- The survival of community banks hinges on their ability to successfully collaborate with fintechs, FDIC Chair Jelena McWilliams said Tuesday at a conference on the future of banking at the Federal Reserve Bank of St. Louis.
- McWilliams said it's the responsibility of regulators to foster an environment where bank and fintech collaboration can thrive.
- "It is my goal that the FDIC lays the foundation for the next chapter of banking by encouraging innovation that meets consumer demand, promotes community banking, reduces compliance burdens and modernizes our supervision," she told the audience in a speech.
Community banks face challenges from consolidation, economies of scale and competition from larger banks, credit unions, fintechs and nonbank lenders, McWilliams said. So the FDIC has no choice but to create an environment where innovation can thrive, she said.
"This is not optional for the FDIC. We must lay this foundation because the survival of our community banks depends on it," she said.
Since taking the top position at the agency last year, McWilliams has made innovation and technology among her top priorities.
McWilliams created the FDIC Tech Lab last year in an effort to grow the adoption of technology at the agency and within the banking system. She announced the office's creation at an American Bankers Association conference, where she said regulators had traditionally "discouraged banks from innovating for a number of years."
"[I]nnovation 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 said at the ABA conference.
McWilliams said the aim of the office of innovation, which still needs a chief innovation officer, will be to collaborate with community banks on how to deploy technology in delivery channels and back-office operations to better serve customers.
"Many of the institutions we supervise are already innovating, but a broader adoption of new technologies across this sector will allow community banks to stay relevant in the increasingly competitive marketplace," she said Tuesday.
McWilliams wants to reduce the regulatory costs associated with implementing new technology, she said.
"Whether banks choose to develop technology on their own or partner with a fintech, the FDIC will work with them to identify and address unnecessary regulatory impediments," she said. "Through engagement and technical assistance, we can help eliminate the regulatory uncertainty that prevents some banks from adopting new technologies."
The FDIC plans to use tech sprints and competitions to help attract private-sector involvement in problem solving, tools McWilliams said would promote faster, less costly innovation than traditional government contracting.
"I do not profess to know what the right number of banks in the U.S. is, but I recognize that community banks have to be competitive in order to survive," she said. "And as I ponder 'why we do what we do,' I inevitably reach the same conclusion over and over again: We do what we do to make sure that small banks across this great land can survive."