US Open Banking May Impact Deposit Outflows, Warns Regulator

The open banking evolution in the US could go on to impact the way regulators supervise the banks since the seamless portability of accounts between financial institutions can lead to more deposit outflows, said a top banking regulator on April 19.

Although the data portability is going to prove to be empowering for the customers, it can also go on to increase the liquidity risk when it comes to retail deposits for banks, according to Michael Hsu, the acting comptroller of the currency.

Open banking is a process in banking as well as other traditional financial institutions that offers customers and third parties’ seamless digital access to their financial information.

Rohit Chopra, who happens to be the Consumer Financial Protection Bureau director, said that his agency anticipates offering a rule in 2023 requiring financial institutions that offer transaction accounts to create secure methods when it comes to data sharing, a move that could help significantly boost the competition as far as the consumer finance industry is concerned.

Although such rules go on to elevate the stickiness element related to retail deposits and also lower the risk of liquidity by encouraging banks to take steps when it comes to retaining customers, the transition warrants strict and careful monitoring, says Hsu.

He added that there is a sense that mobile and online banking may have gone on to facilitate not so common large as well as rapid outflows in terms of wholesale deposits at Silicon Valley and Signature Bank in March this year.

It is well to note that the depositors at SVB went on to withdraw $42 billion in a day as per regulators, who had to shutter the lender shortly. According to Hsu, although it may look like an overstatement to let the bank run on social media and mobile banking’s seamlessness, regulators would be negligent if they were to avoid the impact that they have had on the banking sector.

As per Hsu, bank regulators need to pay much closer attention to how technology and associated practise changes may have a risky impact on banking.