public consultations about which animals should replace them. The Bank called the result a “positive evolution,” not censorship.

The October 2025 Savanta report, delivered months before the nature theme was announced, warned that portraits of notable Britons were “contentious and not representative of the UK’s cultural and natural diversity.”

Officials were told historical figures represented “a backward-looking vision of the UK that carries too great a risk of division and controversy.”

Most of the 119 focus-group participants said featuring such people was “potentially divisive, elitist and disconnected from their own experiences.”

Churchill sits on the current £5. Austen is on the £10, Turner on the £20, Turing on the £50. All are scheduled to go. King Charles stays on the front.

Governor Andrew Bailey is due to pick the animals by the end of 2026 from a shortlist that includes the European hedgehog, red fox, Atlantic puffin, barn owl, common frog and bottlenose dolphin.

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Europe’s Von Der Leyen Wants To Put Private Bank Deposits Under State Direction

How will we deal with private property in Europe in the future?

A highly complex debate follows from this question, one that European Commission President Ursula von der Leyen interpreted in her own very particular way on Friday. In a speech to French business leaders at the MEDEF’s La Rencontre des Entrepreneurs de France in Paris, the former defense minister talked about using EU citizens’ bank deposits to get the ailing eurozone, the European economy, back on its feet.

An unmistakable message: In the view of the EU’s chief Eurocrat, private property as a protective wall shielding citizens from an overreaching state has served its purpose as a pillar of civilization.

Central planning, subsidy madness – this is Brussels under the magnifying glass.

Certainly: In the face of towering government debt and capital flight from the old continent, in whose wake thousands of patents and tens of thousands of highly qualified professionals are being swept away, citizens’ wealth is bound to awaken political appetites. A ruthless expropriation or the decreed redirection of cash, as the finest bureaucratic German puts it, is supposed to solve the problems Brussels itself has caused through its stubborn climate policy, its overregulation and its continuing insanity of interventionism.

Von der Leyen was explicit before the business leaders: Europe has savings, she said, but unfortunately those savings are sitting on the sidelines. Ten trillion euros are sitting as cash savings in the hands of private households in bank accounts, lectures von der Leyen in the manner of a classic central planner who can no longer take her eyes off citizens’ wealth. The European economy must now put this capital to work for its companies, the chief bureaucrat decreed.

None of this merely sounds like Erich Honecker. Von der Leyen is increasingly turning into a socialist sister in spirit to this disastrous regime.

Von der Leyen is following the path of the German chancellor. Friedrich Merz, too, discovered the cash holdings of Germans as political capital for himself more than a year ago – thoroughly socialist, indeed almost dictatorial, the chancellor also pointed to the possibilities opened up by what he called an activation of this money.

Ursula von der Leyen and Friedrich Merz reveal not merely an ethical and ideological abyss; they are contemplating dictatorial control over the private wealth of citizens who are still sovereign.

Almost tragically comical is the economic ignorance of these two political protagonists of an EU that is now openly turning toward an illiberal ideology.

Bank deposits are by no means useless cash. From the perspective of the banking sector, customer deposits are a central source of refinancing and liquidity, embedded in the money and credit cycle and enabling the provision of loans. Bank credit in the modern monetary system does not simply arise from passing on existing deposits. Commercial banks create new bank money through lending, although this process cannot simply be understood as a mechanical “leveraging” of existing deposits. Customer deposits thus fulfill numerous functions, from private liquidity planning and cash holdings to the financing and management of banking processes.

Such a massive intervention in the highly complex and fragile liquidity and credit structure of the banking sector would not merely be a barbaric act of socialism – it would be a frontal assault on the functionality of the banking system as such.

Nevertheless, the EU will resort to massive interventions – financially, after all, they have run into a wall.

Starting in 2028, repayment of the €800 billion Eurobond “NextGenerationEU” will come due. Von der Leyen’s speech before business leaders was ostensibly directed at the private sector, but in reality it concerned the financing of the European debt club, which is now moving toward tapping every financial source that can help keep the Ponzi scheme of European credit alive – the activation of cash appears to be one of those sources.

