Tracy Basinger on Shifting the Regulator Mindset to Encourage Inclusive Innovation

In episode eight of Financial Inclusion & Beyond, we spoke with Tracy Basinger, the recently retired head of supervision here at the San Francisco Fed. Tracy has spent her career focused on the impact of financial services on everyday citizens. From leading consumer protection here at the San Francisco Fed  to overseeing a nationwide team considering policy solutions for small businesses suffering during the COVID-19 crisis, Tracy has thought long and hard about the role of  public policy, regulation, and technology in promoting a more inclusive financial system. 

We get into examples of financial innovations that are promoting inclusion and the challenges for regulators and policymakers who want to minimize risks to consumers and the broader financial system while not getting in the way of positive change. And we talk about how to shift from a historical mindset that focused on preventing exclusion to one that thinks about ways to promote inclusion and broader notions of financial health and wellbeing. 

Key takeaways from the discussion include: 

The challenges of 2020 made it abundantly clear that our financial system is not fair and forced financial regulators to re-consider rules and policies to ask how they promote or detract from efforts to build a more inclusive financial system. Historically regulators have been considered successful if they prevent bad things from happening. Shifting to an approach to not only protect consumers, but help them meaningfully participate in the financial system, requires a different mindset. Regulating modern financial technology is not simple. The rapid adoption and scaling of new innovations increase their potential both to create benefit and cause harm. To the extent technology is clearly providing a benefit, even an only incremental one, without causing obvious harm, regulators should be enabling it. Providing clarity around rules and regulations to firms is crucial to enable innovation that drives inclusion and financial health. Regulators and supervisors should be engaged from the very beginning to understand the role of new technology, provide guidance when necessary, and avoid reacting after the fact once a problem has surfaced.

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The views expressed are not necessarily those of the Federal Reserve Bank of San Francisco or of the Federal Reserve System.