Paul Volcker

AI systems are now making consequential decisions inside banks, trading firms, and insurance companies, but regulators have no capacity to audit the models themselves. The gap between what these systems do and what supervisors can verify is the same gap that preceded every crisis.

A federally-backed AI Model Audit Corps within the Federal Reserve and OCC with technically trained examiners who can read code, test model outputs against stress scenarios, and demand documentation. Establish mandatory 'model disclosure' requirements for training data sources, failure modes, and validation procedures. Require that any AI system making credit, trading, or insurance decisions be subject to periodic stress-testing by examiners who can run adversarial scenarios.

The federal civil service is being systematically dismantled with no institutional mechanism to preserve the institutional memory and capability that took generations to build.

A National Public Service Reserve modeled on military reserves that maintains a roster of retired federal employees and trained professionals willing to be called up during transitions or crises. Create binding 'continuity handbooks' for every significant federal function written by departing career staff. Establish a privately-funded but publicly-chartered 'Government-in-Waiting' program that trains and credentials people for senior career positions.

Central banks have drifted into a regime of explicit inflation targeting that creates false precision and invites the dangerous temptation to 'test the waters' with a little more inflation when growth disappoints.

A formal institutional mechanism—perhaps a standing commission of former central bankers, academic economists, and business representatives—charged with publicly evaluating whether inflation targeting regimes are actually serving price stability. Return to the formulation that the job is to take away the punch bowl when the party gets going, not to calculate the optimal alcohol content to two decimal places. Explicitly acknowledge the limits of measurement precision and adopt language that emphasizes stability as a qualitative state rather than a numerical target.

The 'too big to fail' doctrine has metastasized. The largest financial institutions now operate with implicit government backing that distorts competition, encourages excessive risk-taking, and concentrates systemic risk in fewer hands. Resolution mechanisms exist on paper but have never been tested at scale during actual panic.

Mandatory 'resolution rehearsals'—annual exercises in which regulators actually simulate the failure and resolution of each systemically important institution, with real consequences for institutions whose plans prove unworkable. Require that resolution plans be tested not by the institutions themselves but by independent teams with authority to demand changes. Advocate for significantly higher capital requirements specifically for the largest institutions—a size tax implemented through capital surcharges steep enough to make being 'too big to fail' genuinely costly.

Financial institutions are increasingly governed by boards that lack the expertise, independence, or incentive to challenge management on risk-taking.

A mandatory board certification program for directors of systemically important financial institutions—rigorous training in balance sheet analysis, risk management, and regulatory requirements, with ongoing testing. Require that a minimum fraction of board members have no prior relationship with management and no consulting contracts with the firm. Establish a public registry of director performance, tracking which directors served on boards of institutions that later required regulatory intervention.

The auditing profession remains captured by the conflict of interest that destroyed Arthur Andersen: auditors are chosen by, paid by, and afraid of losing the business of the very managements they're supposed to oversee.

Audit firm assignment determined by rotation or random selection rather than management choice, with fees set by formula rather than negotiation. Create audit-only firms that are prohibited from providing any consulting services to audit clients. Establish public disclosure of all audit disagreements, not just those that result in qualified opinions, so that investors can see when management pushed back against auditor concerns.

Shadow banking—nonbank financial intermediation—has grown to dwarf the regulated banking system, yet supervisory authority remains fragmented, unclear, and politically contested.

A single consolidated supervisor with clear authority over all entities that perform bank-like functions—maturity transformation, credit intermediation, leverage—regardless of their legal charter. Require that any entity above a threshold size that borrows short and lends long be subject to capital requirements, liquidity requirements, and examination. Establish a public registry of all entities engaged in maturity transformation, updated quarterly, so that regulators and markets can see where risk is accumulating.

Graduate education for public service has been captured by economics and political science departments that value theoretical elegance over practical competence. Faculty abandoned the mission of training public administrators because they found public administration insufficiently prestigious.

A new network of public administration programs that explicitly prioritize practical skills: budgeting, personnel management, contracting, regulatory enforcement, crisis response. Require that faculty have significant government experience and that curricula include substantial practicum components. Evaluate programs partly on the government careers of their graduates rather than academic publications. Establish scholarships that forgive student debt for graduates who complete at least five years of government service.

Government disclosure requirements have proliferated but actual transparency has declined. Agencies produce thousands of pages of compliance documents that no one reads while information that would actually reveal problems remains hidden.

A standardized 'Government Performance Dashboard' for every major federal agency, updated monthly, showing metrics that citizens can understand: backlogs, error rates, contractor costs versus original estimates, employee turnover, whistleblower complaints. Require that all significant disagreements between agency staff and political leadership be documented and preserved for inspectors general and Congress. Establish 'disclosure audits' that evaluate whether the information disclosed was actually useful for oversight.

Central Bank Digital Currencies are being implemented worldwide without adequate attention to institutional implications—the potential for government surveillance of all transactions, the elimination of privacy that physical cash provides, and the risk that central banks will be drawn into retail payment operations.

An independent commission to establish principles for CBDC design that preserve the essential characteristics of cash: anonymity for small transactions, freedom from surveillance, protection against arbitrary seizure. Advocate for strict separation between CBDC issuance and transaction monitoring, with monitoring either prohibited or placed in institutions with clear due process requirements. Require public stress-testing of CBDC systems against scenarios of political abuse: freezing accounts of political opponents or protesters.