Slideshow ‘Like humans do’: Comments of the week

  • May 12 2017, 8:30am EDT
7 Images Total

Readers sound off on the use of AI in underwriting, the reasons for the failure of a Milwaukee bank, U.S. banks’ progress in adopting APIs, and more.

Challenging the notion that lenders can’t always know how or why AI makes a credit decision:

“Why not? You just program the ‘AI’ to log how it went about making its decision. ‘AI’ can be programmed to justify its decision, like humans do. If you look at online credit card applications, you can immediately know why a rejection has occurred. I don't see how that is different from what you're describing. We don't need to know all the complicated calculations the AI is making, but you have it arrive at the ultimate reasons for rejection/risk.”

Related article: AI may just create the illusion of good credit decisions

Content Continues Below

On Regions Financial’s steps to make branches more autism-friendly:

“I've never been more impressed by an outreach program by a bank. I hope there is also special emphasis to help autistic spectrum customers protect themselves against fraud. Autistic spectrum citizens tend to be extremely honest. They struggle, however, in understanding when or why someone would mislead them. They are highly susceptible to bad actors. A bank can really help them with added scrutiny of their activities.”

Related article: Why this regional bank made autism-friendly branches a priority

Agreeing with a call to re-examine how the Dodd-Frank Act defines systemic risk, including whether it should be based on an institution’s size:

“I tend to agree about the importance of size alone. If it became insolvent, MetLife would be placed in receivership and each policyholder would receive a portion of their full life insurance benefit. Not good but not systemically catastrophic either. More concerning is the FSOC's failure to consider true systemic risks like the three main card processing organizations. They are privately owned, not regulated, and at least one had financial problems in the past.”

Related article: Is systemic risk a Dodd-Frank fallacy?

A retort to the belief that banks’ competitive advantage relates to regulatory compliance:

“KYC/AML compliance apparatus CAN be replicated if upside is there and good compliance people are paid to leave the banks. The biggest unique structural advantage banks have is government-guaranteed deposit funding that grows in times of financial stress, and leads to regulation. Unless FDIC insurance is legislated away or broadened to FinTechs, banks will be a major player in balance sheet risk-taking. Hence the number of FinTech lenders today looking for banks to buy their loan originations.”

Related article: The bank of the future: A (digital) financial mall

Content Continues Below

Disagreeing with the belief that regulators closed Guaranty Bank in Milwaukee only because it was undercapitalized:

“I believe this closure to be much more than just capital. Capital solves but one problem, that being to provide a buffer for losses. Capital cannot solve for the underlying causes of its dissipation in the first place. If folks read the PCA Directive of February 28, 2017 a number of other unsafe and unsound practices were of concern to the regulators. Their existence suggests that the regulators had other, more fundamental, doubts about the bank's future prospects.”

Related article: Were regulators too hasty in closing Milwaukee bank?

Optimism about U.S. banks’ efforts to adopt open banking:

Every U.S. bank I speak to understands the importance of APIs and is working toward enabling connectivity with internal and external partners to transform their business. The smaller banks count on the larger core providers to get there as well, and those firms are investing heavily in transforming their own systems using APIs. As a country we may be a few years late to the party, but we're here.”

Related article: Slow API adoption is dragging U.S. banking down