This is FRESH AIR. I'm Terry Gross.

Today, President Obama signed into law the Wall Street Reform and Consumer Protection Act, which overhauls the financial regulatory system. At the signing ceremony, the president said: For years, our financial sector was governed by antiquated and poorly enforced rules that allowed some to take risks and destroy the economy. The president describes the new law as the strongest consumer financial protections in history.

Republican Senator Richard Shelby of Alabama called the 2,300-page bill a legislative monster that will place new regulatory burdens on businesses.

My guest, Binyamin Appelbaum, is a financial reporter for The New York Times. He says these reforms will subject more financial companies to federal oversight, regulate many derivatives contracts and create a panel to detect risk to the financial system. It will also create a consumer protection regulator.

Appelbaum won a George Polk Award for his reporting on home foreclosures in North Carolina back in 2007, just as the housing bubble began to burst.

Binyamin Appelbaum, welcome to FRESH AIR. In a recent article, you and fellow reporter David Hershenhorn describe the bill as, quote, a catalogue of repairs and additions to the rusted infrastructure of a regulatory system that has failed to keep up with the expanding scope and complexity of modern finance.

That catalogue of repairs and additions to the rusted infrastructure part makes it sound like you think the system is still kind of corroding. Is that what you mean?

Mr. BINYAMIN APPELBAUM (Financial Reporter, New York Times): We still have the same system, and that system is badly corroded and was, by all accounts, badly in need of repairs. There were people who thought that what we should do with it is tear it down and build an entirely new system of regulations in its place.

What the government decided to do instead was seek to repair it. And so this bill an attempt to update it and to make it modern and to build a regulatory system that can keep pace with the modern financial industry. We'll see how well that works.

GROSS: Now you pointed out that President Obama chose to supersize regulations instead of downsizing the financial industry. Would you describe the different in those two approaches?

Mr. APPELBAUM: This is a more-lifeguards approach to financial reform. There were two ways the government could have proceeded in the aftermath of the financial crisis.

One was to constrain the banking industry, to tell them that they could no longer engage in certain types of activities, that high-risk types of trading were off limits, that certain types of products could no longer be sold or purchased, that banks needed to get smaller. That's what we decided not to do. The bill leaves the financial industry substantially intact. It allows them to do almost everything that they were doing in the run-up to the crisis.

The difference that this bill makes is that we're hiring more lifeguards, in essence. We're putting more federal regulators around the pool. We're giving them more money, more power, more resources and hoping that they will produce better results.

GROSS: Now, there were a lot of regulators already before the crisis. For instance, there were regulators at the Federal Reserve, who chose not to regulate some of the things that were going wrong in the financial industry. So is there confidence within the financial world or within the consumer world or within the Obama administration that more regulators or more money will prevent another financial meltdown?

Mr. APPELBAUM: There certainly is confidence at the highest levels of the Obama administration that this is the approach that makes sense. It's the approach that the administration detailed a year ago, and Congress has substantially honored the administration's wishes in writing this legislation.

So what we have is a very fair reflection of what the president and his top advisors believe is the best course of action, which is to place a bet on the same regulatory agencies, with some significant changes but still in essence the same regulators, to do a better job the next time around. There are a valid reasons that a lot of people have concerns about that, but that is their plan.

GROSS: Since the Obama administration chose to take the approach of supersizing regulations, what was the alternative?

Mr. APPELBAUM: There were two real alternatives. One, which was favored by a lot of economists, liberal economists and a lot of consumer advocates and a fair number of liberal senators, as well, was to constrain the financial industry. We've had a remarkable growth in the size of our largest banks in recent decades. We've gone from a very atomized financial industry, where institutions were primarily local and served local markets, to a system where a few giant banks dominate the landscape.

Companies like Bank of America and Citigroup and JPMorgan Chase are so large -you know, those three companies and Wells Fargo together control more than half of many of the consumer financial marketplaces that they dominate the industry in a way that we haven't seen before. And when they get into trouble, there appears to be no alternative, in terms of the health of the broader economy, than to rescue them from failure, which is what happened two years ago.

So there were people who thought we should make those companies smaller, chop them up into pieces, limit their ability to dominate the marketplace in the way that they do and bring them back down to a size where if they failed, we could tolerate it, the economy could tolerate it.

