michelle w bowman : empowering community banks speech by ms michelle w bowman, member of the board of governors of the federal reserve system, at the conference for community bankers, sponsored by the american bankers association, orlando, florida, 10 february 2020. * * * thank you to the american bankers association for inviting me to address this year ’ s conference for community bankers. i am delighted to be here with you again. let me begin by stating that the views i express today are my own, and not necessarily those of the federal reserve. as community bankers, you have worked hard to develop a deep understanding of your local economies, while also keeping perspective on the broader economic picture. there is little i could tell you about your local communities that you do not already know, but i thought i might say a few words on the national economic outlook before turning to my main topic for today. my colleagues and i on the federal open market committee had our most recent meeting about two weeks ago, when we decided to keep our target range for the federal funds rate unchanged at 1 - 1 / 2 to 1 - 3 / 4 percent. this policy setting should help support the economic expansion, which is now in its 11th year. my outlook for the u. s. economy is for continued growth at a moderate pace, with the unemployment rate — which is the lowest it has been in 50 years — remaining low. i also see inflation gradually rising to the committee ’ s 2 percent objective. so on the whole, the national economic backdrop looks very favorable, which should be broadly supportive of your local economies. and of course, by ensuring that consumers and businesses in your communities have access to financial services, you are key contributors to the health of our national economy. let me now turn to my main topic for today, the interaction between innovation and regulation for community banks. as the federal reserve board ’ s first designated governor with experience in community banking, i am committed to maintaining a strong and thriving community bank sector. small banks are the lifeblood of their communities — and they ensure that consumers and businesses have access to financial services. this capacity to address local needs is fundamental to a strong and stable financial system. to community bankers, customers are much more than their credit score or their annual income, and small businesses are far more than their most recent revenues. by extending credit and offering specialized products and services that meet the needs of their borrowers, these banks empower communities to thrive. we live in an exciting time, when

and a bank with $ 10 billion in assets. further, expectations of due diligence when applied to a potential fintech partner may require more financial history or information than that partner can provide. due diligence for new third - party relationships, even those that are not start - ups, can require a community bank to collect and analyze a significant amount of complex information. also, the annual monitoring that is required adds an additional significant and ongoing burden. the process for managing the annual collection and review of the financials, audit results, and other operational compliance materials for multiple vendors can take weeks of time for several employees. bank employees must review thousands of pages of documentation, and the workload per vendor can be the same for all banks, regardless of their asset size and number of employees. and as someone who has been involved in this compliance work, i know that it ’ s not as if other responsibilities can wait — community bank employees often wear several hats. community banks must weigh the benefit of any third - party relationship against the additional work required to evaluate the third party. and even when new product offerings emerge from service providers that already serve the bank, contract terms can be complicated to adjust, adding to the costs of obtaining technologies, which may ultimately be prohibitive. flexible core systems are important for this reason. collaboration between a bank and its core system provider is critical to ensure that technology solutions can be integrated quickly and cost effectively within the core system. creating the right regulatory environment responsible innovation, especially for smaller institutions, requires two key aspects : a clear idea of how the technology serves a bank ’ s strategic objectives and a regulatory environment that supports innovation. i will touch today on the important interplay between these factors, and in particular, the role that regulators can play in creating a regulatory environment that is conducive to innovation, preserves the safety and soundness of the financial system, and protects consumers. as regulators, we need to ensure that banks uphold sound risk - management practices. yet we also have information that can help community banks meet those standards. we should closely examine opportunities to share that knowledge, subject to appropriate safeguards, in order to support innovation. responsible innovation begins with a bank ’ s strategy. banks need to identify their goals and then look to identify the kinds of products and services that can help them move forward to implement that strategy. in the past, i have spoken about the importance of considering the impact of new technologies and finding ways to leverage them, if a