Michelle W Bowman: The innovation imperative - modernizing traditional banking

Speech by Ms Michelle W Bowman, Member of the Board of Governors of the Federal Reserve System, at the Independent Community Bankers of America ICBA Live 2023 Conference, Honolulu, Hawaii, 14 March 2023. 

The views expressed in this speech are those of the speaker and not the view of the BIS.

I would like to thank the ICBA for the invitation to speak with you today. It is a pleasure to be with you to discuss innovation in the U.S. financial system, the emerging trends that are shaping the industry, and the influence of regulatory approach on this evolution.

Before turning to the main theme of my remarks, I would like to take a moment to acknowledge the events of the past week, and the actions taken by regulators in response. As you are aware, last Friday, March 10, the California Department of Financial Protection and Innovation closed Silicon Valley Bank. On March 12, the New York Department of Financial Services closed Signature Bank. In both cases, the Federal Deposit Insurance Corporation (FDIC) has been appointed as receiver. One significant factor leading to the stress and subsequent closure at each institution was the rapid outflow of deposits, specifically uninsured deposits above the FDIC-guaranteed amount of $250,000 per depositor, per account type.

On Sunday, several specific actions were announced that are intended to limit the direct and indirect risks to the U.S. financial system resulting from the closure of these two financial institutions. The Federal Reserve Board announced that it will make additional funding available to eligible depository institutions through a newly created Bank Term Funding Program. This program will offer one year loans to institutions that pledge U.S. Treasury securities, agency debt and mortgage-backed securities, and other qualifying assets as collateral. The facility will provide an additional source of liquidity to banks and eliminate the need for institutions to quickly sell these securities during a time of stress. The FDIC also took action to protect all depositors, including uninsured depositors, of both Silicon Valley Bank and Signature Bank. Beginning Monday morning, these depositors were able to access all of their funds on deposit with these banks. The federal regulators, including the FDIC, the Federal Reserve Board and U.S. Treasury Secretary Janet Yellen approved the actions to protect depositors.

The U.S. banking system remains resilient and on a solid foundation, with strong capital and liquidity throughout the system. The Board continues to carefully monitor developments in financial markets and across the financial system.