There were also proposals to constrain what happens on Wall Street, some of the riskiest types of trading, to, you know, require companies to separate out high-risk forms of trading or to stop engaging in them all together.

GROSS: So in terms of the too big to fail, is the current legislation designed to prevent institutions from getting too big to fail, which would mean if they did fail, we'd have to bail them out because we couldn't afford to have them fail?

Mr. APPELBAUM: No, it's not. It explicitly takes the second approach, of saying you can become big but we're going to create a new mechanism so that we can allow you to fail. What this bill creates is a system, a sort of a parallel process to the bankruptcy courts, where a financial company could be taken and dismembered and liquidated in a way that the designers hope would not cause broad economic damage.

GROSS: What does that mean? Say a really large financial institution like one of the ones you just mentioned was in such trouble that it was going under. How would the regulatory agency dismantle it?

Mr. APPELBAUM: So it's perhaps helpful to think about the example of Lehman Brothers, which became the largest bankruptcy in American history in the fall of 2008. The government was confronted with a choice. It could either find someone to buy the company or it could essentially force it to shut down, but there was no orderly way to take Lehman out of existence.

This new process would allow federal regulators to take control of that company, to essentially close out its business, to distribute, to complete contracts with buyers and borrowers and investors to pay them off on some, you know, reasonable basis and to shut down the company. And if there are portions of it that could be sold to other companies, to do so and thereby recoup some of the losses from the shutdown but sort of take Lehman out of the financial markets, which are sort of like a spider web of intertwined companies, you know, with relationships, one with the other, that are difficult to sever.

It sort of is a way of pulling one company out of that interlinked network of spider webs.

NORRIS: Is this at all like what the FDIC does when a small bank goes out, you know, goes under?

Mr. APPELBAUM: Yeah, that's actually exactly the model for this. We have a system, we've had it since the Great Depression, that allows the Federal Deposit Insurance Corp. to take control of a failed bank, to hold on to the most problematic parts of the bank, basically loans that are not going to be repaid, and then to sell the rest of the bank, its branches, its computers, its depositors, to another institution, which can then run the bank without its problems.

This is a very similar idea and, in fact, it would be administered by the FDIC.

GROSS: So is it unprecedented to do this kind of takeover of a financial institution that isn't FDIC insured, that isn't just a savings bank?

Mr. APPELBAUM: Yeah, it is unprecedented. It's never been legal before. It's never been possible before. That's one of the innovations that this law would create.

GROSS: Do you think that in some ways we, as a country, are a hostage to the financial industry because the financial industry is such a big part of the economy? And I think, you know, that lawmakers are really worried about hurting the financial industry in a way that might hurt the American economy. At the same time, many lawmakers want to rein in the financial industry and prevent another crisis from happening.

But there is so much concern about hurting the banks in a way that might hurt the economy. So are we hostage in some way?

Mr. APPELBAUM: I think that what we found as we walked into this crisis was that our economy was so intertwined with our financial sector, so dependent on our financial sector, that even as public anger built and some government officials started looking at ways of punishing the industry or taking a pound of flesh from the banks, what they found is that in their judgment, there was no way to do that without damaging the broader economy.

And government officials have talked about this and said, for example, there are proposals to propose a bank tax on banks, and the fear was that if you did that to banks, if you required them to make that kind of payment, it would limit their ability to make new loans at a moment when the economy desperately needs new loans.

If you, you know, imposed restrictions on their activities, you would be constraining economic growth. And so, yeah, we've grown to a point where the financial industry is so much at the heart of the modern American economy that punishing it or even restraining it is very difficult to do.

It's essentially a form of choking yourself. And you need to have the confidence that that's the right thing to do, that there's a long-term benefit to doing it. And thus far, the judgment in Washington has been that it isn't, that the financial industry is they brought us to the dance and we're going to leave with them.

GROSS: So what does it mean that the financial industry is so much at the heart of the economy? Like, can you give us an example of what that means?

Mr. APPELBAUM: Sure, you know, it is the case that our economy over the last several decades has been in a process of transformation that'll be, you know, familiar to many listeners, from being driven by manufacturing activity to being driven by financing activity.

