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“Open banking” May Cause Deposit Outflows, Warns U.S. Regulator

FP | Hannah Lang  | Apr 19, 2023

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The evolution of “open banking” in the U.S. could impact how regulators supervise banks, as seamless account portability between financial institutions could lead to increased deposit outflows, a top banking regulator said on Wednesday.

See:  FinTech Executives Disappointed with Budget 2023’s Lack of Open Banking Update, Raising Doubts on Delivery Timeline

Comptroller of the Currency, COO, Michael Hsu:

While data portability will likely be empowering for consumers, it could also increase the liquidity risk of retail deposits for banks.  While such rules could ultimately increase the ‘stickiness’ of retail deposits and lower liquidity risks by encouraging banks to take steps to retain customers, the transition to such a state “warrants careful monitoring.  Already, there is a sense that online and mobile banking may have facilitated unusually large and rapid outflows of wholesale deposits at Silicon Valley Bank and Signature Bank last month.  While it would be an “overstatement” to attribute the bank run solely to social media and the ease of mobile banking, regulators would be remiss to ignore the impact that both have had on the banking industry.  We, bank regulators, need to pay closer attention to how changes in technology and associated practices may impact risks in banking.

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