Bank Regulation

Fed President Says Banks Too Vulnerable To FinTechs

The president of the Federal Reserve Bank of St. Louis, James Bullard, warned Thursday (Oct. 12) that banking regulators in the U.S. need to pick up the pace in their efforts to confront the risks created by FinTech companies to the banking sector.

According to a news report in Reuters, Bullard said that the increasing number of players in the FinTech space has become the main issue for big financial firms and regulators that are “fighting the last war”  by focusing on rules put in place after the financial crisis.

“We need to speed up our consideration of the FinTech issues and think harder about what is the regulatory environment that is going to be appropriate,” Bullard said, reported Reuters. “I think we have been complacent so far. That is the battleground for the next 10 years. It is not the same as the battleground for the previous 10 years.”

As one example, the Fed president said that Goldman Sachs estimated that $11 billion in annual profits for the lending sector is at risk of being lost because of peer-to-peer lenders. While the big banks have been engaging in M&A and investments in FinTech companies, they can still be hurt by their startup rivals, Bullard argued. Financial firms may wake up one day and most of the big banks “have been eviscerated and most of that activity has moved elsewhere,” Bullard said, noting it could spur a new financial crisis due to lost focus by regulators.

Bullard noted that while President Donald Trump has vowed to eliminate some of the red tape financial firms have faced in the wake of the Great Recession, not enough has been done to ease the burden placed on smaller banks. “I think a lot more should happen to help these smaller banks,” said Bullard. “To have Dodd-Frank rain down on these smaller banks has been a tragedy of the whole legislation.”

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