Fed top supervisor urges regulators to take new approach, consider novel techniques, for ensuring financial inclusion

Regulators need to understand both human decision-making and market context in designing the right rules of the road for ensuring financial inclusion, the Federal Reserve’s top supervisor said at a conference Tuesday.

Speaking at a conference in Jackson, Miss., sponsored by Hope Enterprise Corp. and Jackson State University, Fed Board Vice Chair for Supervision Michael Barr also said regulators need to engage with techniques and models for ensuring financial inclusion. He cited cash flow underwriting and alternative data, new credit models, and “other technologies that hold out the promise to increase access and reduce bias in credit intermediation.”

Outlining three areas of financial disparity (lending outcomes, the racial wealth gap, and in financial services), Barr offered some high-level approaches in which financial institutions and regulators could address the issues:

  • Eradicate discrimination in lending and other financial services, and protect consumers from other unfair, abusive, or illegal practices. “It is incumbent on financial institutions to devote resources to stamp out these practices, and on regulators to reinforce the importance of this goal through supervision and enforcement,” Barr said.
  • Look for opportunities to support a vibrant and thriving economy for the benefit of everyone. “This means seeking out opportunities to invest in low- and moderate-income (LMI) communities, small businesses, and community infrastructure,” he said.
  • Develop products and services that can help people save and build wealth. Barr suggested that the Fed’s new (and soon to launch, at least by mid-year) “FedNow” 24-hour payments system would play a role. He said once the system is widely it adopted, it will “better enable banks to offer customers the ability to send and receive money immediately at low cost.”

Barr also said the Fed can also make a difference be updating its rules on check clearance. He indicated that would allow consumers and small businesses that are still receiving checks to have access to their funds in a timelier manner.

Fed Board Vice Chair for Supervision Michael S. Barr, Remarks at the “Banking on Financial Inclusion” Conference