In a speech at the Federal Reserve Board's Financial Inclusion Conference, Vice Chair for Supervision Michelle Bowman said the Federal Reserve should support responsible bank innovation by providing clear regulatory expectations, focusing supervision on material risks and avoiding micromanagement of banks' business decisions. She presented financial inclusion and innovation as closely linked, with banks using new technology to lower costs, expand access to products and services, and improve payments and credit availability. Bowman highlighted artificial intelligence as a key area of current bank innovation, while noting that AI use in credit decisions affecting individual customers creates more significant legal compliance challenges than other use cases. Bowman said oversight of AI should be calibrated to the risk of particular applications, with lower-risk uses receiving a lighter supervisory and regulatory approach. Banks should rely on existing risk-management frameworks, adding controls tailored to the risks of each AI use case, and supervisory guidance should preserve flexibility for institutions with different structures, businesses and resources, including smaller banks. She also pointed to the Financial Stability Board report published earlier this month on sound practices for responsible AI adoption, which she said offers adaptable guidance rather than one-size-fits-all requirements and is open for public comment through July 22.

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