WEBVTT 00:00:00.000 --> 00:00:02.859 Welcome to the Deep Dive, the only show that 00:00:02.859 --> 00:00:05.719 takes these, well, complex piles of source material, 00:00:05.919 --> 00:00:08.560 distills them all down to their potent essence, 00:00:08.839 --> 00:00:11.519 and delivers it straight to you, the learner. 00:00:12.460 --> 00:00:16.160 Today we are diving into an institution that 00:00:16.160 --> 00:00:19.079 is, and I mean this literally, foundational to 00:00:19.079 --> 00:00:21.730 American finance. Absolutely. It was founded 00:00:21.730 --> 00:00:24.670 by a key figure in U .S. history, yet it operates 00:00:24.670 --> 00:00:28.170 today at a global scale that very few people, 00:00:28.230 --> 00:00:30.789 even folks inside the financial industry, truly 00:00:30.789 --> 00:00:33.670 grasp. We're talking about the Bank of New York 00:00:33.670 --> 00:00:36.310 Mellon Corporation. Or BNY as they're now calling 00:00:36.310 --> 00:00:38.689 themselves. BNY. Right. A much simpler name. 00:00:38.810 --> 00:00:40.590 That's right. And when we talk about the architecture 00:00:40.590 --> 00:00:42.890 of global finance, BNY isn't just, you know, 00:00:42.890 --> 00:00:45.250 a floor or a wall. It's the entire foundation. 00:00:45.250 --> 00:00:47.250 It's the plumbing running under everything. Well, 00:00:47.270 --> 00:00:48.869 it's an infrastructure company. It's an infrastructure 00:00:48.869 --> 00:00:52.070 company completely disguised as a bank. Our mission 00:00:52.070 --> 00:00:54.990 today is to track this extraordinary evolution. 00:00:55.820 --> 00:00:59.259 From an 18th century Revolutionary War era venture 00:00:59.259 --> 00:01:02.280 literally financed by Alexander Hamilton to this 00:01:02.280 --> 00:01:05.560 modern financial titan. We have to focus on its 00:01:05.560 --> 00:01:08.099 defining role as the world's largest custodian 00:01:08.099 --> 00:01:11.099 bank. The goal here is to understand not just 00:01:11.099 --> 00:01:14.140 the history, which is fascinating, but the sheer 00:01:14.140 --> 00:01:17.180 staggering magnitude of its operations today. 00:01:17.680 --> 00:01:19.000 And you're not kidding when you say staggering. 00:01:19.140 --> 00:01:20.819 I mean, we have to introduce the number. There's 00:01:20.819 --> 00:01:23.700 one number that I think completely reorients 00:01:23.700 --> 00:01:25.799 your perspective on what this company even is. 00:01:26.000 --> 00:01:28.379 It's the anchor for this whole discussion. It 00:01:28.379 --> 00:01:30.579 is. This isn't just a big bank that, you know, 00:01:30.579 --> 00:01:33.640 makes commercial loans. This is a global safekeeper 00:01:33.640 --> 00:01:36.299 of wealth. So what's that key figure? What defines 00:01:36.299 --> 00:01:38.840 their role in the world? It all comes down to 00:01:38.840 --> 00:01:41.900 AUCA. That's Assets Under Custody and Administration. 00:01:42.540 --> 00:01:46.299 AUCA. Got it. As of late 2024, BNY made history. 00:01:46.859 --> 00:01:49.560 They became the first bank ever to surpass the 00:01:49.560 --> 00:01:52.659 $50 trillion mark in assets under custody and 00:01:52.659 --> 00:01:55.760 administration. 50 trillion. 50 trillion. It's 00:01:55.760 --> 00:01:57.780 a number that's almost meaningless. It's so big. 00:01:57.859 --> 00:02:00.500 It represents a massive, massive percentage of 00:02:00.500 --> 00:02:02.980 the world's investable wealth. And it just puts 00:02:02.980 --> 00:02:05.859 BNY at the absolute pinnacle of global financial 00:02:05.859 --> 00:02:08.569 infrastructure. When I hear 50 trillion, I don't 00:02:08.569 --> 00:02:11.210 just hear a number. I hear a global percentage 00:02:11.210 --> 00:02:14.430 of wealth. It's how does a bank even handle that 00:02:14.430 --> 00:02:16.229 kind of cognitive, that kind of technological 00:02:16.229 --> 00:02:18.870 burden? Well, that's the story. Let's unpack 00:02:18.870 --> 00:02:21.479 the history. Of how they accumulated that trust, 00:02:21.539 --> 00:02:24.379 starting with a founder who we all know from 00:02:24.379 --> 00:02:27.219 history class. Let's go back. We begin in June 00:02:27.219 --> 00:02:30.800 1784. OK. The Revolutionary War had just ended. 00:02:31.000 --> 00:02:33.900 New York City was absolutely booming, but its 00:02:33.900 --> 00:02:36.699 commercial interesting industry was just severely 00:02:36.699 --> 00:02:38.639 hindered by the lack of a bank. There was no 00:02:38.639 --> 00:02:41.610 financial engine. None. People were looking over 00:02:41.610 --> 00:02:44.189 at Philadelphia, the Bank of North America, paying 00:02:44.189 --> 00:02:47.389 out these 14 percent dividends and Boston with 00:02:47.389 --> 00:02:49.870 the Massachusetts Bank. And they were, frankly, 00:02:49.990 --> 00:02:53.090 jealous. New York needed its own. And the result 00:02:53.090 --> 00:02:56.310 of that need was this this crucial meeting at 00:02:56.310 --> 00:02:58.430 the old Walton Mansion. Some sources say the 00:02:58.430 --> 00:03:01.250 old merchant's coffee house. Right. On St. George's 00:03:01.250 --> 00:03:03.330 Square. And that leads to the official formation 00:03:03.330 --> 00:03:05.830 of the Bank of New York or B .O .N .Y. as it 00:03:05.830 --> 00:03:09.449 was called. But the really wild. historical detail 00:03:09.449 --> 00:03:12.569 here is that this very prestigious venture it 00:03:12.569 --> 00:03:15.530 operated without a legal charter for seven years 00:03:15.530 --> 00:03:19.330 seven years it was basically a startup built 00:03:19.330 --> 00:03:22.250 entirely on good faith just on reputation and 00:03:22.250 --> 00:03:25.009 the overwhelming prestige of its founders they 00:03:25.009 --> 00:03:28.030 were signing a constitution of association not 00:03:28.030 --> 00:03:31.009 getting a legal mandate from the state And one 00:03:31.009 --> 00:03:33.129 of those founders, of course, was Alexander Hamilton. 00:03:33.270 --> 00:03:35.810 Hamilton was the chief advocate. The sources 00:03:35.810 --> 00:03:38.710 we have really detail the initial financial setup, 00:03:38.789 --> 00:03:41.770 which gives you this amazing microscopic look 00:03:41.770 --> 00:03:44.569 at early American investments. That's incredible. 00:03:44.969 --> 00:03:46.469 The initial plan was actually pretty ambitious, 00:03:46.610 --> 00:03:50.030 right? They were aiming for $750 ,000 in capitalization. 00:03:50.150 --> 00:03:52.710 Yeah, with a mix of passion mortgages. But that 00:03:52.710 --> 00:03:55.050 proved a little too rich for the initial investors. 00:03:55.210 --> 00:03:57.520 Nothing too much. So the final initial offering 00:03:57.520 --> 00:04:01.280 was reduced to $500 ,000. And critically, this 00:04:01.280 --> 00:04:03.919 is a key point, it had to be paid strictly in 00:04:03.919 --> 00:04:07.580 gold or silver coin. No paper. No paper. It shows 00:04:07.580 --> 00:04:10.180 this foundational desire for hard assets, for 00:04:10.180 --> 00:04:12.439 stability right from day one. And that early 00:04:12.439 --> 00:04:14.560 shareholder list, it's like a who's who of the 00:04:14.560 --> 00:04:16.939 new nation's elite. It was a very exclusive club. 00:04:17.310 --> 00:04:19.430 Oh, absolutely. You look at that list, you see 00:04:19.430 --> 00:04:22.670 all the major names. Aaron Burr, Hamilton's eventual 00:04:22.670 --> 00:04:25.829 rival. He had shares. He held three shares. Hamilton 00:04:25.829 --> 00:04:28.850 himself held one and a half. It's just amazing 00:04:28.850 --> 00:04:31.189 to think that those initial investments directly 00:04:31.189 --> 00:04:34.370 connect the individuals who shaped the country 00:04:34.370 --> 00:04:37.629 to the institution that's still, you know, helping 00:04:37.629 --> 00:04:39.949 run global markets today. It's a direct line. 00:04:40.050 --> 00:04:41.750 Right. And it connects them physically to the 00:04:41.750 --> 00:04:44.910 history. B1Y got to work immediately. They were 00:04:44.910 --> 00:04:46.649 operating out of the old Walton Mansion until 00:04:46.649 --> 00:04:51.009 1787. But the moment of national significance, 00:04:51.209 --> 00:04:54.470 the event that I think truly solidified B1Y's 00:04:54.470 --> 00:04:57.189 role in the new republic, that came in 1789. 00:04:57.470 --> 00:04:59.990 The first loan. The very first loan B1Y made 00:04:59.990 --> 00:05:02.230 to the United States government. And it was orchestrated 00:05:02.230 --> 00:05:04.189 by Hamilton, who by then was the nation's first 00:05:04.189 --> 00:05:06.250 secretary of the treasury. And this loan wasn't 00:05:06.250 --> 00:05:08.930 for some, you know, future infrastructure project. 