The Federal Deposit Insurance Corporation (FDIC) exists to protect bank depositors and taxpayers, but – shockingly – the new Chairwoman ranks this priority as a “third goal” behind helping finance “innovate” and a new-found “balanced” interpretation of the law. Our President and CEO, Dennis Kelleher, was on a panel right after her speech at the Brookings Institution and he pointed out that the law requires protecting bank depositors and taxpayers above all else – that is actually why the FDIC was created and why it exists. However, as he discussed, the FDIC can do that and promote innovation, but that requires a data-driven, unbiased, balanced approach that prioritizes protecting investors as required by the law.
In addition to being part of an industry and ideology driven deregulatory agenda being masked behind claimed benign if not beneficial changes, the FDIC’s actions are also the latest example of people jumping to the conclusion that anything referred to as “innovation” (no matter how self-serving) is by definition good (which is why so many in finance are labeling virtually everything they do as innovative). However, as pointed out by Gillian Tett, Paul Volcker has a more informed view:
“In recent years, most political leaders and entrepreneurs have assumed that innovation is automatically a good thing, be it in finance, technology or any other field. However, Volcker took a different view: he believed that innovation should only be applauded if it made people’s lives better. That might sound obvious. But Volcker argued — quite correctly — that entrepreneurs often use the mantra of innovation to introduce practices that are needlessly complex and opaque, and designed to extract more profit from consumers (or ‘rent’ to use the economics term).”
We agree with Paul’s standard: “innovation should only be applauded if it made people’s lives better.”
In case you missed Dennis Kelleher at the Brookings Institution last week, arguing for innovation and competition while protecting depositors and preventing crashes, here is a short video with a series of highlighted clips:
|Dennis Kelleher on a panel at a Dec. 11th Brookings Institution event entitled, “Brokered Deposits in the FinTech Age.”|