France is caught in a debt spiral, with new borrowing amounting to 5.7% of GDP this year and a parliamentary deadlock that rules out any form of fiscal consolidation.

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Former Marvel Filmmaker Lexi Alexander Cheers the Stabbing Murder of a Bank of America Employee

Lexi Alexander, director of the 2008 Marvel film Punisher: War Zone, is taking heat for celebrating the stabbing murder of a Bank of America employee with an X post featuring Luigi Mangione’s face superimposed on a drawing of Batman’s bat signal.

Bank officer Erin Piacenti was fatally stabbed in Times Square, New York, shortly after celebrating her second wedding anniversary — and the day of her murder was her first day back to work from maternity leave. Piacenti, 32, was walking near West 42 Street and Seventh Avenue when 49-year-old Pamela Cisneros of Queens stabbed the young mother and another person in unprovoked attacks. Cisneros was later shot and killed by police after she threatened them with her two butcher knives.

After the murder, Alexander, who calls herself a “Palestinian filmmaker” (born in Germany to a Palestinian mother and father), jumped to her X account and posted a drawing of Batman looking up at the bat signal, but in the lighted image in the sky, there is instead an image of Luigi Mangione’s face. Mangione is now on trial for the 2024 assassination of UnitedHealthcare CEO Brian Thompson.

Alexander’s image was shared quoting a news blurb taken from Bloomberg that revealed Piacenti’s employer but not her name: “Bank of America vice president killed in Times Square stabbing – BBG.”

Her X post is still on her timeline, but it has been restricted from being embedded.

In a followup post, she accused everyone who criticized her post of being a “Hasbara bot,” meaning someone working for Israeli propaganda operations.

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The Entire Financial System Is Chained to Government Debt

The Bank for International Settlements is warning that near-record public debt and the growing role of hedge funds and other nonbank financial institutions have created what it calls a “fiscal-financial stability nexus.” That is sanitized bureaucratic language for a system in which governments, banks, pension funds, insurers, hedge funds, and central banks are all chained to the same mountain of sovereign debt. If government bonds begin to fail, the losses will not remain confined to some account at the Treasury. They will spread through the institutions holding the public’s savings and eventually force central banks to choose between the currency and the financial system.

Government debt is treated as the foundation of modern finance. Banks use sovereign bonds as collateral, pension funds hold them to match future obligations, insurers depend on them for income, and hedge funds trade them using enormous leverage through repurchase markets. Regulators assign government debt privileged treatment because they have declared it “risk-free,” but no investment is free of risk. The label exists because government needs financial institutions to purchase its bonds, and admitting that sovereign debt can become unstable would expose the fraud supporting the entire system.

The BIS estimates that the probability of a financial-stress event comparable to the Global Financial Crisis occurring within three months is roughly ten times higher when public debt relative to GDP is elevated. The probability rises from approximately 0.3% under lower-debt conditions to 3.8% when government debt is high. The risk increases further when nonbank financial institutions hold a larger share of the market because many depend on leverage and short-term funding that can disappear the moment bond prices move against them.

This is how a routine selloff can become a systemic event. Government bonds decline, yields rise, and leveraged funds suffer losses. Lenders demand additional collateral, forcing those funds to sell more securities into a falling market. Liquidity disappears, borrowing costs surge, and the losses spread to banks and other institutions connected through funding markets. Government then complains that the market is “dysfunctional” because investors are no longer purchasing its debt at politically convenient prices.

The central bank is forced to intervene because allowing the bond market to clear naturally could bring down the financial system. It purchases government securities, supplies emergency liquidity, and claims that the operation is temporary and has nothing to do with financing the state. Yet every rescue teaches the market that excessive leverage will be protected and teaches politicians that reckless borrowing carries no immediate consequence. This creates the next crisis by encouraging the exact behavior that caused the first one.

The BIS openly admits that repeated central-bank interventions can weaken market discipline over government spending. This is the vicious circle they cannot escape. Governments borrow excessively, bond markets become unstable, central banks suppress the instability, and politicians interpret the rescue as permission to borrow even more. The debt increases until each attempt to restore honest interest rates threatens the banks, pensions, and funds that were encouraged to hold it.