00:05:09.009 --> 00:05:11.170 This was absolutely critical for the nation to 00:05:11.170 --> 00:05:14.060 even function. That money paid the back salaries 00:05:14.060 --> 00:05:16.500 of the members of Congress and President George 00:05:16.500 --> 00:05:19.060 Washington. So BLNY was literally the source 00:05:19.060 --> 00:05:21.379 of cash that kept the government running. Literally. 00:05:21.949 --> 00:05:24.930 It's this early, profound example of the bank 00:05:24.930 --> 00:05:27.610 being completely interwoven with the financial 00:05:27.610 --> 00:05:30.370 lifeblood of the new nation. And the string of 00:05:30.370 --> 00:05:34.129 firsts just keeps going. BNY was also the first 00:05:34.129 --> 00:05:36.810 company ever listed on the New York Stock Exchange 00:05:36.810 --> 00:05:40.529 when it opened its doors in 1792. A true lineage 00:05:40.529 --> 00:05:43.490 institution. But, you know, early success, it 00:05:43.490 --> 00:05:45.810 always breeds rivalry, which brings us right 00:05:45.810 --> 00:05:47.930 back to that foundational friction with Aaron 00:05:47.930 --> 00:05:52.399 Burr. Yes. For 15 years, BNY had a total monopoly 00:05:52.399 --> 00:05:55.660 on banking services in New York City, a complete 00:05:55.660 --> 00:05:59.240 monopoly. Wow. That changed dramatically in 1799 00:05:59.240 --> 00:06:01.319 when Aaron Burr sought to break that monopoly. 00:06:01.420 --> 00:06:03.220 He founded the Bank of the Manhattan Company 00:06:03.220 --> 00:06:07.750 and Hamilton and BNY. They vigorously, sometimes 00:06:07.750 --> 00:06:10.689 aggressively, oppose the founding of Burr's institution. 00:06:11.110 --> 00:06:12.709 This wasn't just a political disagreement, was 00:06:12.709 --> 00:06:14.949 it? No, no. This was a battle for economic control 00:06:14.949 --> 00:06:16.550 of the most important commercial city in the 00:06:16.550 --> 00:06:18.930 nation. It just shows you how these high -stakes 00:06:18.930 --> 00:06:21.149 financial power struggles are baked right into 00:06:21.149 --> 00:06:24.490 BNY's DNA long before the famous duel. Okay, 00:06:24.529 --> 00:06:26.670 so moving into the 19th and early 20th centuries, 00:06:26.889 --> 00:06:29.290 BNY gets this reputation, almost a saintly one, 00:06:29.430 --> 00:06:32.079 for financial stability. Yeah, it's famous for 00:06:32.079 --> 00:06:34.660 its conservative lending practices. What did 00:06:34.660 --> 00:06:37.100 that mean in practice? It meant it successfully 00:06:37.100 --> 00:06:41.180 navigated and weathered virtually every major 00:06:41.180 --> 00:06:45.000 financial crisis of the era. The panic of 1837, 00:06:45.220 --> 00:06:48.660 1857, you name it, they survived it. And that 00:06:48.660 --> 00:06:50.740 stability allowed it to serve the country in 00:06:50.740 --> 00:06:54.300 these really profound ways. Bill and Y was instrumental 00:06:54.300 --> 00:06:57.100 in financing critical infrastructure that defined 00:06:57.100 --> 00:06:59.879 American commerce. Like the Morris and Erie canals. 00:07:00.019 --> 00:07:01.800 And early steamboat companies connecting the 00:07:01.800 --> 00:07:03.899 interior of the country to the coast. It also 00:07:03.899 --> 00:07:07.019 acted as a key financier for major war efforts. 00:07:07.259 --> 00:07:10.279 It funded the War of 1812 and later served the 00:07:10.279 --> 00:07:12.439 Union Army during the Civil War. And after the 00:07:12.439 --> 00:07:14.779 Civil War. It just kept going, financing massive 00:07:14.779 --> 00:07:17.740 urban projects like utilities, railroads, even 00:07:17.740 --> 00:07:19.620 the construction of the original New York City 00:07:19.620 --> 00:07:22.180 subway system. That continuity of purpose, just 00:07:22.180 --> 00:07:25.139 funding the gears of commerce. It's astonishing. 00:07:25.399 --> 00:07:27.519 So that bedrock stability, that really set the 00:07:27.519 --> 00:07:30.000 stage for major growth through acquisition in 00:07:30.000 --> 00:07:32.600 the 20th century. This wasn't just organic growth. 00:07:32.680 --> 00:07:35.120 This was a deliberate strategy to achieve critical 00:07:35.120 --> 00:07:38.000 mass. Exactly. And that would all culminate in 00:07:38.000 --> 00:07:40.899 the big 2007 merger. But the expansion started 00:07:40.899 --> 00:07:44.199 way earlier. In 1922, they merged with the New 00:07:44.199 --> 00:07:46.220 York Life Insurance and Trust Company. Which 00:07:46.220 --> 00:07:48.279 cemented their role in wealth management. Right. 00:07:48.439 --> 00:07:50.779 And they also successfully navigated the Great 00:07:50.779 --> 00:07:53.100 Depression, which is an almost unheard of feat. 00:07:53.319 --> 00:07:55.620 Their total deposits actually increased while 00:07:55.620 --> 00:07:57.779 they consistently paid dividends. Incredible. 00:07:57.819 --> 00:08:00.040 And more mergers followed. Fifth Avenue Bank 00:08:00.040 --> 00:08:04.329 in 1948. Empire Trust Company in 1966. But the 00:08:04.329 --> 00:08:06.949 real appetite for scale that kicked in toward 00:08:06.949 --> 00:08:09.189 the end of the century. The 1988 acquisition 00:08:09.189 --> 00:08:11.350 of the Irving Bank Corporation really stands 00:08:11.350 --> 00:08:13.610 out here. This wasn't a friendly handshake deal. 00:08:13.769 --> 00:08:16.730 No, it required a grueling yearlong takeover 00:08:16.730 --> 00:08:19.310 bid. It was a true corporate battle. And what 00:08:19.310 --> 00:08:21.509 was the price? Irving's iconic headquarters. 00:08:21.889 --> 00:08:26.110 One Wall Street became BNY's new home. That acquisition 00:08:26.110 --> 00:08:29.509 marked a huge shift in scale. But the real aggressive 00:08:29.509 --> 00:08:32.539 strategic pivot. that happened in the 90s. Between 00:08:32.539 --> 00:08:37.580 1993 and 1998, B .O .N .Y. executed 33 acquisitions. 00:08:37.659 --> 00:08:40.080 33. And what was the most crucial strategic move 00:08:40.080 --> 00:08:42.980 among all of those? For me, it has to be 1995. 00:08:43.700 --> 00:08:47.120 They acquired J .P. Morgan's global custody business. 00:08:47.440 --> 00:08:49.399 Okay, why was that so important? Because this 00:08:49.399 --> 00:08:51.460 wasn't about traditional banking anymore. This 00:08:51.460 --> 00:08:53.679 was the strategic moment where B .O .N .Y. decided 00:08:53.679 --> 00:08:56.629 its future wasn't in competing with... you know, 00:08:56.649 --> 00:09:00.049 universal banks. It was in becoming the world's 00:09:00.049 --> 00:09:03.009 vault, the world's record keeper. And this focus 00:09:03.009 --> 00:09:06.350 was cemented just before the big merger. The 00:09:06.350 --> 00:09:08.730 two billion dollar acquisition of Pershing LLC 00:09:08.730 --> 00:09:12.070 in 2003. Yeah, that was Credit Suisse first Boston 00:09:12.070 --> 00:09:14.929 stock clearing unit. And the Pershing acquisition 00:09:14.929 --> 00:09:18.360 was just. It was transformative. It immediately 00:09:18.360 --> 00:09:21.120 made BNY the nation's largest clearing firm for 00:09:21.120 --> 00:09:23.279 stock trades. So it consolidated their position 00:09:23.279 --> 00:09:25.500 in the back office. Completely. They moved decisively 00:09:25.500 --> 00:09:28.259 into these specialized fee -based financial services 00:09:28.259 --> 00:09:30.720 and away from volatile lending. Now let's pivot. 00:09:30.799 --> 00:09:32.480 Let's look at the other half of this coin, the 00:09:32.480 --> 00:09:36.159 Mellon legacy. While BNY is sunding canals and 00:09:36.159 --> 00:09:38.480 fighting burr in New York, the Mellons are over 00:09:38.480 --> 00:09:41.480 in Pittsburgh, building a financial dynasty squarely 00:09:41.480 --> 00:09:44.320 on American heavy industry. Absolutely. The Mellon 00:09:44.320 --> 00:09:47.659 story is pure Americana. It starts in Pittsburgh, 00:09:47.860 --> 00:09:51.700 Pennsylvania, 1869, founded as T. Mellon and 00:09:51.700 --> 00:09:55.059 Sons Bank by the recently retired judge Thomas 00:09:55.059 --> 00:09:57.559 Mellon and his sons. And their core identity 00:09:57.559 --> 00:10:00.580 was different. It was all about providing the 00:10:00.580 --> 00:10:03.100 capital needed to fuel the American Industrial 00:10:03.100 --> 00:10:05.440 Revolution. And they didn't just invest. They 00:10:05.440 --> 00:10:08.159 founded giants. The sources highlight Mellon's 00:10:08.159 --> 00:10:10.700 foundational role in investing in and helping 00:10:10.700 --> 00:10:12.899 launch some of the most massive names in American 00:10:12.899 --> 00:10:15.169 manufacturing. I mean, the list is incredible. 