‘Survival of community banks’ rides on more tech innovation – which FDIC chairman aims to encourage

Encouraging innovation that meets consumer demand, promotes community banking, reduces compliance burdens, and modernizes supervision are all part of the “foundation for the next chapter of banking,” the board chairman for the federal insurer of bank deposits said Tuesday.

In remarks to the “The Future of Banking” conference at the Federal Reserve Bank of St. Louis (in St. Louis), Federal Deposit Insurance Corp. (FDIC) Board Chairman Jelena McWilliams said the challenge for regulators is to create an environment in which both financial technology firms (fintechs) and banks can collaborate.

“This is not optional for the FDIC,” McWilliams proclaimed. “We must lay this foundation because the survival of our community banks depends on it. These small banks face challenges from industry consolidation, economies of scale, and competition from their community bank peers, larger banks, credit unions, fintechs, and a plethora of other non-banks lenders.”

McWilliams acknowledged that her agency can’t do much to address costs of developing and deploying technology. However, she asserted that the FDIC can foster innovation among community banks and reduce the regulatory cost of innovation.

“Broad adoption of technology – both at the FDIC and within the banking system – was one of the driving factors behind our decision to establish a new office of innovation within the FDIC,” said. She described the new FDIC Tech Lab (FDiTech) as a tool that will collaborate with community banks on how to deploy technology in delivery channels and back office operations to better serve customers. “Many of the institutions we supervise are already innovating, but a broader adoption of new technologies across this sector will allow community banks to stay relevant in the increasingly competitive marketplace,” she said.

She outlined three approaches her agency (and FDiTech) will  take to meet that goal: reduce the regulatory cost to banks of developing and implementing new technology; encourage the market to develop technology that improves the operations of financial institutions and how the FDIC functions as a regulatory agency; and work with developers to pilot products and services “for truly innovative technologies.”

She announced that the FDIC will host a series of community-bank-focused stakeholder roundtables on digitization, data access and ownership, machine learning and artificial intelligence, and personalization of the banking experience. A mix of community banks, technologists, and technology service providers will be invited to the discussions, she said.

Keynote Remarks by FDIC Chairman Jelena McWilliams on the “The Future of Banking” at The Federal Reserve Bank of St. Louis; St. Louis, Missouri