The crisis has already supercharged existing trends in how bankers and examiners interface with each other, to emphasize off-site monitoring processes. In-person meetings with CEOs and bank boards gave way to online meetings. Meanwhile, with bank staffs working from home and largely outside the normal scope of “first line” oversight, risk exposures may be increasing: we simply don’t have enough data to know for sure.
Aware of this gap, regulators are increasingly looking to new regulatory technologies. (“regtech”). Some argue that the Covid-crisis will accelerate a drive toward a more sophisticated supervision process driven by data and digital know-how. “If we can do that in an emergency and build on it, we can look back on this as the moment when we started to put the whole system on a smarter path that serves everyone,” on regtech commentator recently observed.
In addition to a drive towards more data-driven supervisory capabilities, we also see an increased focus on how banks work to protect the interests of their customers. “Examiners are already thinking a lot about the safety and soundness of the institution, and how a bank’s safety and soundness will affect customers,” said Kelly Thompson Cochran, deputy director of FinRegLab and a former official at the Consumer Financial Protection Bureau. (CFPB) But the Covid crisis is prompting fundamental rethinking. Rather than financial stability, policymakers may introduce a new focus on “individual stability,” Cochran added.
This shift too may compel regulators to focus more on banks’ technological capability. “While regulators in the past would have been hesitant to approve new tech that didn’t come from banks, remarked Julie A. Hill, a University of Alabama law professor, “they may now realize the weakness of doing things the same old way.”