Financial innovation must be a core regulatory priority, with regulatory and supervisory resources and attention focused on building a policy framework that permits responsible innovation to flourish, Federal Reserve Governor Michelle Bowman said. Speaking today at a financial technology conference in Austria, Bowman said that regulators’ initial response to innovation in the banking sector “is not one of openness and acceptance but rather suspicion and concern.” Some skepticism is understandable, “but it is incumbent on regulators to fight the temptation to say ‘no’ and resist new technology and instead focus on solutions,” she added.
“I would suggest that adopting a posture receptive to innovation requires a shift in regulatory approach,” Bowman said. “The current temptation is to pre-judge financial innovation and to take a harsh view. But this resistance approach carries significant risks. One of the most important risks is that financial innovation stagnates or is pushed out of—and kept out of—the banking system. … Ultimately, this approach could lead to a banking system that may be safer and smaller but also much less effective in providing banking products and services to support the U.S. economy.”
Bowman also suggested that regulators could promote innovation through transparency and open communication. “This includes providing clear guidance to banks and the broader public, incorporating innovation into the regulatory agenda in a comprehensive way, and encouraging interaction between industry and regulators,” she said. “This industry–regulator interaction must allow for feedback and information sharing throughout the innovation life cycle and incorporate regulatory feedback on innovation.”
