a responsible manner. community banks engage in a range of partnerships with fintechs, each pursued for different reasons, with varying levels of investment of time and resources. the paper describes key partnership types and the associated benefits, risks, and challenges that community banks experience with each type. the paper also identifies fundamental considerations for effective partnerships as described by community bankers. some valuable insights emerged from our outreach, which may benefit community banks at various stages of the innovation process. two important themes stood out : the first is establishing trust and aligning with fintech partners, and second, building a long - term culture committed to innovation. let me elaborate on each of these themes. in our outreach, bankers noted that it is critical for partnerships to be built upon a foundation of mutual trust and alignment of values. in some cases, due diligence efforts reveal that potential partners do not share the banks ’ values or objectives. one bank, for example, began discussions with a fintech company that could assist it with the bank ’ s paycheck protection program loan originations by providing a customer - facing application portal. after learning that this partner intended to sell the small business customer information it would obtain, the bank opted out of the partnership. instead, the bank looked to other fintech partners with values more closely aligned with its own. harnessing the full potential of technology innovation also requires a long - term, strategic commitment to innovation. many bankers spoke of the importance of knowing exactly what new technology is solving for, building a team they trust, and securing buy - in from both senior management and the staff responsible for implementation. bankers who have forged successful partnerships don ’ t innovate for the sake of being innovative but instead have a clear vision of their goals. for example, one bank partnered with a fintech company to roll out limited banking services to teenagers. its intention was to promote financial literacy among young people in the community and to prepare the bank to accommodate the preferences of a new generation. the bank also hired local college students to work with staff, combining the technological expertise of these more recent hires with the deep compliance background of the bank ’ s long - standing employees. 2 / 4 bis central bankers'speeches interagency fintech due diligence guide in addition to the paper, the federal reserve, office of the comptroller of the currency ( occ ), and federal deposit insurance corporation ( fdic ) have recently published a vendor due diligence guide to assist community banks with

will focus on a piece of recent research that i like very much and which has already received much attention at this conference : dale henderson ’ s paper with christopher erceg and andrew levin ( 2003 ). we have learned a great deal in recent years about the effects of monetary policy in dynamic, stochastic, sticky - price models, with michael woodford ’ s recent book ( woodford, 2003 ) perhaps best representing the state of the art. this line of research is potentially of great importance to applied macro modelers, because it addresses areas in which some may feel that our current policy models need to be strengthened, notably the treatment of expectations, the specification of model dynamics, and the relationship of the economic structure to the form of the policy rule. however, naturally enough, the earliest models in this genre have tended to be highly simplified representations of the economy, only loosely matched to the data. like the models themselves, the optimal policy rules derived in the models are often unrealistically simple. for example, in some of these models, strict inflation targeting - a policy of keeping inflation at zero at all times - is the optimal policy. to make these models relevant for applied policy analysis, the natural next step is to add new frictions and more complex dynamics to the benchmark models. the erceg - henderson - levin ( ehl ) paper explores the implications for monetary policy of a plausible complication, the inclusion in the model of nominal wage stickiness as well as price stickiness. as was discussed yesterday, this relatively simple addition makes an important qualitative difference in the policy results. specifically, in the ehl model, monetary policy can no longer achieve a fully optimal outcome but instead faces tradeoffs among its objectives. because the optimal rule in their model is relatively complex and depends on model parameters and shocks, ehl use model simulations to examine the performance of some simple policy rules. interestingly, they find that relatively simple policy strategies can achieve results close to the optimum. the contribution of the ehl paper goes beyond the specific findings ; equally important is the direction that this work sets for the collective research program. erceg, henderson, and levin have shown by example that incorporating additional, realistic frictions into the basic new - keynesian model changes both the behavior of the model and the nature of the optimal policy rule in nontrivial ways. the papers at this conference by canzoneri, cumby, and diba ( 2004 ) and by