Our government has made a number of decisions that privilege financial activity through lower tax rates, through the ease of borrowing, through encouraging investors to put their money into the American marketplace. And the effect of that has been, in some cases, as direct as transforming the business model of given companies from manufacturing widgets in Idaho to manufacturing those widgets in China, and the company that is still in Idaho now is in the business of financing the sale of those widgets to American customers.

So you've had a transformation where we've stopped making things and started financing the making of those same things in other countries. And what you've seen is a growth in the financial sector to the point where at the high point before the crisis, I believe 43 percent of corporate profits in America were in the financial industry.

And that's kind of an astonishing number if you recall that financing is supposed to be an intermediation. It's supposed to be sort of the role of middlemen in the economy. Facilitating the movement of money from one place to the other has now become 43 percent of our economic activity.

GROSS: If you're just joining us, we're talking about the new financial reform legislation. My guest is Binyamin Appelbaum, who is a financial correspondent for The New York Times. He's based in Washington, D.C. Let's take a short break here and then we'll talk some more. This is FRESH AIR.

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GROSS: We're talking about the new financial reform legislation. My guest, Binyamin Appelbaum, covers finance for The New York Times. He's based in Washington, D.C. So this new legislation is over 2,000 pages, right?

Mr. APPELBAUM: Twenty-three-hundred pages.

GROSS: And has anybody read all 2,300 pages?

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Mr. APPELBAUM: I hope that someone has, but I'm not and perhaps I've even met them and not known it, but not a lot of people have read all those pages.

GROSS: So in those...

Mr. APPELBAUM: There are actually committees set up at - many of the major trade groups in Washington have set up committees of lawyers to read the entirety of the bill so that, you know, one person is not forced to do that. And they divide it up amongst themselves and they sit around in their offices reading it and parsing it. So even the people who are paid the most to understand what is in this have generally taken the approach of not doing it all themselves.

GROSS: Well, let's look at some of the highlights of these over-2,000 pages. What are the new regulatory institutions that this new legislation sets up?

Mr. APPELBAUM: There are two big new institutions here. The headliner is called the Consumer Financial Protection Bureau. It will be an office of the Federal Reserve that is devoted to protecting consumers and borrowers from abuse by lenders.

And it sort of consolidates the authority to protect consumers that now rests in about seven different federal agencies that are primarily devoted to regulating financial companies. It takes it from those places, puts it in one single bureau that will have the power to write rules about things like what information you need to be provided when you apply for a mortgage loan or how much your credit card company can charge you when you miss a payment or what happens when you try to withdraw more money than you have from your bank account. All of those issues will now be regulated by this new consumer protection bureau.

GROSS: And the second agency, yeah?

Mr. APPELBAUM: The second one is a new oversight body, a coordinating council of regulators that is responsible for policing problems in the financial system that could pose risks to the broader economy.

The idea is that we've had sort of a silo structure of regulation where each regulator was looking at their particular segment of the financial industry and not paying attention to the broader consequences that something like subprime lending could do, where, you know, if loans started failing, maybe a regulator appreciated that some banks could be in trouble, but they didn't know that investment banks had been providing funding to those banks, and they could also be in trouble and that an insurance company called the American International Group was providing insurance contracts on those loans, and it could be in trouble.

No one was sort of looking at the big picture. And the idea is that this new council would be able to do that.

GROSS: And what are some of the changes that are being made to banks and how they operate? What are some of the changes that are already written into the legislation?

Mr. APPELBAUM: There really are very few changes being made to banks and the way that they operate particularly explicit in the legislation. Probably the most prominent one is something called the Volcker Rule, which says that banks cannot make their own investments alongside their customers' investments.

Many banks have made a great deal of money in recent years by running what are called proprietary trading desks, groups of very talented traders whose job it is basically to make money for the bank, to take, you know, the bank's capital, invest it in the markets and make a quick return on it. That type of activity is ruled out under the legislation.

GROSS: Because?

Mr. APPELBAUM: The idea is that a bank gets money more cheaply, a bank can borrow money more cheaply than any other kind of company because the government protects the banking industry. And that gives it a tremendous advantage. And the reason the government protects banks is so that they will make loans to small businesses, large businesses, consumers. Banks are playing a public policy function.

And the concern was that if they're using that money instead to gamble, essentially, to pursue their own investments, to make as much money as possible, then the public policy rationale for protecting the banks doesn't really pertain, and they may get themselves into trouble and need to be rescued at taxpayer expense.