00:10:15.389 --> 00:10:18.429 Alcoa, Westinghouse, Gulf Oil, General Motors, 00:10:18.730 --> 00:10:21.350 Bethlehem Steel. And Gulf Oil and Alcoa are specifically 00:10:21.350 --> 00:10:23.730 noted in our sources as their two most successful 00:10:23.730 --> 00:10:26.330 investments. Imagine a bank being so intrinsically 00:10:26.330 --> 00:10:28.210 linked to the physical production of aluminum 00:10:28.210 --> 00:10:30.429 and oil. It was just synonymous with the industrial 00:10:30.429 --> 00:10:32.909 rise of America. Over time, the structure evolves. 00:10:33.129 --> 00:10:35.789 It goes from a family bank to a major national 00:10:35.789 --> 00:10:38.230 player. Right. It became Mellon National Bank 00:10:38.230 --> 00:10:41.330 in 1902. And after merging with the Union Trust 00:10:41.330 --> 00:10:43.629 Company, it became the Mellon National Bank and 00:10:43.629 --> 00:10:46.970 Trust Company in 1946. At the time, that was 00:10:46.970 --> 00:10:50.250 Pittsburgh's first $1 billion bank. And just 00:10:50.250 --> 00:10:53.730 like BMOI, they were pioneers. Mellon formed 00:10:53.730 --> 00:10:55.889 the first dedicated family office in the United 00:10:55.889 --> 00:10:59.970 States back in 1971. A crucial move. It established 00:10:59.970 --> 00:11:02.250 their expertise in managing the wealth of the 00:11:02.250 --> 00:11:04.649 ultra -high net worth. That's a business model 00:11:04.649 --> 00:11:07.649 BNY Mellon relies on heavily today. They also 00:11:07.649 --> 00:11:09.629 acquired major firms like the Boston Company 00:11:09.629 --> 00:11:11.850 and the Dreyfus Corporation mutual funds in the 00:11:11.850 --> 00:11:14.610 early 90s. But the parallel strategic decision 00:11:14.610 --> 00:11:17.529 between BNY and Mellon is really the key here. 00:11:17.830 --> 00:11:20.090 Both of them chose to get out of traditional 00:11:20.090 --> 00:11:23.769 consumer banking. Mellon sold its retail branches 00:11:23.769 --> 00:11:26.730 and assets to Citizens Financial Group in 2001. 00:11:27.090 --> 00:11:30.059 And that move was a clear strategic signal. Mellon 00:11:30.059 --> 00:11:31.940 was moving decisively towards high net worth 00:11:31.940 --> 00:11:34.340 management and institutional services. They were 00:11:34.340 --> 00:11:36.600 jettisoning the branch network, the volatility 00:11:36.600 --> 00:11:39.740 of retail deposits. And this set the stage perfectly 00:11:39.740 --> 00:11:42.779 for the eventual union with BNY. Who had made 00:11:42.779 --> 00:11:45.299 similar choices. They were two highly specialized 00:11:45.299 --> 00:11:48.100 complementary giants just waiting to come together. 00:11:48.320 --> 00:11:50.940 So we have BNY, the New York custody and clearing 00:11:50.940 --> 00:11:53.659 powerhouse, and Mellon, the Pittsburgh wealth 00:11:53.659 --> 00:11:56.840 and asset management giant. Both had shed their 00:11:56.840 --> 00:12:00.179 retail identities. Both were focused on institutional 00:12:00.179 --> 00:12:02.659 services. So the merger was announced December 00:12:02.659 --> 00:12:05.919 2006, and the rationale was brilliantly simple. 00:12:06.330 --> 00:12:09.370 You combine Bebon & Wye's immense asset servicing 00:12:09.370 --> 00:12:11.730 capabilities, the safekeeping and administration 00:12:11.730 --> 00:12:15.049 of assets, with Mellon's sophisticated wealth 00:12:15.049 --> 00:12:17.570 and asset management. And a goal. The $16 .5 00:12:17.570 --> 00:12:20.029 billion deal was designed to create the world's 00:12:20.029 --> 00:12:22.769 largest securities servicing company to achieve 00:12:22.769 --> 00:12:25.169 an immediate scale advantage that no one else 00:12:25.169 --> 00:12:27.710 could touch. It was a massive undertaking. And 00:12:27.710 --> 00:12:30.590 like most mega -merchers, it came with the inevitable 00:12:30.590 --> 00:12:33.330 cost -cutting projections. They expected to save 00:12:33.330 --> 00:12:36.809 approximately $700 million and cut around 3 ,900 00:12:36.809 --> 00:12:39.269 jobs, mostly through attrition and just reducing 00:12:39.269 --> 00:12:41.529 overlap. And the merger was finalized on July 00:12:41.529 --> 00:12:44.909 4th, 2007. Perfect timing. Within 15 months, 00:12:45.070 --> 00:12:47.730 the 2008 financial crisis hits, and this newly 00:12:47.730 --> 00:12:49.909 formed company immediately takes on a critical 00:12:49.909 --> 00:12:53.149 national responsibility. And this is where that 00:12:53.149 --> 00:12:55.789 conservative, centuries -old reputation really 00:12:55.789 --> 00:12:59.570 paid off. The U .S. Treasury in October 2008, 00:12:59.870 --> 00:13:03.909 named BNY Mellon the master custodian of the 00:13:03.909 --> 00:13:07.049 TARP bailout fund. The Troubled Asset Relief 00:13:07.049 --> 00:13:08.909 Program. This was a critical appointment. They 00:13:08.909 --> 00:13:10.830 weren't funding the bailout. Right. They weren't 00:13:10.830 --> 00:13:12.929 the ones putting up the cash. No. They were being 00:13:12.929 --> 00:13:16.070 trusted to handle the administrative load, the 00:13:16.070 --> 00:13:19.149 essential, meticulous work of accounting, tracking, 00:13:19.309 --> 00:13:22.090 and record -keeping for the entire $700 billion 00:13:22.090 --> 00:13:24.970 program. And they won this through a competitive 00:13:24.970 --> 00:13:27.570 bidding process. Proving they were the most reliable 00:13:27.570 --> 00:13:30.129 neutral party for what was basically the world's 00:13:30.129 --> 00:13:32.669 most complex bookkeeping job. And even while 00:13:32.669 --> 00:13:34.370 they're performing this critical government function, 00:13:34.830 --> 00:13:37.909 BNY Mellon itself received $3 billion from TARP, 00:13:38.009 --> 00:13:41.610 which they then repaid in full by mid -2009. 00:13:42.009 --> 00:13:44.370 That swift repayment and their performance in 00:13:44.370 --> 00:13:46.870 the subsequent regulatory tests, it really speaks 00:13:46.870 --> 00:13:49.370 volumes about their underlying stability compared 00:13:49.370 --> 00:13:52.389 to other major banks. Yeah, that's a key distinguishing 00:13:52.389 --> 00:13:55.610 factor. In the 2009 stress test conducted by 00:13:55.610 --> 00:13:58.769 federal regulators, BNY Mellon was identified 00:13:58.769 --> 00:14:01.149 as one of only three banks that could withstand 00:14:01.149 --> 00:14:04.590 a worsening economic situation. And they performed 00:14:04.590 --> 00:14:06.870 similarly well in the Federal Reserve's later 00:14:06.870 --> 00:14:10.409 Dodd -Frank stress tests in 2013 and 2014. They 00:14:10.409 --> 00:14:12.490 consistently ranked among the least affected 00:14:12.490 --> 00:14:15.649 by these extreme hypothetical economic scenarios. 00:14:16.070 --> 00:14:18.289 But let's introduce some critical friction here. 00:14:18.470 --> 00:14:21.350 Is BNY passing these stress tests because they're 00:14:21.350 --> 00:14:24.429 uniquely brilliant and well -managed? Or is it 00:14:24.429 --> 00:14:26.769 simply because their core business model custody? 