McWilliams Highlights Potential Risks as Banking Services Migrate Outside Regulated Entities

As technology and innovation lead to more financial products and services migrating outside the regulated banking sector, regulators must be mindful of systemic risks posted to the financial system, FDIC Chairman Jelena McWilliams said in remarks today. She used as an example mortgage originations, which have long been a staple bank product but are which are increasingly shifting outside the banking sector as new lending options become available.

“In 2009, nonbanks accounted for only 9 percent of the volume of mortgages originated by the top 25 originators, versus 44 percent in 2018,” McWilliams said. However, she noted that banks could still shoulder some of the risk for transactions taking place through non-regulated entities, since many nonbank mortgage originators receive funding from bank loans.

The upside to these migrations is that it should encourage banks to innovate in order to remain competitive with nonbank players, McWilliams said, adding that “as regulators, we should encourage banks to innovate, especially in ways that can improve the customer experience, lower transaction costs, increase credit availability and expand access to the banking system.”