So Paul Volcker, the former chairman of the Federal Reserve, made a compelling case that what made sense was to say to banks, hey, I'm sorry, if you want to play under the government's safety net, you're not going to be able to pursue that type of trading.

GROSS: I'm sure the banks weren't happy with that. What did they do to try to resist the Volcker Rule?

Mr. APPELBAUM: Well, they actually resisted it quite successfully. The original form of it was much more strict. It much more strictly defined proprietary trading. So the original version of the Volcker Rule did that in a way that a lot of experts felt was pretty, you know, was pretty tight and effective. But in its modification by the Congress, it got a lot weaker.

And in one particular area, it got very weak, which is initially the rule said banks can no longer make investments in hedge funds and in private equity funds, investment vehicles. And by the time Congress was done with it, it said banks can invest a fair amount of money in those vehicles, not more than a certain threshold, but they set that threshold high enough so that it doesn't really affect the prevailing practices in the industry.

So by the time we were done, we had a rule that basically said you can't do what you're not doing anyways.

GROSS: You can't do what you're not already - you can't do what you're not doing anyway?


GROSS: So you're saying this is going to be a very ineffective rule.

Mr. APPELBAUM: It doesn't really affect industry practice.

GROSS: What else is changing for the banks?

Mr. APPELBAUM: If you asked Lawrence Summers, the president's chief economic advisor, and Timothy Geithner, the treasury secretary, what they consider to be the most important element of financial reform, they would tell you that it's something called capital standards, which are the requirements that dictate how much money banks need essentially to hold in reserve against unexpected losses, basically how much body fat banks need to have. Because it wants to require them to hold significantly more capital and by doing so, it will constrain their ability to pursue some of the more excessive forms of financial activity by weighing them down, essentially, by preventing them from borrowing quite as much, by saying for every dollar that you have, you can only invest 85 or 90 cents of it, rather than 93 or 97 cents of it. It effectively constrains financial activity.

The administration favors this approach because rather than needing to identify particular areas as being the most risky, it can basically say we just want you to wear more padding and whatever you do that gets yourself into trouble, the padding will absorb it.

And those rules are not dictated by the legislation. Instead, they're being negotiated in an international process, through something called the Basel Committee on Banking Supervision. And that is what the administration regards as really the centerpiece of its effort to constrain banks, but it's not in the legislation. It depends on this secondary process.

GROSS: Why is this a global process that's being negotiated in Basel, as opposed to a U.S. process?

Mr. APPELBAUM: The key concern is that if the United States imposed rules unilaterally, it would put American banks at a competitive disadvantage to foreign institutions, which would be able, essentially, to operate more cheaply than American banks because they would be required to wear less padding. And that in so doing, you'd simply move financial activity overseas, and rather than making it safer, you'd actually just push it away from us, push it away from our shores. And banks would continue to do the same kinds of things, they'd just do it in Hong Kong or Switzerland or England instead of in New York.

So the administration really wants this to be an international agreement, and it's a competitive issue, basically.

GROSS: My guest, Benyamin Appelbaum, will be back in the second half of the show to talk more about the new Wall Street Reform and Consumer Protection Act. He's a financial reporter for The New York Times. I'm Terry Gross, and this is FRESH AIR.

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GROSS: This is FRESH AIR. Im Terry Gross. We're talking about the new Wall Street Reform and Consumer Protection Act, which President Obama signed into law today. It overhauls the financial regulatory system and creates a new consumer financial protection bureau. My guest, Binyamin Appelbaum, is a financial reporter for The New York Times.

Would you say that the banks lobbied pretty effectively for what they wanted in this financial reform bill?

Mr. APPELBAUM: I think in some respects they were extremely effective. The administration put out a proposal about a year ago that really detailed what it wanted to see in a financial reform bill. And the final version hues pretty closely to what the administration initially proposed. So the administration officials have been crowing in recent days and saying basically, look, the industry didnt get its way, we got what we wanted instead.

What that story misses is that in the intervening year, liberals in the House and Senate pushed very hard for a wide variety of more substantive restrictions on the industry and more substantial reforms to the regulatory structure. Many of those things were incorporated into the legislation at various points but they were almost all stripped out of the final version. And that was where the industry really succeeded.

