Keith Noreika Featured on the Consumer Finance Monitor Podcast: Innovation, True Lender, and Issues Facing Banks Today


I recently sat down with Alan Kaplinsky of Ballard Spahr to discuss innovation, “true lender,” and other issues facing financial institutions today for the Consumer Finance Monitor podcast.

While the conversation covered a lot of ground, there were several key takeaways for financial institutions and other industry participants.

Innovation is critical to the future of financial institutions. Additionally, understanding how regulators approach innovation is helpful to the industry as a whole and to individual companies. Often, innovation occurs too rapidly for regulation to keep up or comes from outside the regulated perimeter and escapes the guardians’ gaze. That creates a situation where regulators are often reacting to industry developments and playing catch up, particularly when new products and services identify gaps in rules and policies. In rare moments, the most effective regulators will help bring a vision to innovation, layout guideposts for what would be most helpful, and identify tripwires companies should avoid. That is one reason why regulatory affairs is so important when companies are stepping forward with new ideas, technology, products, and services. Understanding and mitigating the compliance and operational risks of innovation is critical for the industry’s success.

In addition to looking forward with new products and services, financial institutions also turn to partners and vendors more frequently to expand their own capabilities and to reach new markets. Third-party risk is one of the most significant challenges facing banks and savings associations today. Contributing to that risk is the continued lack of clarity regarding true lender, despite regulators’ efforts in the last administration to clarify the issue once and for all. The industry should expect to see additional supervisory action, litigation, and potentially legislation on this front in the coming months and years. Companies with concerns should engage their trade associations, ensure they understand their risk and exposure, and prepare early for challenges in the court (and potentially in the press) when critics allege rent-a-bank schemes.

More broadly though, our conversation covered the headwinds facing financial institutions, most notably inflation. Inflation is such a challenge because it is so invidious. You do not know how it is going to affect borrowers. You do not know how it is going to affect your loan books. Inflation has not been an issue for the past 40 years, meaning an entirely new generation is discovering how inflation affects banking and financial services. It also means that models and stress tests have been developed under relatively benign conditions. How will they perform with double digit inflation? Banks of all sizes must exercise extraordinary vigilance, care, and effort to assess inflationary risks on their businesses and mitigate those risks.

Another way that financial institutions can respond to inflationary risks is through increasing resilience, becoming leaner, and transforming older business processes into much more efficient ones. That is why one of the goals of our practice at Patomak is to help banks identify opportunities, assess risks, and manage the implementation of their solutions effectively and efficiently—from adapting real-time payments and settlements capabilities to understanding how blockchain can integrate into back-office processes. Just like companies hedge against downside risk in a trade or investment, innovation is the industry hedge against economic downturns and inflation.

You can listen to our complete conversation on the Consumer Finance Monitor podcast here.

Put Patomak’s Banking Expertise to Work 

Patomak has deep experience in helping banks and other financial institutions manage risks and respond to developments in banking regulation, including all the issues raised in this discussion. Contact us to learn how Patomak can help you navigate these challenges and help you meet your business goals.

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