00:14:27.389 --> 00:14:30.389 not high -risk lending, inherently shields them 00:14:30.389 --> 00:14:32.370 from the kind of liquidity risks that killed 00:14:32.370 --> 00:14:34.470 a place like Lehman Brothers. That is a crucial 00:14:34.470 --> 00:14:36.850 question. Are they in some ways being tested 00:14:36.850 --> 00:14:39.250 against the wrong metrics? The reason BNY passes 00:14:39.250 --> 00:14:42.490 these tests is deeply, deeply rooted in its business 00:14:42.490 --> 00:14:45.629 model. Custody banking is a fee -based revenue 00:14:45.629 --> 00:14:48.570 stream. They earn money by safeguarding and administering 00:14:48.570 --> 00:14:51.149 assets, not by taking huge risks with their own 00:14:51.149 --> 00:14:53.110 balance sheet like a traditional investment bank 00:14:53.110 --> 00:14:55.230 would. So their risk is different. Their primary 00:14:55.230 --> 00:14:58.090 risk is operational making a mistake in accounting 00:14:58.090 --> 00:15:01.269 or technology, not credit risk or liquidity risk. 00:15:01.529 --> 00:15:04.789 And this structural stability is precisely why 00:15:04.789 --> 00:15:07.429 the government relies on them and why they are 00:15:07.429 --> 00:15:10.110 designated as a systemically important financial 00:15:10.110 --> 00:15:14.039 institution. A sci fi. Ah, sci -fi. Let's pause 00:15:14.039 --> 00:15:15.620 on that term. For you, the listener, what does 00:15:15.620 --> 00:15:18.960 sci -fi status mean in real world terms? It means 00:15:18.960 --> 00:15:20.820 the federal government has formally determined 00:15:20.820 --> 00:15:24.080 that BNY Mellon's failure would trigger a global 00:15:24.080 --> 00:15:26.019 financial collapse. So they're too big to fail. 00:15:26.399 --> 00:15:29.379 They are deemed too interconnected, too crucial 00:15:29.379 --> 00:15:31.639 to the flow of global capital to be allowed to 00:15:31.639 --> 00:15:34.620 fail. Now, that status requires additional regulatory 00:15:34.620 --> 00:15:37.779 oversight and capital requirements, but it underscores 00:15:37.779 --> 00:15:40.980 that BNY isn't just a business. It's an essential 00:15:40.980 --> 00:15:43.700 utility for the global economy. OK, so if we 00:15:43.700 --> 00:15:45.500 look at the present, we see the company signaling 00:15:45.500 --> 00:15:49.620 a move toward simplification, modernization with 00:15:49.620 --> 00:15:52.539 its recent rebrand. Yes, the 2024 simplification 00:15:52.539 --> 00:15:55.919 of the corporate brand to just BNY. It streamlines 00:15:55.919 --> 00:15:58.159 the corporate identity. It's aiming for clarity 00:15:58.159 --> 00:16:01.879 in a really complex landscape. So BNY Mellon 00:16:01.879 --> 00:16:04.320 Investment Management became BNY Investments. 00:16:04.659 --> 00:16:08.120 BNY Mellon Wealth Management is now BNY Wealth. 00:16:08.120 --> 00:16:11.820 And BNY Mellon Pershing was shortened to BNY 00:16:11.820 --> 00:16:13.899 Pershing. And speaking of physical presence, 00:16:14.100 --> 00:16:17.039 an institution this massive must have a huge 00:16:17.039 --> 00:16:20.940 footprint. But its headquarters have been a little 00:16:20.940 --> 00:16:23.039 restless in Manhattan. The headquarters have 00:16:23.039 --> 00:16:25.679 seen frequent moves, yeah. They sold their historic 00:16:25.679 --> 00:16:28.820 home at 1 Wall Street in 2014, which led to a 00:16:28.820 --> 00:16:31.679 temporary move to Brookfield Place. By 2018, 00:16:31.899 --> 00:16:34.519 they settled into 240 Greenwich Street in Tribeca. 00:16:34.600 --> 00:16:37.419 And this building is significant. Very. BNY Mellon 00:16:37.419 --> 00:16:39.220 had already owned it for over 30 years under 00:16:39.220 --> 00:16:41.659 a ground lease. They eventually purchased the 00:16:41.659 --> 00:16:44.720 property outright from the city for $352 million, 00:16:45.139 --> 00:16:47.379 cementing their commitment to lower Manhattan. 00:16:47.700 --> 00:16:49.320 Now let's go back to the numbers that define 00:16:49.320 --> 00:16:51.519 their sci -fi status, their unique position in 00:16:51.519 --> 00:16:54.320 the market. We have two core figures, AUM and 00:16:54.320 --> 00:16:57.200 AUCA. Can you delineate the difference for us? 00:16:57.340 --> 00:17:01.059 Sure. It's Assets Under Management, or AUM, that's 00:17:01.059 --> 00:17:03.820 the money, BNY, is actively investing in managing 00:17:03.820 --> 00:17:06.279 for clients. That's substantial. It's sitting 00:17:06.279 --> 00:17:11.759 at about... $2 .03 trillion as of 2024. A major 00:17:11.759 --> 00:17:14.059 asset manager. $2 trillion. But that's not the 00:17:14.059 --> 00:17:17.000 big number. No. The truly earth -shattering figure 00:17:17.000 --> 00:17:21.200 is the $52 .1 trillion in assets under custody 00:17:21.200 --> 00:17:24.380 and administration, the AUCA. That is nearly 00:17:24.380 --> 00:17:28.319 25 times larger than their AUM. Why the massive 00:17:28.319 --> 00:17:30.440 discrepancy? And why does that custody number 00:17:30.440 --> 00:17:33.509 matter so much more? Because the AUM is the money 00:17:33.509 --> 00:17:35.950 they're investing. The AUCA is the money they're 00:17:35.950 --> 00:17:38.930 safeguarding and accounting for. Think of BNY 00:17:38.930 --> 00:17:41.650 as a global financial librarian, not primarily 00:17:41.650 --> 00:17:43.829 a stock picker. They hold the titles, they collect 00:17:43.829 --> 00:17:45.690 the dividends, they handle the regulatory reporting, 00:17:45.930 --> 00:17:47.990 and they ensure the ownership trail is clean 00:17:47.990 --> 00:17:50.710 and correct for those $52 .1 trillion in assets. 00:17:51.089 --> 00:17:52.789 So they don't own the money. They don't own it. 00:17:52.890 --> 00:17:55.289 They are the neutral, trusted third party that's 00:17:55.289 --> 00:17:57.430 required for the institutional financial world 00:17:57.430 --> 00:17:59.849 to even function. So who trusts them with this 00:17:59.849 --> 00:18:02.630 colossal responsibility? Their client base is 00:18:02.630 --> 00:18:06.289 a who's who of global finance. BNY serves over 00:18:06.289 --> 00:18:09.549 90 % of Fortune 100 companies. They service nearly 00:18:09.549 --> 00:18:12.650 all of the top 100 global banks. And critically, 00:18:12.890 --> 00:18:15.109 they are the custodians safeguarding the retirement 00:18:15.109 --> 00:18:17.769 assets of millions of people globally, working 00:18:17.769 --> 00:18:20.569 with over 90 % of the top 100 pension plans. 00:18:20.970 --> 00:18:24.170 So their stability is... Quite literally tied 00:18:24.170 --> 00:18:26.450 to the retirement security of a massive chunk 00:18:26.450 --> 00:18:30.029 of the global workforce. Exactly. If BNY is the 00:18:30.029 --> 00:18:32.670 essential utility, the quiet backbone of global 00:18:32.670 --> 00:18:35.130 capital markets, its operational stability is 00:18:35.130 --> 00:18:37.369 a global necessity, not just a corporate goal. 00:18:37.589 --> 00:18:39.750 So if we strip away the history and these huge 00:18:39.750 --> 00:18:42.190 numbers, the fundamental question for you, the 00:18:42.190 --> 00:18:45.470 listener, is still, what exactly does a custodian 00:18:45.470 --> 00:18:48.849 bank that manages $52 trillion do every single 00:18:48.849 --> 00:18:51.900 day? Their daily work is this highly specialized, 00:18:52.220 --> 00:18:54.640 high -volume process of helping clients manage, 00:18:54.880 --> 00:18:57.140 move, and safekeep their assets. It's the entire 00:18:57.140 --> 00:18:59.599 financial lifecycle. They are the fiduciary partner 00:18:59.599 --> 00:19:01.859 that holds the securities, manages the cash movements, 00:19:02.119 --> 00:19:04.200 and handles all the intricate administrative 00:19:04.200 --> 00:19:06.519 tasks associated with these enormous, complex 00:19:06.519 --> 00:19:08.759 portfolios. They're the enabler. They are the 00:19:08.759 --> 00:19:11.160 essential enabler of cross -border institutional 00:19:11.160 --> 00:19:13.690 wealth transfer and ownership. It sounds like 00:19:13.690 --> 00:19:17.029 a vast menu of services far beyond simple banking. 00:19:17.170 --> 00:19:19.690 It's exhaustive. It covers the entire back and 00:19:19.690 --> 00:19:22.589 middle office of institutional finance. You've 00:19:22.589 --> 00:19:25.730 got asset servicing, alternative investment services. 00:19:25.890 --> 00:19:29.589 So handling complex private equity and hedge 00:19:29.589 --> 00:19:31.970 fund administration. You are. Broker dealer services, 00:19:32.569 --> 00:19:34.910 corporate trust services, treasury services, 00:19:35.289 --> 00:19:38.049 global collateral services, foreign exchange, 00:19:38.390 --> 00:19:40.839 securities lending. Right. The list goes on. 00:19:40.920 --> 00:19:43.640 Let's clarify a couple of those specialized roles. 00:19:43.819 --> 00:19:46.799 What does corporate trust services involve, for 00:19:46.799 --> 00:19:49.589 instance? Corporate trust is it's essentially 00:19:49.589 --> 00:19:52.509 acting as a neutral administrator for debt issuances. 00:19:52.730 --> 00:19:54.990 So when a corporation or a government issues 00:19:54.990 --> 00:19:57.869 bonds, BNY acts as the trustee. The middleman. 00:19:58.009 --> 00:20:00.069 They manage the interest payments, the principal 00:20:00.069 --> 00:20:02.130 repayment. They make sure all the covenants of 00:20:02.130 --> 00:20:04.130 the bond are met. They're the entity that the 00:20:04.130 --> 00:20:06.269 bondholders trust to mediate the relationship 00:20:06.269 --> 00:20:08.650 with the issuer. They literally safeguard the 00:20:08.650 --> 00:20:10.970 contract. OK, now let's look at the simplified 00:20:10.970 --> 00:20:14.769 segments after that 2024 rebranding. First up. 00:20:15.230 --> 00:20:18.250 BNY Investments, the asset management group. 