It succeeded basically in holding the line and saying, all right, we're going to lose a lot of this. We're going to have to give a lot of ground here but let's not make it any worse than the administration's proposal. And they were very effective in doing that.

GROSS: What did they do that was so effective?

Mr. APPELBAUM: I think that what a lot of people dont understand about the lobbying business in Washington is that the real secret to the industry's power is information. They control information. They have so many more people, researchers available to them that they can sort of - they educate Congress about these issues. They go in there and make themselves available as resources. The banking industry is sort of - they're like the reference library for Congress.

Congress wants to understand this incredibly complicated issue that's fundamentally unfamiliar to most of our elected representatives. They dont have experience with it, they dont have knowledge of it, they're sort of tinkering in a very complicated engine room and they're afraid that they're going to break it. And the industry goes in there and offers them the reassurance of an education and says to them, this is how it works: if you touch this you'll cause, you know, all hell to break lose and if you touch that it will be okay. It's all right to play with this lever but not that one.

This is tremendously powerful because it sets the terms of debate. It forces Congress to rely on the industry's representations. And what the industry did with tremendous success during this debate was to define for Congress what was an acceptable area for meddling and what was not and how much meddling was too much. They really won the information battle on some of these key issues.

GROSS: Now this legislation provides the first regulation of the so-called black market, which I've also heard referred to as the shadow market. What is this market that we're talking about?

Mr. APPELBAUM: The black and shadow market are industry terms for types of financial activity that are not publicly reported or recorded. And one of the largest black markets is the trade and derivatives, and this has become a vast business. Derivatives grew up as a way of - for farmers to protect themselves against changes in the price of corn more than a century ago and kept puttering along on a fairly small scale for most of the intervening time. But in recent decades, that industry has exploded as banks found new and astonishingly clever ways to craft derivatives contracts.

Essentially like a casino offering new table games, the variety was sort of like, you know, what are the new slot machines in this week. You can now bet on - you know, the movement of one recent idea is to allow people to bet on the movement of box office returns from movies. Just a proliferation of derivatives contract, all of it happening in this black market where, you know, a bank would sell a contract to a customer who might trade it to a third party and then to a fourth. And regulators not only wouldnt know that the fourth party now held the contract, they didnt know that the contract existed. They didnt know who was at risk if the bet was lost. They didnt know, you know, what the consequences would be for the broader financial system.

The bill in its original - the original idea was that regulators would require substantially all derivatives to be traded through exchanges which, as you say, is like a stock exchange. It means that the price of the instrument is publicly disclosed, the amount that it's bought for.

That's very important because when banks are able to sell contracts privately, customers have no ability to price compare or to shop. And many economists believe that banks have been able to realize enormously fat profit margins on these contracts by, you know, keeping - essentially keeping it secret. So that's one requirement.

The second is a requirement that the instruments be traded through clearing houses. This is basically a form of insurance. A clearing house is an entity that sits in the middle of a trade and essentially guarantees that if the bet is lost and one party welches on it, the clearing house steps in and makes good on the wager.

So the idea was that you would have much more information about price and the scope of the market and you would have some amount of insurance that bets would be paid off.

GROSS: So the emphasis in this legislation is on regulation. But you say it leaves a vast number of details to be worked out. Whats left to be worked out?

Mr. APPELBAUM: One lawyer said to me that he thought that this bill puts in place about 25 percent of the details that will need to be put in place to realize this new regulatory structure. This bill, it's kind of like a script that's being handed to actors, which are the regulatory agencies, and they now need to decide how it will be performed and how it will be brought to life.

It lays out in very general terms, in some cases, areas almost of concern. It says, credit ratings agencies, that's not working real well. Go study that issue and figure out what to do about it. Or it seems to us that its a little bit of a problem that investment advisers are not required to act in the interest of their clients. Think about it.

So there's this tremendous amount of work that the regulatory agencies now need to do to hammer out those questions and decide what this new system actually will look like.

GROSS: So in some ways the battle is just beginning and there's a lot more opportunity for lobbyists to have their way?

Mr. APPELBAUM: Absolutely. And, in fact, lobbyists have a huge advantage in this next phase of the battle because the regulatory agencies, even more than Congress, are hungry for information and rationales. The best thing you can give a regulatory agency is a rationale for the decision that they're going to make. So you hand them the data and show them, they crave this. They crave the ability to defend the decisions that they make. And the industry is very, very good at providing the data and the rationale for the decisions that it wants agencies to make.

