We will also discuss the challenges you share around keeping abreast of consumer compliance requirements. During today’s luncheon, our head of consumer compliance will share remarks on recent enhancements to the examination process. I’d like to close with a few words about a specific topic that is core to the community bank 2/3  BIS central bankers' speeches  business model, namely attracting new customers and growing deposits. I believe success in the area will be increasingly linked to a willingness to invest in technology and new processes. Customers today seem to prefer online banking, and millennials favor alternative banking options. This suggests both an opportunity and a strategic imperative. There may be no better time than now to reimagine transformation through investments in innovation, improved multichannel delivery, more fintech partnerships, and expansion of digital payments. Technologies to enable transformation are more powerful, readily accessible, easily implementable, and economical than ever before. Of course, these new activities bring risk management and legal issues and challenges to consider—vendor management, data privacy, consumer protection and cybersecurity to name just a few. To conclude, and again to echo the “on the horizon” theme of the conference, I believe we all need to be mindful of this new financial landscape as community banks strive to retain control of the customer experience. This is critical to the relationship-based business model of many community banks and reflects the unique local knowledge of the market and customer needs. As the industry evolves, this poses some challenges but also opportunities.

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.