InfoBytes Blog

Fed discusses technology, innovation, and financial services

On August 17, Federal Reserve Governor Michelle W. Bowman spoke before the VenCent Fintech Conference in Arkansas regarding technology, innovation, and financial services. In her remarks, Bowman discussed the importance of technology and how it is leading to new bank business models, including application programming interfaces and other technologies that allow nonbank technology firms to provide financial services. Bowman also discussed why customers engage more in crypto assets, such as that there has been “significant consumer demand for engagement in these types of services,” and that “banks have observed their deposits flowing to nonbank crypto-asset firms and, understandably, would like to stem that outflow by offering the services themselves.” Bowman also noted that the Fed is “working to articulate supervisory expectations for banks on a variety of digital asset-related activities,” such as custody of crypto-assets and loans collateralized by crypto-assets, among other things. She addressed supervisory guidance recently released by the Fed (covered by InfoBytes here), which “provide[s] banks with additional information about the risks of crypto activities and remind[s] them to ensure that the activities are legal and [that] they should have adequate systems, risk management, and controls in place to conduct the activities in a safe and sound manner consistent with applicable law.” Bowman also discussed the Fed’s involvement in artificial intelligence (AI), noting that last year, the Fed joined with other financial agencies to issue a Request for Information (RFI) on input on financial institutions’ use of AI (covered by InfoBytes here) and has received over 100 responses. As noted in the RFI, banks are using AI in a variety of ways, including fraud monitoring, personalization of customer services, credit decisions, risk management, and textual analysis. As covered by a Buckley Special Alert, in May, the Fed issued a final rule for its FedNow instant-payments platform that offers more clarity on how the new service will work while essentially adopting the proposed rule. Bowman contended that FedNow “will enable financial institutions of every size, and in every community across America, to provide safe and efficient instant payment services,” and that it is “a flexible, neutral platform that will support a broad variety of instant payments.” In regard to novel charters and access to federal reserve account services, Bowman closed by highlighting the Fed’s final guidelines governing how Reserve Banks will evaluate requests for account access. Bowman explained that “[t]he guidelines take into account the Board's goals to (1) ensure the safety and soundness of the banking system; (2) effectively implement monetary policy; (3) promote financial stability; (4) protect consumers; and (5) promote a safe, efficient, inclusive, and innovative payment system.”

Bank Regulatory Federal Issues Federal Reserve Digital Assets Cryptocurrency Article 291A