Fed Division Director Reaffirms Support for Financial Sector Innovation and Transparency
Commentary by Vijay Dewan
Randall Guynn, Director of the Federal Reserve Division of Supervision and Regulation, underscored the Fed's commitment to supporting financial innovation and to making supervision more transparent and publicly accountable.
In testimony before the House Financial Services Digital Assets Subcommittee, Mr. Guynn explained that banks should be "free to choose their own business models," and that regulators must intervene only when activities pose risks to safety and soundness. To balance innovation with oversight, he emphasized transparency through releasing supervisory principles, publishing banking manuals, and improving disclosure.
On artificial intelligence, Mr. Guynn said that while banks have used machine learning for years, the industry is now exploring "generative AI and agentic AI" to improve operational efficiencies, risk management, and analytical capabilities. He cautioned that as adoption expands, banks must address risks related to: (i) explainability and opacity; (ii) operational, model, and data challenges; and (iii) bias and privacy considerations. He added that the Fed is exploring AI tools to enhance examiner training and process large-scale financial data, though he emphasized that "judgment and decisionmaking will remain with subject matter experts."
On digital assets, Mr. Guynn highlighted the potential of “payment stablecoins and tokenized deposits” to enable faster, cheaper payments, more efficient settlement, and broader benefits such as enhanced recordkeeping and automation. He outlined recent Board actions to support this sector, including rescinding certain crypto-related supervisory letters and replacing restrictive policy statements with a framework "designed to facilitate responsible innovation." He also noted efforts to clarify risk-management considerations for crypto-asset safekeeping and "the capital treatment of tokenized securities." He noted that the Board is currently developing regulations to implement the GENIUS Act and is considering additional steps to provide greater clarity for banks engaging in digital asset activities.
On third-party relationships, Mr. Guynn discussed how bank-fintech partnerships allow community banks to "compete with larger banks" by providing cost-effective access to new markets and technologies. However, he warned that these partnerships present "complicated risks" regarding consumer compliance and broader legal obligations. He said that the Fed will continue to seek "regulatory and supervisory clarity" through constructive dialogue, public outreach, and stakeholder engagement.
Commentary
Director Guynn's testimony offers a useful illustration of what sector-specific AI oversight looks like in practice. The Fed is simultaneously learning the technology, deploying it in its own supervisory functions, and supervising its use by regulated institutions. The commitment to keeping judgment and decisionmaking with subject matter experts reflects the right instinct: AI can surface anomalies and process vast amounts of data, but it cannot weigh credibility or assess intent. His soccer-referee analogy is apt. Banks choose their own business models, and examiners intervene when safety and soundness are at risk. That is a principles-based posture, not a prescriptive one, and it is well-suited to a technology whose applications are evolving faster than any rulebook could track.
The emphasis on transparency is also noteworthy. Releasing previously nonpublic supervisory operating manuals and soliciting public feedback on supervision creates the kind of informed dialogue that AI regulation will require. The White House's national AI framework calls for sector-specific regulators to lead on AI oversight. Director Guynn's testimony begins to show what that leadership might look like.