00:20:18.430 --> 00:20:21.089 BNY Investments is managing that substantial 00:20:21.089 --> 00:20:25.150 $2 trillion AUM we just talked about. They operate 00:20:25.150 --> 00:20:28.170 through these specialist, distinct firms under 00:20:28.170 --> 00:20:31.809 the BNY umbrella Dreyfus Insight Investment Mellon 00:20:31.809 --> 00:20:34.349 Investments Corporation. And each one has a different 00:20:34.349 --> 00:20:37.619 focus. Exactly. Each provides expertise across 00:20:37.619 --> 00:20:39.420 different asset classes, different strategies, 00:20:39.579 --> 00:20:42.640 different geographic markets. Next, we have BNY 00:20:42.640 --> 00:20:45.259 Pershing. We noted earlier they're the largest 00:20:45.259 --> 00:20:48.140 clearing firm for stock trades. This really sounds 00:20:48.140 --> 00:20:49.980 like the engine room. It is the engine room. 00:20:50.279 --> 00:20:52.640 It provides the foundational back end infrastructure 00:20:52.640 --> 00:20:54.980 for thousands of wealth management firms and 00:20:54.980 --> 00:20:57.460 institutional investors. Pershing provides the 00:20:57.460 --> 00:21:00.140 essential clearing, custody, trading and settlement 00:21:00.140 --> 00:21:02.500 services. So they handle the logistics. They 00:21:02.500 --> 00:21:04.440 handle the complex logistics of transferring 00:21:04.440 --> 00:21:06.559 ownership and ensuring funds settle correctly 00:21:06.559 --> 00:21:09.420 after every single trade, along with extensive 00:21:09.420 --> 00:21:12.019 middle and back office support. And Pershing 00:21:12.019 --> 00:21:14.279 has been aggressively pushing innovation recently 00:21:14.279 --> 00:21:16.319 to maintain that critical infrastructure role. 00:21:16.700 --> 00:21:20.000 Absolutely. One key innovation came in 2023 with 00:21:20.000 --> 00:21:21.859 the launch of the wealth management platform 00:21:21.859 --> 00:21:26.039 Wove by PershingX. Wove. Wove is designed to 00:21:26.039 --> 00:21:29.240 be this unified, open architecture solution that 00:21:29.240 --> 00:21:31.559 integrates the client experience with the core 00:21:31.559 --> 00:21:34.039 clearing, custody, and settlement infrastructure. 00:21:34.339 --> 00:21:37.339 It's an effort to modernize that whole advisor 00:21:37.339 --> 00:21:39.819 -client ecosystem. And linking back to the technology 00:21:39.819 --> 00:21:42.759 push, they also added real -time payments to 00:21:42.759 --> 00:21:44.970 the Pershing investor portal. That's a key integration. 00:21:45.210 --> 00:21:47.690 It speeds up transactions for those high end 00:21:47.690 --> 00:21:49.769 clients. And it shows how this technological 00:21:49.769 --> 00:21:52.329 transformation we're about to discuss isn't just 00:21:52.329 --> 00:21:55.269 for their biggest institutional clients. It filters 00:21:55.269 --> 00:21:57.490 down into the private wealth side as well. Which 00:21:57.490 --> 00:21:59.910 brings us to BNY Wealth, focusing on high net 00:21:59.910 --> 00:22:02.710 worth clients and families. Right. BNY Wealth 00:22:02.710 --> 00:22:05.150 handles the private banking, the estate planning 00:22:05.150 --> 00:22:07.470 and comprehensive family office services for 00:22:07.470 --> 00:22:11.089 high net worth individuals. As of 2014, BNY Wealth 00:22:11.089 --> 00:22:13.250 ranked as the seventh largest wealth management. 00:22:13.450 --> 00:22:15.730 business in the U .S., and they continue to grow 00:22:15.730 --> 00:22:18.049 that by expanding staff and opening new offices 00:22:18.049 --> 00:22:20.609 to cater to this immense pool of private wealth 00:22:20.609 --> 00:22:24.329 globally. Managing $52 trillion, moving $1 .6 00:22:24.329 --> 00:22:27.230 trillion in daily payments, that sheer volume 00:22:27.230 --> 00:22:30.150 required a massive internal shift in how they 00:22:30.150 --> 00:22:32.519 handled information and technology. They can't 00:22:32.519 --> 00:22:34.839 be done on old servers. You can't. The technological 00:22:34.839 --> 00:22:37.180 transformation is crucial for maintaining that 00:22:37.180 --> 00:22:39.380 status as the global central nervous system. 00:22:39.579 --> 00:22:43.700 In 2013, BNY began building a brand new IT system 00:22:43.700 --> 00:22:46.420 called NXN. And this wasn't just an upgrade? 00:22:46.819 --> 00:22:50.259 No. NXN was a complete multi -year transformation 00:22:50.259 --> 00:22:52.900 toward modern architecture. It was essentially 00:22:52.900 --> 00:22:55.359 channeling Silicon Valley development practices 00:22:55.359 --> 00:22:58.140 into the world of custodial banking. So what 00:22:58.140 --> 00:23:00.869 does that mean? What did they build? NXN utilizes 00:23:00.869 --> 00:23:03.549 open source technology. It incorporates an API 00:23:03.549 --> 00:23:06.569 store, advanced data analytics, and it all runs 00:23:06.569 --> 00:23:08.849 on a comprehensive cloud computing environment. 00:23:09.210 --> 00:23:11.849 Okay, what does that buzzword API store mean 00:23:11.849 --> 00:23:14.890 in practical terms for BNY's institutional clients? 00:23:15.329 --> 00:23:17.609 An API, an application programming interface, 00:23:17.730 --> 00:23:21.089 is like a digital bridge. For BNY, the API store 00:23:21.089 --> 00:23:23.430 means their vast stores of data and transaction 00:23:23.430 --> 00:23:25.529 capabilities aren't trapped in these proprietary 00:23:25.529 --> 00:23:28.230 legacy silos anymore. So their clients can connect 00:23:28.230 --> 00:23:30.480 directly. Their institutional clients, pension 00:23:30.480 --> 00:23:32.819 funds, insurers, they can build custom software 00:23:32.819 --> 00:23:35.480 applications that plug directly into BNY's core 00:23:35.480 --> 00:23:38.119 systems to access their data, perform complex 00:23:38.119 --> 00:23:40.539 analytics, or initiate transactions seamlessly. 00:23:40.859 --> 00:23:43.700 It turns BNY's infrastructure into a customizable 00:23:43.700 --> 00:23:46.619 platform. That scalability is essential when 00:23:46.619 --> 00:23:49.140 you consider the next major technological push. 00:23:49.779 --> 00:23:53.019 Real -time payments. BNY was at the forefront 00:23:53.019 --> 00:23:55.400 of changing how money moves in the U .S. They 00:23:55.400 --> 00:23:58.099 absolutely pioneered this movement. For decades, 00:23:58.480 --> 00:24:01.559 the U .S. payment system was slow. It was cumbersome, 00:24:01.559 --> 00:24:04.220 measured in hours or even days. That changed 00:24:04.220 --> 00:24:06.500 dramatically in November 2017. What happened? 00:24:06.740 --> 00:24:09.299 BNY Mellon executed the U .S. banking industry's 00:24:09.299 --> 00:24:12.240 first live, real -time payment transaction using 00:24:12.240 --> 00:24:14.619 the Clearinghouse System, or TCH. That must have 00:24:14.619 --> 00:24:17.140 been a highly symbolic moment. It was. A nominal 00:24:17.140 --> 00:24:19.589 amount was moved between accounts at BNY. Mellon 00:24:19.589 --> 00:24:22.910 and US Bancorp in just three seconds. This event 00:24:22.910 --> 00:24:25.549 inaugurated the first new payment clearance and 00:24:25.549 --> 00:24:28.109 settlement system for the US in over 40 years. 00:24:28.230 --> 00:24:31.059 It was proof of concept. Total proof of concept 00:24:31.059 --> 00:24:35.099 that immediate 247 -365 payment capabilities 00:24:35.099 --> 00:24:37.319 were possible. So they weren't just participating. 00:24:37.519 --> 00:24:39.519 They were setting the pace and demonstrating 00:24:39.519 --> 00:24:41.700 the functionality for the entire industry. And 00:24:41.700 --> 00:24:44.200 that commitment continued. Correct. Into 2023, 00:24:44.480 --> 00:24:46.779 when BNY Mellon became an early adopter of the 00:24:46.779 --> 00:24:49.799 Federal Reserve's own instant payment rail, FedNow. 00:24:49.960 --> 00:24:53.039 By supporting both TCH's network and the FedNow 00:24:53.039 --> 00:24:56.299 service, BNY cemented their position as a central 00:24:56.299 --> 00:24:58.619 infrastructure provider essential for this new 00:24:58.619 --> 00:25:00.839 era. of rapid, immediate financial movement. 