I expect another area of focus during the examination process will be interest rate risk and related challenges. Bankers have shared with us that customers are demanding higher rates on deposits, yet those same customers are reluctant to pay higher rates on their loans. What is a banker to do in trying to maintain a productive, long-term relationship? We are seeing signs of lower net interest margins (NIM), where the average NIM in the Second District is 3.47 percent compared to the national peer average of 3.71 percent. Examiners will be reviewing initiatives by community bankers to partner with “fintech” firms. We know there is competition from non-bank providers who have the capacity to provide automated loan pre-approvals in minutes and loan closings within days after approval. Today, you will hear from a panel of your peers on how fintech is changing the way their firms do business, and how they mitigate the risks associated with outsourcing. In my view, new innovations from the fintech space have the potential to fundamentally transform the provision of financial services. As I’ve said elsewhere, this disruption brings both opportunity and risks and that need to be managed.2 A third forward-looking topic is the coming implementation of accounting changes for reserves, known as the “current expected credit loss” approach or CECL. One of our colleagues from the Board of Governors will join us later to address a common question raised by our bankers on the challenge of gathering loss data in a historically low loan loss environment.

What remains to be seen is whether the infrastructure needed to create binding electronic contracts between previously unaffiliated parties can be developed to meet the needs of consumers and merchants globally. This leads me to my second topic -- the establishment of a Uniform Commercial Code for Electronic Commerce. Uniform Commercial Code For Electronic Commerce The White House Framework states that, in order “to encourage electronic commerce, the United States Government should support the development of both a domestic and global commercial legal framework that recognizes, facilitates and enforces electronic transactions worldwide.” In keeping with its belief that the private sector should take the lead in electronic commerce issues, the White House is largely relying on the efforts of the National Conference of Commissioners of Uniform State Laws and the American Law Institute, the sponsors of the Uniform Commercial Code, to produce the desired domestic commercial law framework. Internationally, the United States Government is working with organizations such as the United Nations Commission on International Trade Law, the OECD, UNIDROIT and the International Chamber of Commerce to achieve the necessary global commercial law framework. The United States has adopted, and has urged others to adopt, the following drafting principles. First, parties should be free to order the contractual relations between themselves as they see fit. Second, rules should be technology neutral -- in other words, the rules should neither require nor assume a particular technology -- and should be forward looking -- should not hinder the use or development of technologies in the future.