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Bank Tech Shift Biggest Challenge Since Crisis, Bundesbank Says

Bank Tech Shift Biggest Challenge Since Crisis, Bundesbank Says

(Bloomberg) -- Banks’ increasing use of digital technology has presented their regulators with the biggest challenge in more than a decade, according to the Bundesbank.

“We are seeing completely new business models like platforms and crowd-funding,” Joachim Wuermeling, a board member at Germany’s central bank, said at a conference in Frankfurt Tuesday.

The outsourcing of some banking activities to non-financial companies also means watchdogs lose direct oversight of them and the Bundesbank is in contact with all the large technology companies present in Germany to discuss their plans, he added.

Banks around the world are turning to tech firms to help them improve services to generate more revenue and reduce costs, for example by using cloud computing to host data. While that could help European banks finally shrug off the lingering effects of the 2008 credit crunch and subsequent sovereign debt crisis, it also exposes them to new risks.

“Digitalization is the biggest challenge for supervision since the financial crisis,” said Wuermeling, who is also a member of the European Central Bank’s supervisory board. “It remains unclear which digital strategies will remain in the long-term, therefore digitalization has to be seen as a moving target. Supervisors don’t like moving targets.”

Still, Wuermeling recognized the potential benefit of rolling out new technology at banks, saying “economies of scale can be immense when banks are in a position to provide digital products with hardly any physical infrastructure.”

It’s not just banks that stand to benefit. Supervisors can use new technology to get a better picture of a bank’s health and do so more quickly, Wuermeling said.

To contact the reporter on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Iain Rogers, Andrew Blackman

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