00:25:01.160 --> 00:25:03.380 It just shows that despite their 18th century 00:25:03.380 --> 00:25:06.000 origins, their future is entirely reliant on 00:25:06.000 --> 00:25:08.460 cutting -edge financial technology. And here's 00:25:08.460 --> 00:25:09.980 where the tension between trust and turbulence 00:25:09.980 --> 00:25:12.059 really comes to the forefront. For a company 00:25:12.059 --> 00:25:14.240 that exists purely on the concept of safekeeping 00:25:14.240 --> 00:25:17.160 and trust, BNY has faced some monumental legal 00:25:17.160 --> 00:25:20.099 and security issues, many tied directly to its 00:25:20.099 --> 00:25:22.220 global reach and the sheer scale of the money 00:25:22.220 --> 00:25:25.079 it touches. We have to start with a complex money 00:25:25.079 --> 00:25:27.359 laundering scandal sometimes referred to as Russiagate. 00:25:27.460 --> 00:25:30.259 This was a major complex crisis point in the 00:25:30.259 --> 00:25:33.240 late 1990s. It was all set against the backdrop 00:25:33.240 --> 00:25:36.519 of post -Soviet privatization chaos in Russia. 00:25:37.130 --> 00:25:40.029 The core of the scandal involved a network run 00:25:40.029 --> 00:25:43.029 by rogue employees. Inside the bank. Inside the 00:25:43.029 --> 00:25:46.130 bank. Specifically, LaMela Lucy Edwards, a vice 00:25:46.130 --> 00:25:48.269 president working out of the bank's London office, 00:25:48.509 --> 00:25:51.410 and her husband, Peter Berlin, who operated a 00:25:51.410 --> 00:25:53.869 network of shell companies. So what was the mechanism 00:25:53.869 --> 00:25:56.250 for moving this illegal money, and what was the 00:25:56.250 --> 00:25:59.240 ultimate scale? The operation moved a staggering 00:25:59.240 --> 00:26:03.400 amount, over $7 billion, via hundreds and hundreds 00:26:03.400 --> 00:26:06.460 of wire transfers. This money originated from 00:26:06.460 --> 00:26:08.740 various distressed Russian banks like Income 00:26:08.740 --> 00:26:11.839 Bank, Menatep, Alfa Bank, and Sobin Bank. And 00:26:11.839 --> 00:26:14.079 how did they wash it? Edwards and Berlin funneled 00:26:14.079 --> 00:26:16.259 it through these offshore shell companies, primarily 00:26:16.259 --> 00:26:18.880 Benex International and Bees Lowland, which were 00:26:18.880 --> 00:26:20.900 set up specifically to wash the funds through 00:26:20.900 --> 00:26:23.420 the New York system. And the sources reveal this 00:26:23.420 --> 00:26:26.380 wasn't just typical white collar crime. It got 00:26:26.380 --> 00:26:28.799 entangled with allegations of international organized 00:26:28.799 --> 00:26:31.799 crime. That's the most alarming part. Our sources 00:26:31.799 --> 00:26:34.819 quote Joseph Racist, also known as Ogre, who 00:26:34.819 --> 00:26:37.799 was associated with the Russian mafia's Sontsevskaya 00:26:37.799 --> 00:26:40.900 Bratva. Royces explained to Italian prosecutors 00:26:40.900 --> 00:26:44.740 in 1997 that a shocking 90 percent of the money 00:26:44.740 --> 00:26:46.599 flowing through the Bennex accounts at the Bank 00:26:46.599 --> 00:26:49.539 of New York was Russian mafia money. 90 percent. 00:26:49.680 --> 00:26:52.099 90 percent. That just speaks to how vulnerable 00:26:52.099 --> 00:26:55.279 the global financial infrastructure was to organized 00:26:55.279 --> 00:26:58.059 crime operating under this veneer of legitimacy. 00:26:58.400 --> 00:27:00.559 And the scope of internal complicity was terrifying. 00:27:01.130 --> 00:27:04.930 It was. Svetlana Kudryavtsev, who was responsible 00:27:04.930 --> 00:27:07.109 for the proper operation of the Bennex accounts 00:27:07.109 --> 00:27:09.849 in New York, she received monthly payments from 00:27:09.849 --> 00:27:12.230 Edwards for her services. She refused to cooperate 00:27:12.230 --> 00:27:14.309 and resigned during an internal audit, though 00:27:14.309 --> 00:27:16.390 she was later indicted. The money just flowed 00:27:16.390 --> 00:27:18.849 for years. I mean, $4 .2 billion alone passed 00:27:18.849 --> 00:27:20.809 through the Bennex accounts between October 98 00:27:20.809 --> 00:27:24.150 and March 99. So how was this massive scandal 00:27:24.150 --> 00:27:26.990 ultimately resolved legally? Well, the U .S. 00:27:27.009 --> 00:27:28.849 federal investigation, which started way back 00:27:28.849 --> 00:27:32.140 in 1996, was finally... settled in 2005 for $14 00:27:32.140 --> 00:27:34.839 million. That seems small. It does. Separately, 00:27:34.839 --> 00:27:36.839 the Russian government filed a massive lawsuit 00:27:36.839 --> 00:27:40.059 against the Bank of New York in May 2007, originally 00:27:40.059 --> 00:27:44.339 claiming $22 .5 billion in damages. That highly 00:27:44.339 --> 00:27:46.680 publicized lawsuit was eventually settled in 00:27:46.680 --> 00:27:49.980 September 2009 for a much smaller undisclosed 00:27:49.980 --> 00:27:52.279 figure, though estimates suggest it was around 00:27:52.279 --> 00:27:55.140 $14 million again. Okay, moving to another area 00:27:55.140 --> 00:27:58.299 of major turbulence. The foreign currency exchange 00:27:58.299 --> 00:28:01.319 fraud allegations brought in 2011, which led 00:28:01.319 --> 00:28:03.819 to a record settlement. And this involved the 00:28:03.819 --> 00:28:06.960 systematic deception of their own clients. Including 00:28:06.960 --> 00:28:09.740 major pension funds? Yeah. This involved parallel 00:28:09.740 --> 00:28:12.779 civil lawsuits filed by both the U .S. Justice 00:28:12.779 --> 00:28:14.779 Department and the New York Attorney General. 00:28:14.940 --> 00:28:17.339 And the allegation was just profoundly damaging 00:28:17.339 --> 00:28:20.240 to BNY's reputation as a fiduciary. They were 00:28:20.240 --> 00:28:22.619 accused of systematically deceiving pension fund 00:28:22.619 --> 00:28:24.500 clients by manipulating the foreign exchange 00:28:24.500 --> 00:28:27.079 prices assigned to them. How did this margins 00:28:27.079 --> 00:28:29.869 -dealing manipulation work? especially given 00:28:29.869 --> 00:28:31.589 that these pension funds were supposed to trust 00:28:31.589 --> 00:28:34.769 BNY. Let's use an analogy. Imagine you hired 00:28:34.769 --> 00:28:37.170 BNY as a concierge to buy millions of shares 00:28:37.170 --> 00:28:39.430 in a foreign currency for your retirement fund. 00:28:39.630 --> 00:28:42.029 Instead of buying it at the best rate they could 00:28:42.029 --> 00:28:44.650 achieve for you, the bank allegedly selected 00:28:44.650 --> 00:28:47.170 the day's absolute lowest rates for currency 00:28:47.170 --> 00:28:49.789 sales and the highest rates for currency purchases, 00:28:50.049 --> 00:28:52.569 and then deliberately appropriated the difference, 00:28:52.750 --> 00:28:56.880 the entire spread, as corporate profit. So they 00:28:56.880 --> 00:28:59.220 were basically treating the pension funds as 00:28:59.220 --> 00:29:01.640 counterparties to be arbitraged against. They 00:29:01.640 --> 00:29:04.000 were exploiting the trust that's inherent in 00:29:04.000 --> 00:29:06.940 a custody relationship. This deceptive scheme 00:29:06.940 --> 00:29:09.440 was alleged to have generated a staggering $2 00:29:09.440 --> 00:29:12.259 billion for the bank over more than a decade 00:29:12.259 --> 00:29:15.059 at the direct expense of millions of Americans' 00:29:15.220 --> 00:29:18.170 retirement savings. $2 billion. That is a colossal 00:29:18.170 --> 00:29:20.390 figure. How did the bank finally resolve this? 00:29:20.710 --> 00:29:23.049 Initially, they defended themselves very aggressively. 00:29:23.289 --> 00:29:25.950 But the legal pressure spanning multiple state 00:29:25.950 --> 00:29:28.650 and federal jurisdictions, it proved insurmountable. 00:29:29.369 --> 00:29:32.289 In March 2015, the company admitted to Fax concerning 00:29:32.289 --> 00:29:34.990 the misrepresentation of FX pricing and execution. 