Andreas Dombret: Banking on big data - different policy issues?
Statement by Dr Andreas Dombret, Member of the Executive Board of the Deutsche
Bundesbank, at the Third Frankfurt Conference on Financial Market Policy "Digitizing
Finance", Frankfurt am Main, 6 November 2015.
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Thank you for giving me the opportunity to briefly state my opinion on data-based banking
and policy issues.
First of all, I would like to talk about one received idea in connection with new technologies
flooding the financial sector that I find somewhat misleading. It is a common perception that
Fintechs have been set up purely in opposition to banks. As a matter of fact, their distinctive
features are the all-embracing use of IT and, in particular, internet-based technologies and
their business structure and appearance. They may look different from traditional banks and
they may care about customers' needs, such as 24/7 accessibility, ease of use and
individualised services, but that doesn't render the basic financial functions of banks
obsolete. Some Fintechs have even already acquired a banking license.
Although the appearance of banking business and its technical implementation may very well
change across the entire sector, banks as they are defined by regulation are still necessary
and important players in our financial system. You cannot grant loans to businesses or offer
deposits without adhering to the prudential requirements regulators impose on banks. Our
financial system relies on licensed monetary intermediaries, and computer algorithms don't
change this fact.
Nevertheless, banks are definitely coming under pressure with respect to their profitability
and visibility. Fintechs naturally focus on the most profitable areas of banking. This implies
that banks have to deal with new competitors, and it is conceivable that we will encounter
substantial changes in the composition of the sector over the next decade. But banks are not
destined to become obsolete. First of all, banks have built up trusting relationships with
customers, which includes knowing about the business and also knowing about changes in
regulation over the past decades.
And there is not only a competitive relationship between banks and technological innovators.
From what I gather from the sector, Fintechs are frequently approaching banks as soon as
their ideas have matured. Banks are not likely to be as innovative and as quick off the mark
as newcomers, although many cooperative arrangements are possible.
With regard to regulation, this means that we should stop drawing an imaginary line between
technology-driven and traditional approaches to financial services. Regulation by no means
serves to penalise certain players or to give them special privileges. The main purpose of
financial regulation is still to ensure financial stability by avoiding risks to a stable and
trustworthy financial sector.
In the case of both Fintechs and banks, new risks stemming from intelligent technologies
cannot be ruled out. Big data is a good example: on the one hand, it may definitely prove
helpful in terms of keeping a proper and timely overview of risks and processes in a complex
banking world. But big data technologies may also give rise to whole new categories of risk.
For example, big data could entice banks and also unregulated players to let algorithms
become even greater decision-makers - think of decisions regarding credit assessment or
trading, for example. But we have to ensure that humans, or, more precisely, well-informed
risk takers ultimately take responsibility for their decisions.
The same applies to risk management via intelligent data processing methods: The
approaches I have witnessed so far sound very promising. But we have to bear in mind that
computer algorithms may not always be right. Cyber security is another issue that needs to
be dealt with in an industry that is becoming increasingly reliant on IT.
All in all, regulators will have to remain alert with regard to new technologies. There are many
new businesses and technologies out there, and we cannot foresee for the time being all of
their possible risks, nor can we limit the scope of potential risks. The objective is therefore
more a matter of ensuring a risk-adequate prudential approach and the necessary degree of
intervention.
Thank you.