an implication of the model presented in auclert, 2015, monetary policy and the redistribution channel. bis central bankers ’ speeches a related consideration is that refinancing to a lower interest rate requires significant resource costs, which would not be incurred if the borrower ’ s interest rate adjusts automatically when market interest rates decline. one estimate of the cost of refinancing a mortgage, which includes costs such as those on a property appraisal or title insurance, is $ 2, 000 plus one percent of the loan amount. 6 under this estimate, total refinancing transaction costs over 2008 – 2013 exceeded $ 100 billion. 7 furthermore, the re - underwriting of existing loans leads to resource constraints in the mortgage origination industry during refinancing waves, frequently followed by lay - offs when the refinancing boom is complete. 8 timing a mortgage refinancing optimally also requires time and attention from the borrower, and can lead to refinancing mistakes, particularly by less financially sophisticated households. 9 but do these considerations make arms preferable to frms, either from the point of view of monetary policymakers, or public policy more generally? not necessarily. frms have many advantages ; for example they are simple for borrowers to understand, and clearly limit household exposure to interest rate volatility. consider too the incidence of interest rate adjustments : widespread reliance on arms may have unattractive distributional consequences for monetary policy, since it implies that a larger component of monetary transmission falls on a subset of highly indebted mortgage borrowers. a risk - sharing argument may call for the effects of monetary policy to be more evenly spread across households. on the other hand, monetary policy might have to adjust interest rates more dramatically in a world of widespread frms, which would affect some potential borrowers a great deal. furthermore, frms require an extensive financial - sector risk transfer system 10, which may be costly, and may concentrate risks in systemically risky ways. thus, there are clearly many tradeoffs that need to be carefully considered. moreover, as academic research has emphasized, optimal mortgage choice depends on a borrower ’ s characteristics and financial circumstances. it therefore seems desirable that the mortgage finance system makes a range of different contracts available to borrowers, and be open to sensible innovations in contract design. 11 although i have focused on arms, interest rate adjustability is only one of many important aspects of mortgage design that will be considered in

, if you went to your personal lawyer and overheard him refer to you in conversation with his associate as a “ counterparty, ” rather than as a “ client, ” would you worry? you should. my point here is not that banking is a profession like medicine or law. my point is about how you see your customer and the service provided to that customer. a counterparty is not someone needing your help ; “ it ” represents a profit opportunity – something to be exploited. their loss is your gain. a customer, by contrast, is someone to be served. it is right to charge a fee to a customer, client, or patient, but the transaction is driven by the other person ’ s needs. many financial services firms, however, refer to the people they do business with as counterparties. this is no accident. it characterizes the way in which the organization views the person it is facing in its businesses. viewing customers as profit opportunities is inconsistent with a strong ethical culture. in my experience, firms that consider their operational model as service provider tend to have a better culture than those firms that consider their operational model as money maker. the second item that i would leave out is a conception of a bank as a money making machine. this is not to say that i would ignore profitability ; that would be foolish and would destine a firm to a short life. but a bank ’ s goal should be to provide service to its customers through financial intermediation, as mark carney has explained so eloquently. 6 christine lagarde sees this as a cf. e. gerald corrigan, are banks special? federal reserve bank of minneapolis annual report, january 1983, ( “ [ t ] he presence of the public safety net uniquely available to a particular class of institutions also implies that those institutions have unique public responsibilities and may therefore be subject to implicit codes of conduct or explicit regulations that do not fall on other institutions. ” ). see thomas c. baxter, jr., reflections on the new compliance landscape, remarks at “ the new compliance landscape : increasing roles – increasing risks ” conference, july 24, 2014. see mark carney, “ inclusive capitalism : creating a sense of the systemic, ” address to the conference on inclusive capitalism, may 24, 2014. bis central bankers ’ speeches question of animating purpose – of “ telos ” – and i agree. 7 similarly, the archbishop of canterbury, justin welby, has called for financial institutions to