00:00It's essential that banks and regulators are open to engaging in new technologies and departing from the overly cautious mindset.
00:10Regulators must understand new products and services and recognize the utility and necessity of embracing technology in the traditional financial sector.
00:20So how do we accomplish this?
00:23Some of you may have had direct experience with regulators in the banking system as you attempted to engage in this type of partnership with banks through the introduction of new technology and services.
00:36I'm sure that many of you were not satisfied with those interactions.
00:41When you start, is that an understatement?
00:43When you start from a world of possibility, where you move fast and you break things to make rapid improvements, you may struggle with that complex and rigid regulatory construct that's familiar to bankers and regulators.
00:58In this world, inertia can easily set in and pose resistance to anything not deemed within the realm of traditional banking services and activities.
01:10But despite this past inertia, change is coming.
01:15Bank regulators are taking important steps to create a framework for digital assets and the adoption of blockchain technology within the banking system.
01:23These steps will promote accessibility to banking products and services by removing supervisory impediments that have stood in the way of bank relationships.
01:40To encourage industry to engage with regulators to help us understand blockchain and its potential to solve other problems.
01:47What's the value proposition of any new product or approach?
01:53What problem is it intended to address?
01:56And how should regulators consider both the risks and the benefits so that we can provide a path to allow its use within the banking system?
02:06We've already seen some initial benefits of bank AI adoption.
02:11And I continue to be encouraged by these significant ongoing investments being made in AI and in machine learning.
02:21These technologies have the potential to transform how business is conducted, including the way we prevent and detect fraud, manage risk, and provide customer service.
02:34During a recent banking conference at the Fed, Sam Altman, the CEO of OpenAI, joined me for a fireside chat on AI in the banking and financial sector.
02:46One highlight from our discussion was the two-sided nature of how technology can impact banking transactions.
02:54Just as AI can undermine customer verification methods designed to identify and mitigate fraud, AI tools can be leveraged to detect and mitigate fraud.
03:04And I see similar challenge with blockchain technologies.
03:10Some bankers have expressed concerns about new technologies posing a threat to traditional business models and practices.
03:17But the banking system is constantly evolving.
03:21And technology can change the banking system regardless of how banks and regulators choose to respond.
03:27We must choose whether to embrace change and help shape a framework that will be reliable and durable, ensuring the safety and soundness, and incorporating the benefits of both efficiency and speed.
03:42Or we can choose to stand still and allow new technology to bypass the traditional banking system altogether.
03:49The choice from a regulator's perspective is clear.
03:54I am open to these discussions, and I look forward to learning more.
04:00Many of you at this conference today have a great deal to share and have new ideas about the best regulatory approaches to blockchain and digital assets.
04:10So let me start with a specific request on fraud.
04:14How can new technologies be leveraged to fight fraud?
04:17It's a major challenge in the financial services sector, and if blockchain or other new tools can help to mitigate it, we should explore those use cases.
04:29If fraud can be addressed using new technology, we should make sure that the regulatory framework does not stand in the way.
04:36I see this as an exciting opportunity for collaboration between industry and the Fed.
04:43The promise of technology and advances like AI are already positioned to impact parts of the banking and financial system.
04:52And ideally, changes will occur with the willing embrace of regulators, allowing use cases to proliferate in a way that benefits the banking system.
05:02If this is not our approach, then we risk the banking system becoming less relevant to consumers, businesses, and the overall economy.
05:12As a result, the banks will play a diminished role in the financial system more broadly.
05:18And those who follow developments in bank regulation have hopefully recognized a number of positive steps that demonstrate our commitment to embrace change.
05:27I am committed to changing our culture at the Federal Reserve and our attitude toward the adoption and integration of technology and new products and services.
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