United States: FDIC Chair McWilliams Advocates For Technological Advancements In Bank Supervision

FDIC Chair Jelena McWilliams described the agency's movement toward a technology-driven approach for bank supervision.

At the Federal Reserve Board conference on "Bank Supervision: Past, Present and Future," FDIC Chair Jelena McWilliams advocated for improving supervision through new technologies that can aid in the detection of institutional and system-wide risks and better communication with institutions.

Ms. McWilliams stated that the ability of the FDIC and financial institutions to transition to a 100-percent remote examination environment during the COVID-19 pandemic indicates there is much to be gained through a technology-driven approach to supervision. She highlighted deficiencies in off-site examinations, including (i) gaps in the FDIC remote examination technology and (ii) the "very disparate state of technology adoption" across banks, particularly community banks, under the FDIC's supervision.

In order to address these deficiencies, Ms. McWilliams said that the FDIC should (i) cultivate a "technological transformation" in the banking industry to promote a safe, flexible and technology-driven financial services marketplace, (ii) create a supervision model that is more dynamic, enhances the FDIC's effectiveness, and encourages financial stability, and (iii) foster such changes in a manner that decreases "unnecessary regulatory burden" and reduces compliance costs for financial institutions.

Ms. McWilliams stated that such efforts begin with:

• centralizing the method of partnership between community banks and third-party technology providers and the use of such technologies. Ms. McWilliams pointed to guidance from the FDIC technology lab ("FDiTech") for connecting banks with FinTech companies (see coverage); and
• investing in technological development efforts to address supervision issues. Ms. McWilliams noted FDiTech's first "hackathon," which focused on the modernization of financial reporting.

Ms. McWilliams clarified that her goal for these efforts is not to "introduce real-time monitoring" of the financial information and operations of banks, which she stated is intrusive and a massive waste of the FDIC's resources. Rather, Ms. McWilliams stated, these efforts encourage "continuous engagement" with the FDIC, in which banks have more consistent, informal communications with the FDIC.

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