00:29:35.390 --> 00:29:39.490 They agreed to pay a total of $714 million to 00:29:39.490 --> 00:29:42.250 settle the related lawsuits. And that included 00:29:42.250 --> 00:29:46.170 a $180 million payment to settle a specific FX 00:29:46.170 --> 00:29:48.930 -related lawsuit just two months later. So if 00:29:48.930 --> 00:29:51.529 the financial scams weren't enough... BNY Mellon 00:29:51.529 --> 00:29:54.289 also suffered a shocking and massive personal 00:29:54.289 --> 00:29:57.130 data security lapse. Yeah. In February 2008, 00:29:57.529 --> 00:29:59.609 BNY Mellon suffered a severe security failure 00:29:59.609 --> 00:30:01.769 when backup tapes containing personal records 00:30:01.769 --> 00:30:04.430 were lost. The scale was initially reported as 00:30:04.430 --> 00:30:06.509 four and a half million individuals. Which is 00:30:06.509 --> 00:30:09.069 already huge. But subsequent investigations revised 00:30:09.069 --> 00:30:12.670 that figure upward to an astonishing 12 .5 million 00:30:12.670 --> 00:30:15.930 affected individuals. And this lost data included 00:30:15.930 --> 00:30:18.369 highly sensitive information like social security 00:30:18.369 --> 00:30:22.009 numbers and bank accounts. And the handling of 00:30:22.009 --> 00:30:23.910 the incident was compounded by a severe delay 00:30:23.910 --> 00:30:26.730 in transparency. Precisely. The breach occurred 00:30:26.730 --> 00:30:29.710 in February 2008, but the incident was not reported 00:30:29.710 --> 00:30:32.789 to the authorities until May 2008. The letters 00:30:32.789 --> 00:30:34.809 informing the affected individuals didn't go 00:30:34.809 --> 00:30:37.849 out until May 22nd, which highlights this critical 00:30:37.849 --> 00:30:40.970 lack of timely transparency in a situation involving 00:30:40.970 --> 00:30:44.450 millions of Americans' core personal data. And 00:30:44.450 --> 00:30:46.990 beyond these high -profile scandals, BNY has 00:30:46.990 --> 00:30:49.210 settled several other significant legal actions, 00:30:49.470 --> 00:30:52.069 confirming a pattern of regulatory issues across 00:30:52.069 --> 00:30:54.589 different functions. Yeah, they settled foreign 00:30:54.589 --> 00:30:58.309 bribery charges with the SEC in 2015 for violating 00:30:58.309 --> 00:31:01.130 the Foreign Corrupt Practices Act. What was that 00:31:01.130 --> 00:31:03.960 about? This violation involved providing internships 00:31:03.960 --> 00:31:07.000 to relatives of officials at a Middle Eastern 00:31:07.000 --> 00:31:10.019 investment fund. It was a type of quid pro quo 00:31:10.019 --> 00:31:12.559 designed to win business. That was settled for 00:31:12.559 --> 00:31:16.220 $14 .8 million. They also settled a securities 00:31:16.220 --> 00:31:18.279 lending lawsuit with South Carolina's pension 00:31:18.279 --> 00:31:21.960 fund for $34 million in 2013. And there's one 00:31:21.960 --> 00:31:24.960 more key concept we need to define to contextualize 00:31:24.960 --> 00:31:27.779 a 2018 settlement. American depository receipts. 00:31:28.160 --> 00:31:31.400 An American Depository Receipt, or ADR, is a 00:31:31.400 --> 00:31:33.839 certificate issued by a U .S. bank that represents 00:31:33.839 --> 00:31:36.640 shares in a foreign stock. It just allows U .S. 00:31:36.660 --> 00:31:38.880 investors to trade foreign stocks easily. Okay, 00:31:38.940 --> 00:31:41.970 so what was the issue? In 2018, BNY agreed to 00:31:41.970 --> 00:31:45.950 pay nearly $54 million to the SEC for improper 00:31:45.950 --> 00:31:49.509 handling of pre -released ADRs. This scheme essentially 00:31:49.509 --> 00:31:53.029 created synthetic, unauthorized ADRs, allowing 00:31:53.029 --> 00:31:55.309 investors to borrow shares they didn't really 00:31:55.309 --> 00:31:58.109 own and creating market imbalances. So for a 00:31:58.109 --> 00:32:00.210 firm that prides itself on being the seamless 00:32:00.210 --> 00:32:03.009 technological engine room of finance, the sources 00:32:03.009 --> 00:32:05.950 also document major operational failures related 00:32:05.950 --> 00:32:08.710 to its core IT systems, the very plumbing we 00:32:08.710 --> 00:32:10.819 discussed. earlier. And these failures exposed 00:32:10.819 --> 00:32:13.420 the inherent risk of running a CeFi on incredibly 00:32:13.420 --> 00:32:16.339 complex interconnected technology. In August 00:32:16.339 --> 00:32:18.940 2015, during a software change, there was a complete 00:32:18.940 --> 00:32:20.920 breakdown of their SunGuard accounting system. 00:32:21.079 --> 00:32:23.099 And the result was catastrophic for institutional 00:32:23.099 --> 00:32:25.420 clients. Catastrophic. The system was unable 00:32:25.420 --> 00:32:28.079 to calculate the net asset value or NAV for 1 00:32:28.079 --> 00:32:30.539 ,200 mutual funds. And the NAV is the price. 00:32:30.779 --> 00:32:33.500 It's the critical price point institutions use 00:32:33.500 --> 00:32:36.680 to buy and sell funds. Without it, the market 00:32:36.680 --> 00:32:40.440 effectively freezes. BNY had to resort to manual 00:32:40.440 --> 00:32:42.900 calculation until the system was fully operational 00:32:42.900 --> 00:32:46.180 a week later. And that failure and the lack of 00:32:46.180 --> 00:32:49.200 a sufficient backup plan resulted in a $3 million 00:32:49.200 --> 00:32:51.380 settlement with the Massachusetts Securities 00:32:51.380 --> 00:32:53.799 Division. And this wasn't an isolated incident 00:32:53.799 --> 00:32:56.180 demonstrating the high operational risk they 00:32:56.180 --> 00:33:00.390 faced. No. In December 2016... BNY Mellon suffered 00:33:00.390 --> 00:33:03.029 another major technology issue that prevented 00:33:03.029 --> 00:33:05.390 it from processing payments related to the global 00:33:05.390 --> 00:33:09.109 Swift network for a critical 19 hours. At the 00:33:09.109 --> 00:33:11.890 time, the bank was processing about $1 .6 trillion 00:33:11.890 --> 00:33:16.069 in payments daily. That outage caused a massive 00:33:16.069 --> 00:33:18.369 backlog and required an unprecedented extension 00:33:18.369 --> 00:33:21.250 of the Fedwire payment services. When you operate 00:33:21.250 --> 00:33:23.609 at this scale, the smallest glitch can become 00:33:23.609 --> 00:33:26.170 a global crisis. Now let's shift from high finance 00:33:26.170 --> 00:33:28.450 and trillion dollar crimes to a much more relatable. 00:33:28.779 --> 00:33:30.960 almost ironic controversy involving their real 00:33:30.960 --> 00:33:33.599 estate in Manhattan. This is the dispute over 00:33:33.599 --> 00:33:36.180 the POPS agreement, the privately owned public 00:33:36.180 --> 00:33:39.420 space. This is a fantastic anecdote that speaks 00:33:39.420 --> 00:33:42.759 volumes about corporate culture. So when BNY 00:33:42.759 --> 00:33:45.619 Mellon constructed its 101 Barclay Street headquarters, 00:33:45.960 --> 00:33:49.700 now 240 Greenwich, it made a classic New York 00:33:49.700 --> 00:33:52.059 City tradeoff. Right. The city granted them a 00:33:52.059 --> 00:33:54.500 permit allowing modifications to height and setback 00:33:54.500 --> 00:33:57.640 regulations, which saved them millions in construction 00:33:57.640 --> 00:34:00.160 costs. And what was the tradeoff? What did the 00:34:00.160 --> 00:34:03.660 public get? a critical public amenity they promised 00:34:03.660 --> 00:34:07.039 a lobby accessible to the general public 24 hours 00:34:07.039 --> 00:34:10.320 a day a privately owned public space or pops 00:34:10.320 --> 00:34:13.079 this was supposed to be a public benefit in exchange 00:34:13.079 --> 00:34:15.619 for that favorable zoning so you're telling me 00:34:15.619 --> 00:34:18.559 the oldest bank in america the ultimate fiduciary 00:34:18.559 --> 00:34:21.639 the institution that manages 52 trillion dollars 00:34:21.639 --> 00:34:25.639 spent 15 years actively fighting to prevent citizens 00:34:25.639 --> 00:34:27.900 from using a fancy lobby they had promised the 00:34:27.900 --> 00:34:30.920 city that's precisely the finding of a 27 audit 00:34:30.920 --> 00:34:33.280 by the New York City Comptroller. Auditors found 00:34:33.280 --> 00:34:35.719 BNY Mellon had been in violation of this POPS 00:34:35.719 --> 00:34:38.360 agreement for at least 15 years, with the bank's 00:34:38.360 --> 00:34:40.519 security personnel actively preventing auditors 00:34:40.519 --> 00:34:42.659 and the general public from accessing the promised 00:34:42.659 --> 00:34:46.039 lobby. 15 years of actively flouting a local 00:34:46.039 --> 00:34:48.960 public agreement. It speaks to an institutional 00:34:48.960 --> 00:34:51.820 disregard for regulatory agreements, even at 00:34:51.820 --> 00:34:54.059 the micro level. It does. And while the company 00:34:54.059 --> 00:34:56.199 did begin to permit partial public access in 00:34:56.199 --> 00:34:59.260 September 2018 under legal pressure, the audit 00:34:59.260 --> 00:35:01.739 noted that BNY Mellon still remained in violation 00:35:01.739 --> 00:35:04.400 because the agreement requires access 24 hours 00:35:04.400 --> 00:35:06.619 a day, not just during business hours. And it 00:35:06.619 --> 00:35:10.000 continued. As recently as early 2021, city auditors 00:35:10.000 --> 00:35:12.539 were still being prevented from entering or photographing 00:35:12.539 --> 00:35:15.079 the lobby by security personnel, with the bank 00:35:15.079 --> 00:35:17.920 actively seeking to have the public lobby designation 00:35:17.920 --> 00:35:22.269 removed entirely. Despite these extensive operational 00:35:22.269 --> 00:35:25.190 and legal challenges, the company also demonstrates 00:35:25.190 --> 00:35:27.710 a significant and highly publicized focus on 00:35:27.710 --> 00:35:30.949 corporate culture, sustainability, and ESG goals. 