communication. take, for example, the frictions associated with cross border payments, including the speed and cost and the ability to transfer money. at first blush, this seems like a prime opportunity for innovation to come in with a new approach. the challenge in cross - border payments historically has been achieving the goal of serving new types of customers and increasing the speed of payments, without losing or watering down important compliance safeguards that deter criminal activity. some perceived payment frictions exist for specific policy reasons and do not stem from issues with existing technology. therefore, new technology alone cannot solve the issue unless it also addresses the required safeguards. regulators can serve a valuable role in identifying where a technology solution may have an important " gap, " as in the case of cross - border payments, by identifying how a solution can meet the needs of both customers and regulators. innovation and regulatory and legal requirements can coexist - providing both enhanced capability and regulatory compliance. transparency can promote innovation. policymakers should strive to define a clear and sensible regulatory framework designed to meet policy objectives that also enables the private sector to innovate within the established guardrails. a clear regulatory framework supports private sector innovators by providing clarity and consistency that encourages long term business investment in pursing innovation, while continuing to support today's products and services. a regulatory framework empowers supervisors to focus on safety and soundness and ensuring a safe and efficient payment system. in the past, i have described an approach to innovation that solves specific problems and enables banks and other providers to meet the needs of their customers in a safe and sound manner. 3 this approach recognizes the role of the private sector and focuses policymakers on payment and financial system infrastructure while balancing the public policy objectives with the benefits provided. in this construct, the same 4 / 6 bis - central bankers'speeches activities that present the same risks must be subject to the same regulatory expectations - regardless of what the product is called or where it is offered. the active promotion of innovation has proven to be successful in the past. one example from 2019 highlights the benefits of this approach, specifically as it relates to the use of alternative data to support small dollar consumer loans. 4 timely guidance and regulatory clarity in the interagency statement clarified that, with a customer's consent, a bank may use alternative data, like checking account balance activity to help evaluate the potential borrower's creditworthiness who might not have otherwise qualified for a loan. this example

did not require a change in technology, instead it used data in a responsible and innovative way through leveraging deposit account cashflow information to show credit worthiness, enabling banks to meet their customers'credit needs. i think there is more we could do on this front. for example, i think there are opportunities for regulators to provide clear, actionable, and timely feedback on innovation proposals. and the principles i have described are complementary - the more regulators understand innovation, the more comfortable they will be in accepting it and promoting its adoption in the financial system. my hope is that the federal reserve's ongoing research and engagement with industry will help us continue to understand and assess the potential benefits and risks presented by new innovation. closing thoughts as i consider the ever - evolving financial landscape, i will continue think about how the regulatory framework can accommodate new technology and services, while applying the safeguards in place today that protect households and businesses, and guard against illicit activity, ensuring the safety and soundness and the stability of the financial system. my hope is that as we enhance our understanding, and we recognize the promise of new technology, we can achieve a banking system that welcomes innovation, and is stronger and more efficient as a result. thank you for the invitation to join you today to discuss these issues. i look forward to our discussion. 1 thank you to priyanka slattery and alex sproveri of the federal reserve board for their assistance in preparing this text. the views expressed here are my own and not necessarily those of my colleagues on the federal reserve board or the federal open market committee. 2 see, e. g., mills, david, kathy wang, brendan malone, anjana ravi, jeff marquardt, clinton chen, anton badev, timothy brezinski, linda fahy, kimberley liao, vanessa kargenian, max ellithorpe, wendy ng, and maria baird ( 2016 ). " distributed ledger technology in payments, clearing, and settlement, " finance and economics discussion series 2016 - 095. washington : board of governors of the federal reserve system. 5 / 6 bis - central bankers'speeches 3 michelle w. bowman, " responsible innovation in money and payments ( pdf ), " ( speech at the roundtable on central bank digital currency, hosted by the harvard law school program on international financial systems, october 17, 2023 ). 4 board of governors of the federal reserve system, consumer financial protection bureau, federal deposit insurance corporation