Patrick McKenzie (@patio11) shares his remarks to the Bank of England on critical vulnerabilities in financial infrastructure. Drawing from the July 2024 CrowdStrike outage which brought down teller systems at major US banks, Patrick discusses how regulatory guidance inadvertently created dangerous software monocultures. He also examines the stablecoin market, its impressive growth, and the elephant tethered to the room. He also delivers a message from Silicon Valley to other centers of power on the urgent necessity of waking up regarding AI, which almost the entire world currently far underrates.
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Full transcript available here: www.complexsystemspodcast.com/talking-to-the-bank-of-england/

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Sponsor: Mercury
This episode is brought to you by Mercury, the fintech trusted by 200K+ companies — from first milestones to running complex systems. Mercury offers banking that truly understands startups and scales with them. Start today at Mercury.com
Mercury is a financial technology company, not a bank. Banking services provided by Choice Financial Group, Column N.A., and Evolve Bank & Trust; Members FDIC.

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Links:

The Bank of England: https://www.bankofengland.co.uk/
Bits about Money, Why the CrowdStrike bug hit banks hard: https://www.bitsaboutmoney.com/archive/crowdstrike-bug-hit-banks-hard/
Scaling Laws for Neural Language Models" by Kaplan et al: https://arxiv.org/pdf/2001.08361
Stripe Annual Letter 2024: https://stripe.com/annual-updates/2024

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Timestamps:

(00:00) Intro

(01:48) The importance of technical understanding in policy

(03:04) Single points of failure in engineering systems

(05:18) The CrowdStrike incident: a case study

(09:54) Blameless postmortems and incident reviews

(20:06) Sponsor: Mercury

(21:19) Blameless postmortems and incident reviews (cont’d)

(22:54) The role of endpoint monitoring software

(40:32) The impact of the CrowdStrike outage on financial institutions

(48:02) The 2023 miniature banking crisis

(49:29) Policy responses to financial stability risks

(50:40) The role of engineers in financial security

(52:46) Red team exercises and identifying weak links

(54:05) Stablecoins and their regulatory framework

(01:03:56) The bull case for Tether

(01:16:59) AI's impact on trading and financial systems

(01:17:39) The future of AI and its broader implications

(01:30:41) Wrap

Talking to the Bank of England about systemic risk and systems engineering

Complex Systems with Patrick McKenzie (patio11)