00:35:31.150 --> 00:35:34.150 It creates this very complex, contradictory picture. 00:35:34.590 --> 00:35:36.849 It is a deliberate effort to balance their opaque 00:35:36.849 --> 00:35:39.610 technical role with public visibility and corporate 00:35:39.610 --> 00:35:42.449 responsibility. On the sustainability front, 00:35:42.710 --> 00:35:45.409 BNY Mellon has received high marks, including 00:35:45.409 --> 00:35:48.809 A ratings from CDP for its climate change disclosures. 00:35:49.030 --> 00:35:53.449 By 2014, they had saved $48 million due to building 00:35:53.449 --> 00:35:56.610 efficiency and maintained multiple LEED certifications 00:35:56.610 --> 00:35:58.889 for their real estate. They also seem to put 00:35:58.889 --> 00:36:01.550 a strong emphasis on internal diversity and inclusion, 00:36:01.869 --> 00:36:04.349 which is essential for attracting and retaining 00:36:04.349 --> 00:36:07.030 talent in a highly technical field. Absolutely. 00:36:07.269 --> 00:36:09.449 They foster multiple internal business resource 00:36:09.449 --> 00:36:11.690 groups focused on different employee demographics. 00:36:12.090 --> 00:36:14.329 You have WIN, the Women's Initiative Network, 00:36:14.730 --> 00:36:18.170 PRISM for LGBT employees, IMPACT for multicultural 00:36:18.170 --> 00:36:20.989 employees, and VetNet for veterans and military 00:36:20.989 --> 00:36:23.610 employees. This internal structure is crucial 00:36:23.610 --> 00:36:25.949 for a global firm. And reflecting a focus on 00:36:25.949 --> 00:36:28.170 employee support, there was a notable increase 00:36:28.170 --> 00:36:30.679 in the minimum wage recently. In 2023, yeah. 00:36:31.039 --> 00:36:33.940 BNY increased its minimum wage for U .S.-based 00:36:33.940 --> 00:36:37.480 employees by a substantial 12 .5%, raising the 00:36:37.480 --> 00:36:41.539 hourly rate from $20 to $22 .50. They also expanded 00:36:41.539 --> 00:36:43.480 their mental health resources for employees, 00:36:43.679 --> 00:36:45.840 recognizing the need to support their workforce 00:36:45.840 --> 00:36:48.079 in a high -pressure industry. Their investment 00:36:48.079 --> 00:36:50.360 research initiatives also show an interest in 00:36:50.360 --> 00:36:53.219 global economic inclusion, particularly around 00:36:53.219 --> 00:36:56.639 gender and capital. Their 2022 report, The Pathway 00:36:56.639 --> 00:37:00.000 to Inclusive Investment, surveyed 8 ,000 global 00:37:00.000 --> 00:37:02.739 respondents. The key finding was a remarkable 00:37:02.739 --> 00:37:05.980 projection. If women were to invest at the same 00:37:05.980 --> 00:37:08.679 rate as men, closing that gender investment gap 00:37:08.679 --> 00:37:12.079 could unlock an estimated $3 .2 trillion in additional 00:37:12.079 --> 00:37:14.980 capital globally. Wow. It shows BNY leveraging 00:37:14.980 --> 00:37:17.340 its research capabilities to promote market growth 00:37:17.340 --> 00:37:19.920 through inclusive practices. And finally, we 00:37:19.920 --> 00:37:21.900 see their efforts to build brand awareness and 00:37:21.900 --> 00:37:24.550 connection. using sponsorships to make the BNY 00:37:24.550 --> 00:37:27.110 name more familiar to the general public. BNY 00:37:27.110 --> 00:37:29.789 uses sponsorships strategically to demonstrate 00:37:29.789 --> 00:37:32.659 global and cultural engagement. They were the 00:37:32.659 --> 00:37:35.199 title sponsor of major international events like 00:37:35.199 --> 00:37:37.820 the Oxford and Cambridge boat race for a few 00:37:37.820 --> 00:37:40.119 years, and they continue to sponsor the head 00:37:40.119 --> 00:37:43.139 of the Charles Regatta. And in the U .S. Domestically, 00:37:43.159 --> 00:37:45.400 they partner with major sports teams like the 00:37:45.400 --> 00:37:48.539 San Francisco 49ers and Levi's Stadium. They 00:37:48.539 --> 00:37:51.320 also support cultural institutions like the Royal 00:37:51.320 --> 00:37:54.260 Academy of Arts in London and the Perelman Performing 00:37:54.260 --> 00:37:56.960 Arts Center in Lower Manhattan. It's a carefully 00:37:56.960 --> 00:37:59.940 crafted effort to make the plumbing visible and 00:37:59.940 --> 00:38:02.320 relatable. What a phenomenal journey we've taken 00:38:02.320 --> 00:38:04.199 through the history of American finance. I mean, 00:38:04.219 --> 00:38:06.480 we've gone from Alexander Hamilton setting up 00:38:06.480 --> 00:38:09.820 shop in a New York coffee house in 1784 and fighting 00:38:09.820 --> 00:38:13.800 Aaron Burr. Yeah. To the modern BNY today, graveling 00:38:13.800 --> 00:38:16.300 with real -time payment technology, the cognitive 00:38:16.300 --> 00:38:19.079 burden of safeguarding $52 trillion, and these 00:38:19.079 --> 00:38:21.380 massive legal settlements for things like foreign 00:38:21.380 --> 00:38:23.739 exchange fraud that impacted millions of pension 00:38:23.739 --> 00:38:26.349 holders. The tension between the 18th century 00:38:26.349 --> 00:38:29.829 conservative origin story and its current role 00:38:29.829 --> 00:38:33.090 as a sophisticated, systemically important powerhouse, 00:38:33.210 --> 00:38:36.710 that's a central enduring theme. Understanding 00:38:36.710 --> 00:38:39.309 BNY is key to understanding the quiet mechanics 00:38:39.309 --> 00:38:42.550 of the global financial system. Its immense custody 00:38:42.550 --> 00:38:45.130 assets mean it acts less like a traditional lending 00:38:45.130 --> 00:38:47.550 bank and more like the central nervous system 00:38:47.550 --> 00:38:50.210 for the world's wealth. It's just processing 00:38:50.210 --> 00:38:52.409 transactions and ownership records at a volume 00:38:52.409 --> 00:38:55.250 few can comprehend. And the fact that they consistently 00:38:55.250 --> 00:38:58.070 pass federal stress tests, despite the occasional 00:38:58.070 --> 00:39:01.489 major IT outage or global scandal, that provides 00:39:01.489 --> 00:39:04.269 some measure of comfort. Their stability is critical 00:39:04.269 --> 00:39:07.139 to the world economy. The scale of their responsibility 00:39:07.139 --> 00:39:09.420 makes both their demonstrated stability and their 00:39:09.420 --> 00:39:11.820 documented controversies equally significant 00:39:11.820 --> 00:39:14.260 for global finance. And that threat of high stakes 00:39:14.260 --> 00:39:16.159 friction, it runs straight from its founding. 00:39:16.340 --> 00:39:19.139 We saw Alexander Hamilton and the founders vigorously 00:39:19.139 --> 00:39:21.639 oppose Aaron Burr's attempt to break their monopoly 00:39:21.639 --> 00:39:25.019 in 1799, a conflict for economic control. Two 00:39:25.019 --> 00:39:27.800 centuries later, we see BNY settling massive 00:39:27.800 --> 00:39:30.420 money laundering suits tied to organized crime 00:39:30.420 --> 00:39:33.179 and paying record breaking fines for currency 00:39:33.179 --> 00:39:35.420 fraud that impacted those. very same pension 00:39:35.420 --> 00:39:38.219 funds they were sworn to protect. Which raises 00:39:38.219 --> 00:39:40.199 an important question for you the learner to 00:39:40.199 --> 00:39:43.420 consider as you wrap up this deep dive. If the 00:39:43.420 --> 00:39:45.820 oldest bank in the U .S. has always been entangled 00:39:45.820 --> 00:39:47.820 in these fundamental political and controversial 00:39:47.820 --> 00:39:50.480 financial battles, from its founding opposition 00:39:50.480 --> 00:39:53.199 to Burr's political challenge to settling near 00:39:53.199 --> 00:39:55.400 billion -dollar suits over the integrity of currency 00:39:55.400 --> 00:39:58.500 trading, does this suggest that such high -stakes 00:39:58.500 --> 00:40:01.260 friction and controversy are simply an intrinsic, 00:40:01.460 --> 00:40:03.900 enduring quality of being a systemically important 00:40:03.900 --> 00:40:07.619 global financial institution? It seems that wherever 00:40:07.619 --> 00:40:10.659 the world's wealth flows, the NY is there, and 00:40:10.659 --> 00:40:13.409 conflict follows. Something to mull over as you 00:40:13.409 --> 00:40:16.409 contemplate the $52 .1 trillion currently under 00:40:16.409 --> 00:40:18.809 their watch, quietly ensuring the gears of global 00:40:18.809 --> 00:40:19.909 capital keep turning.