So we're about to see this huge new phase in the lobbying battle where the industry and advocates for consumers will again be facing off and trying to convince regulatory agencies to interpret the law in the way that they want. And historically this is a venue in which the industry has had the upper hand.

GROSS: So since there's so many of the details yet to be worked out and the lobbyists are moving in and what kind of timetable are we looking at? Like, when are we likely to see actual regulations from the regulatory agencies kicking in?

Mr. APPELBAUM: Some of the earliest visible consequences of this legislation probably will start to emerge about a year from now - that's when the new consumer agency will be set up, for example. But the first material thing that it does, which may well be a new set of rules regarding the disclosures that customers receive when they apply for mortgage loans, won't come out for at least two years. So, you know, we're going to have a couple years of set up to get this up and running and it may be several years before we really start to see the effect of it on our lives as customers or on the financial industry.

GROSS: So its possible that Obama won't be reelected and there will be a Republican president in place by the time a lot of the regulations written by the new regulatory agencies are put into effect. And it's possible that a Republican president would put into regulatory agencies people who are ideologically opposed to regulation - it wouldnt be the first time. Thus, kind of toning down the kind of regulations that were supposed to be put into effect? I mean is that a risk that the Obama administration is taking with this approach to regulation?

Mr. APPELBAUM: Absolutely. Administration officials describe it as a necessary risk. They say this is how the system works. Congress was never going to write 100,000 pages of financial regulations. The bill is already unbelievably long. But the administration does view the end of the first term as a real deadline and they're very determined to implement as much of this as they can before that deadline.

The other power that they have is the power to appoint the heads of these agencies - people who in many cases will have terms that outlast this first presidential term. For example, the head of the new Consumer Bureau, it's a five-year term. That shapes up as a critical appointment for the president. It will really set the tone for how this new agency moves out into the world and what issues it decides to focus on. And that person will have five years to make those decisions before any subsequent president can put their own stamp on that agency.

GROSS: So this new regulatory agency that's supposed to oversee things from a consumer point of view, there's some speculation that the person who will be chosen to head it will be Elizabeth Warren, who now heads the Congressional Oversight Panel, overseeing the TARP money. And she is also an expert on credit cards from a consumer point of view and a professor of law at Harvard. Some people would like to see her have that position, especially since she advocated for the creation of this agency. I think she actually suggested that such an agency be created. At the same time, there's speculation that Timothy Geithner, the treasury secretary, does not want her appointed.

What have you heard about the odds of Elizabeth Warren getting that position and the behind the scenes disagreements about her?

Mr. APPELBAUM: Elizabeth Warren wrote a paper in 2007 in which she noted that the federal government does a much better job protecting people who buy toaster ovens than it does people who buy mortgages or borrow money to buy a home, and suggested the idea of creating a federal agency solely devoted to protecting borrowers.

President Obama embraced that idea in his plan for financial reform and Warren has been its leading cheerleader throughout the process. A lot of people - a lot of consumer advocates, liberal senators and representatives feel like she is far and away the best candidate to run this agency because she has an empathy for consumers that's really been lacking in the regulatory apparatus here in Washington.

Her critics feel that she is an academic with no management experience and that she doesnt have the necessary - sufficient sympathy for the industry that she would be regulating.

This is shaping up as kind of a defining battle in this implementation phase for the financial regulation. The question of whether President Obama appoints Elizabeth Warren or not is going to be seen by a lot of people as beginning to define how the administration intends to take this bill and make it real and concrete. And it is the case that Warren has not always gotten along well with Secretary Geithner, although the Treasury has been careful to insist in recent days that it has nothing but respect for her.

But it's a real political dilemma for the administration. They can gratify their liberal base and anger banks or they can take a more moderate approach. And I think we're all waiting to see which way it goes. She's one of the finalists for the job but it's by no means clear that she could get confirmed by Congress and whether or not that's a place where the administration wants to take a stand I think will be a pretty interesting and defining choice for them to make.

GROSS: My guest is Binyamin Appelbaum, a financial reporter for The New York Times. We'll talk more after a break. This is FRESH AIR.

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GROSS: My guest is Binyamin Appelbaum, a financial reporter for The New York Times.

