michael s barr : the federal reserve's role in supporting responsible innovation speech by mr michael s barr, vice chair for supervision of the board of governors of the federal reserve system, at the federal reserve bank of philadelphia seventh annual fintech conference, philadelphia, pennsylvania, 8 september 2023. * * * thank you for the opportunity to speak today, in the midst of a wave of innovation in the payments system. there are a range of important players in the payments system and the federal reserve has important roles as a supervisor as well as a payments operator. regardless of who is providing the service, our payments system needs to meet fundamental principles. among those core principles is ensuring that the payments infrastructure supports broad access and promotes financial inclusion. payments are essential for everyday life, and too often, low - and moderate - income households and small businesses don't have access to the payments services they need at a reasonable cost. moreover, as the payments system evolves, it needs to provide strong consumer protections. the payments system needs to welcome competition, provide consumers with choices, and support innovation. the payments system should empower consumers to have better control over their financial lives, including their identity and financial data. and more broadly, our payments system should promote efficiency, convenience, speed, low cost, resiliency, privacy, and security. finally, our payments system must and does rely on trust, and this trust must be maintained as the system is updated. this includes trust that the payments system is not used for illicit purposes, that lawful payments will always be honored, and that neither the government nor private actors will act improperly based on use of the payments infrastructure. not that long ago, the federal reserve was facilitating payments by moving bundles of checks around the country on trucks and trains! and we still have important work to do to ensure that those who rely on checks can get their funds in a timely way and that the system is not exposed to fraud. but more recently the focus has been on improving our electronic payments infrastructure. the fed has long operated the fedwire funds service, used by banks to conduct large - value, same - day transactions among themselves. in addition, the automated clearinghouse ( ach ) service supports batch payments of more modest value. while the fedwire funds service and ach transactions have served the economy well for decades, the economy has changed dramatically over that time. there is a demand for faster payments, and the fed has recognized that today's households and businesses would

##makers should balance the benefits and costs of regulation by taking care to tailor laws and regulations to meet their stated goals as effectively and efficiently as possible. the documentation requirements should take into account the size and resources of the institution, and they should not overwhelm the activities themselves. there is still room to improve cra in this respect. a great deal of justification is required to demonstrate that certain activities qualify for consideration under the regulations. much of this is related to the need to demonstrate a benefit to an institution's assessment area. in order to simplify the regulation's approach to meeting the credit needs of lower - income areas, it may be necessary to consider a different way of measuring impact. moreover, measuring performance for any institution must take a broad view of community needs, balancing quantitative measures of performance with consideration of the quality of the credit, investments, and services extended. or, as the introductory piece in revisiting the cra, by olson, chakrabarti, and essene, suggests, the story of cra may be one of a regulation that began by measuring process, evolved to a system of measuring outputs, but perhaps, in the future, needs to measure outcomes in lower - income communities. finally, any new cra regulation should be flexible. one of cra's strengths has been the flexibility that the consideration of a bank's performance context provides. the regulatory agencies'ability to redesign cra regulations over the years kept it relevant as the financial markets changed. for example, recent revisions recognized the difficulty in meeting the credit needs of rural communities that do not have clearly delineated neighborhoods with differing income levels. it also offered added incentives for financial institutions to provide assistance in disaster areas. these provisions may not have been possible if congress had dictated the exact terms of the cra evaluation that regulators should apply in determining an institution's cra rating, and, as a general matter, i believe that congress was wise not to be overly specific in the cra. conclusion the future health of communities depends on each of us doing our part to focus attention on the needs of those communities that have been affected by the combined impact of foreclosures and a weak economy. at the encouragement of congressman frank, the federal reserve banks of boston and san francisco were inspired to broaden policy discussions by inviting cra experts to contribute to a very thoughtful volume on the future of cra. in formulating a new approach to cra, i would recommend keeping