On July 14, the Fed’s vice chair for supervision, Michelle Bowman, delivered remarks at a financial inclusion conference addressing the role of banks and regulators in advancing responsible innovation. The vice chair said banks are central to financial inclusion efforts and that responsible innovation allows banks to build a faster and more efficient banking and payments system, lower costs, expand product availability to underserved consumers and businesses, and promote market competition. Bowman asserted that the Fed’s role as a regulator and supervisor is to encourage responsible innovation while maintaining a safe and sound banking system by creating a supportive regulatory environment, providing clarity on supervisory expectations, and refraining from micromanaging individual banks’ business decisions, noting that the decision of when and how to innovate ultimately rests with each bank and its management.

Bowman also addressed banks’ adoption of AI, stating that AI holds promise for expanding access to financial services, including credit availability for low- and moderate-income consumers, while acknowledging that using AI directly to affect credit decisions for individual customers presents more substantial legal compliance challenges than other use cases. The vice chair said supervisory guidance should provide flexibility for smaller banks with fewer resources to implement AI consistent with their own structure, business and culture, and said lower-risk AI uses should receive a proportionately calibrated supervisory and regulatory approach, with institutions building enhancements onto their existing risk-management frameworks. Bowman, who chairs the Financial Stability Board’s Standing Committee on Supervisory and Regulatory Cooperation, also highlighted the FSB’s June report on sound practices for responsible AI adoption (previously covered by InfoBytes here). Bowman closed by stating that providing clear regulatory expectations and focusing supervision on material risks would allow banks to innovate and reach more consumers with affordable financial services.