I feel like the whole philosophy of banking has changed when it comes to, you know, just like your average saver and checking account holder. It used to be, like, you put your money in the bank, you'd get interest. And when you opened up the account you'd get like a little gift.

But now I feel like youre not getting interest and youre being charged to store your money. Youre being charged to take out your money. You go to your average, you know, money machine and unless its like your bank, you have to pay several dollars sometimes by the time all the fees are added up, just to take out your own money.

Mr. APPELBAUM: It's interesting. You know, we're still coming to grips with the extent to which our financial system has been transformed over the last couple of decades by a thoroughgoing deregulation. Time was that financial companies were highly specialized and tightly regulated and the bank was a place that took in money, paid interest on that money, loaned it out generally to businesses, and made, you know, charged a higher rate of interest to those businesses. The difference was sufficient to pay for the bank president's house and the employees and all of that, and it was a profitable - a modestly profitable business.

That business model no longer exists. Banks now compete with a variety of other financial institutions which have the same power to collect money from customers, which in many instances can offer better, more attractive interest rates for that money, like mutual fund companies with their money market accounts. And banks are under tremendous pressure on the other hand to find customers for their loans. So no one is trying to make money anymore and that old fashioned business of just collecting money from customers and loaning it out to businesses, except for small community banks.

The big players in this industry now make money by charging fees. They make money by convincing customers to provide money at low cost and investing that money in a wide range of other enterprises. The term bank doesnt have its narrow meaning anymore.

We have a range of financial companies, some of which are called banks, some of which are called mutual funds, some of which are called General Electric or AIG, and they're all basically doing the same things and they're all competing with each other.

GROSS: So should I be expecting to pay more fees for my checking account or to take money out of the money machine in spite of all the new regulations that are coming into play now?

Mr. APPELBAUM: On the one hand, banks have a very strong incentive and have said pointedly that they intend to charge fees to a larger share of their customers. So there is a good chance that you will be, you know, asked to pay a monthly fee for a checking account.

Bank of America said that it's considering a product where customers would be charged if they need to visit a teller. And that's a model that the banks have dabbled with for years but that now may become more prevalent, where basic services are free but anything additional - like on airlines, where youre now paying to stow your bag, youre paying for the window seat, your paying for the snack - banks may tilt toward that model as well.

The countervailing force is that we will now have this new regulatory agency that is in charge of making sure that those fees are fair and reasonable. So the days of being charged 39.95 because you used your debit card at Starbucks and overdrew your account by five cents probably are over as well.

GROSS: So what youre saying is well be getting lots of smaller fees and fewer big penalty fees.

Mr. APPELBAUM: That seems to be where we're headed, yeah.

GROSS: So it seems like the banks are starting to rebound from the collapse of a couple of years ago. But a lot of the rest of the economy is not. City and state governments are suffering. There's still a large amount of unemployment, a lot of small businesses are having trouble, a lot of large businesses are having trouble. So is the banking industry rebounding in a way that most of the rest of America isn't - and if so, why?

Mr. APPELBAUM: There's this tremendous irony that the industry that lead us into this crisis - the financial industry - has come out of it ahead of the rest of the economy and now appears to be - not all banks but many of them, certainly many of the largest banks are prospering again, posting substantial profits, starting to hire new employees and gear back up. And the reason for it is quite simple: banks are intermediaries. They're the channel through which economic activity passes and they profit from volume rather than outcomes.

So banks can do well even when the economy as a whole is doing poorly as long as there's movement and motion and people shunting money from one place to another. And what we're seeing right now is that the economy is flailing and suffering and struggling, but banks are still finding plenty of opportunities to trade money and to collect it from one place and give it out in another.

And this tremendous problem, which was in many ways at the root of the financial crisis, which is that banks and other financial companies are not sufficiently invested in the outcomes of the decisions that they make, is now manifesting itself in the fact that they are prospering while the economy that they ultimately serve is struggling. And it's a very profound question about how you make sure that those interests are aligned. Clearly they're not right now.

GROSS: Well, Binyamin Appelbaum, thank you very much for talking with us.

Mr. APPELBAUM: My pleasure.

GROSS: Binyamin Appelbaum is a financial reporter for The New York Times. You'll find links to his recent articles about financial reform on our website, freshair.npr.org.

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