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Russia’s Bank Run — When Confidence Begins to Crack

A bank does not actually have everyone’s money sitting in a vault waiting to be returned. The entire system functions because everyone assumes they will not demand their money at the same time. Once that confidence begins to crack, the numbers on a balance sheet become secondary because people want CASH.

That is what we must now watch in Russia. Russians have been pulling billions out of the banking system, with demand for physical cash accelerating dramatically this summer. According to Russian Central Bank data cited in the press, nearly $3.4 billion was withdrawn during just the first two weeks of August after approximately $7.3 billion in July and more than $4.5 billion in June. The Central Bank itself reported that cash in circulation increased by roughly 700 billion rubles during July, compared with about 500 billion in June.

This does not mean the Russian banking system is collapsing tomorrow. Nevertheless, something much more important is taking place beneath the surface. Russians are becoming nervous about leaving their money inside the financial system. Rumors have circulated that the government could eventually freeze or commandeer private deposits to help finance the war, and once people begin questioning whether they will retain unrestricted access to their own savings, government assurances become increasingly meaningless. Fear of possible seizure has become one factor driving the movement into cash, alongside drone attacks, economic uncertainty, and disruptions to electronic payments.

This is always the danger with capital controls. Russia has already demonstrated that it will restrict access to money when the state believes national interests require it. Foreign-currency withdrawals remain restricted, and accounts belonging to various foreigners from so-called “unfriendly” nations have faced controls since the war began. Putin recently relaxed some restrictions affecting foreign depositors.

People forget that money is ultimately a question of confidence in government. You can raise interest rates to 20%, offer attractive deposits, and tell everyone that the banking system is perfectly safe, but none of that matters if people begin fearing that the state itself may change the rules. The greatest threat to a banking system is not necessarily bad loans. It is the realization among depositors that their money exists inside a political system whose rules can change overnight.

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Central Banking: The Scourge of Civilization

Apple builds and sells iPhones. I happen to own one of the older models, for the same reason I own a last-legs older model car. What if Apple could skip the build part and sell only the phone? The money saved would be an enormous boost to its bottom line. And if Apple passed the savings onto customers I could conceivably afford to upgrade.

Where would the phones come from? From a bookkeeping entry, of course.

Unfortunately, Apple’s customers are very demanding and want the real things, so the build operations will have to stay. Perhaps their executives looked upon another business and envied their ability to sell loans without drawing down their savings. Customer with good credit wants a loan? Create the amount with a few taps on a keyboard and send him on his way.

The customer will spend his newly-acquired money, thus keeping people employed. Since he has good credit, he will be able to make monthly payments, and the lender, the bank, will normally apply his payments to extinguish the loan, with the interest being the bank’s profit. Everyone’s happy and the economy keeps expanding until it busts.

Experts will diagnose the bust. The usual fiends will get blamed. Government will step in to cure the problem its monetary and banking interventions helped create. The economy will slowly recover and continue on the same path as before, meaning banks will continue extending credit from ether rather than savings.

How did this racket get started? It’s complicated. That’s one reason it works—the crime doesn’t exist if enough people don’t see it.

Gold and silver coins have long served as money, until more recent times. For government, gold became an economic culprit during the Great Depression, as explained by JM Bullion,

The Great Depression officially began on October 28, 1929, when the Dow Jones Industrial Average lost 13% of its value in a single day. The following day, it dropped an additional 12%, and in a matter of weeks, it was worth half as much as before.

In response, consumer confidence plummeted, and people began withdrawing their money from banks as quickly as possible. Banks, which work with reserves and don’t keep much of their deposits on hand, began closing their doors. (emphasis added)

Bank-created money was disappearing, and prices fell accordingly. Let’s expand on this.

The Federal Reserve Act of 1913 required the Fed to hold gold equal to only 40 percent of the currency it issued. By adjusting interest rates, the Fed could increase or decrease its stock of gold. Higher interest rates shifted “gold from the pockets of the public (both here and abroad) to the vaults of Federal Reserve district and member banks.” Conversely, lower rates drove gold from the Fed’s “coffers into the hands of the public both at home and overseas.”

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