The Federal Deposit Insurance Corporation (FDIC) is setting up an office of innovation to encourage banks to adopt financial technology changes. FDIC Chairman Jelena McWilliams made the announcement at an American Bankers Association conference in New York, revealing that federal bank regulators need to encourage financial institutions (FIs) to innovate.
"We have created the regulatory framework where we have actually discouraged banks from innovating for a number of years,” McWilliams said. “So, innovation has been happening outside of the banking primarily, and a very small percentage of it has happened within the community banks in particular that don’t have the resources, nor are they able to enforce the compliance mechanisms in place that would be needed where the regulators would look positively at innovation.”
She went on to explain that the FDIC could encourage innovation in three ways: The first is through the industrial loan company, a specialized banking charter supervised by the FDIC; the second way would be through the FDIC's regulation of banks' third-party vendor relationships; and the third is by working with tech companies to obtain improved processing, service and efficiency at banks.
McWilliams added that she hoped the agency would take a more holistic approach in boosting innovation.
“How can we encourage banks to innovate? How can we bring that within the banking sector?” McWilliams said.
The news comes as traditional banks are feeling the heat from nontraditional rivals. Still, a survey in February found that 60 percent of Americans prefer opening a new checking account in person at a bank branch. It also found that half of U.S. customers feel that online-only banks are “less legitimate” than those with branches.
However, earlier in February, a report found that the mass exodus of consumers to various digital channels has pushed the closure of 1,700 branches in the 12 months ending in June 2017 — the largest one-year decline on record. From mid-2012 to mid-2017, Capital One cut 32 percent of its branches, SunTrust Banks. cut 22 percent and Regions cut 12 percent.