This semi-monthly column by Sabrina I. Pacifici highlights news, government reports, industry white papers, academic papers and speeches on the subject of AI’s fast paced impact on the banking and finance sectors. The chronological links provided are to the primary sources, and as available, indicate links to alternate free versions. Each entry includes the publication name, date published, article title and abstract.
NEWS:
American Banker, December 15, 2023. FSOC raises alarm on financial stability risks from AI
Government Technology, December 15, 2023. United States to Examine AI’s Risks to Financial Stability. Top U.S. regulators view artificial intelligence as a looming vulnerability for financial stability, underscoring Washington’s mounting concern over systemic dangers posed by the burgeoning technology.
CBS News, December 15, 2023. Regulators identify AI as potential risk to financial stability. A new government report has for the first time identified artificial intelligence as a potential risk to the nation’s financial stability. The Financial Stability Oversight Council (FSOC) — a group that’s charged with monitoring potential vulnerabilities to the financial sector and counts Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell and Securities and Exchange Commission Chair Gary Gensler as members — acknowledged this risk, along with 13 others, in its annual report, which was released Thursday.
Think Advisor, December 12, 2023. Why Some Financial Firms Are Wary of AI. Nearly all financial services leaders in a recent Ernst & Young survey said that their organizations are deploying some form of artificial intelligence — and all are either already using generative AI within their businesses or plan to do so. But amid these universal adoption plans, about a fifth of respondents said they are nervous or skeptical about the potential effect of GenAI on their organizations. A similar percentage does not feel confident that their organizations are well positioned to take advantage of the potential benefits of AI. Twenty-four percent of insurance leaders fell into the nervous or skeptical category, followed by 21% of those in wealth and asset management, and 17% in banking and capital markets.
Fortune, December 11, 2023 – Tech will remain the economy’s key growth engine. Fortune’s Future 50 helps explain why. Leading the pack in terms of total value generated—over the entirety of the nearly 100 years studied—are digital technology players, specifically, the “MAMAA” companies (Meta, Amazon, Microsoft, Apple, and Alphabet), which now constitute more than a quarter of the value of the entire S&P 500. All five are currently among the 10 most valuable firms worldwide—with Nvidia and Tesla rounding out the stable of tech giants among the top 10. Across the Pacific in China, players like Tencent, Alibaba, and privately held ByteDance lead the valuation rankings.
Fortune, December 11, 2023 – A lot of people aren’t happy with Europe’s new AI Act. Hard details still need to emerge, and the final text still needs to be formally approved by the European Parliament and the bloc’s national governments, but we now know roughly what rules to expect when the act goes into effect in a couple years’ time. (A voluntary “AI Pact” will bridge the gap between now and then.)
AP, December 5, 2023. Bank of England will review the risks that AI poses to UK financial stability. The Bank of England, which oversees financial stability in the U.K., said Wednesday that it will make an assessment next year about the risks posed by artificial intelligence and machine learning. In its half-yearly Financial Stability Review, the bank said it was getting advice about the potential implications stemming from the adoption of AI and machine learning in the financial services sector, which accounts for around 8% of the British economy and has deep-rooted global connections.
GOVERNMENT DOCUMENTS:
The Financial Stability Oversight Council Annual Report 2023. December 2023.
The Bank of England. Financial Stability Report – December 2023 – The Financial Stability Report sets out our Financial Policy Committee’s view on the stability of the UK financial system and what it is doing to remove or reduce any risks to it.
Financial Stability Board, 2023 Resolution Report: “Applying lessons learnt”. December 15, 2023.
PAPERS:
The Macroeconomics of Artificial Intelligence. IMF. December 1, 2023. ERIK BRYNJOLFSSON, GABRIEL UNGER. The collective decisions we make today will determine how AI affects productivity growth, income inequality, and industrial concentration.
F&D Magazine. IMF. Artificial Intelligence’s Promise and Peril. December 1, 2023. HERVE TOURPE. Generative AI is poised to unleash a wave of creativity and productivity but poses important questions for humanity Working Papers
IMF. Predicting the Law: Artificial Intelligence Findings from the IMF’s Central Bank Legislation Database. November 17, 2023 AlAjmi, Khaled ; Deodoro, Jose ; Khan, Ashraf ; Moriya, Kei. Using the 2010, 2015, and 2020/2021 datasets of the IMF’s Central Bank Legislation Database (CBLD), we explore artificial intelligence (AI) and machine learning (ML) approaches to analyzing patterns in central bank legislation. Our findings highlight that: (i) a simple Naïve Bayes algorithm can link CBLD search categories with a significant and increasing level of accuracy to specific articles and phrases in articles in laws (i.e., predict search classification); (ii) specific patterns or themes emerge across central bank legislation (most notably, on central bank governance, central bank policy and operations, and central bank stakeholders and transparency); and (iii) other AI/ML approaches yield interesting results, meriting further research.
NBER. Regulating Artificial Intelligence. Joao Guerreiro, Sergio Rebelo & Pedro Teles. Working Paper 31921. DOI 10.3386/w31921. Issue Date November 2023. Revision Date December 2023. We consider an environment in which there is substantial uncertainty about the potential adverse external effects of AI algorithms. We find that subjecting algorithm implementation to regulatory approval or mandating testing is insufficient to implement the social optimum. When testing costs are low, a combination of mandatory testing for external effects and making developers liable for the adverse external effects of their algorithms comes close to implementing the social optimum even when developers have limited liability.
World Bank. 2023. Generative Artificial Intelligence. Emerging Technologies Curation Series; No.5. Washington, DC: World Bank. http://hdl.handle.net/10986/39959. License: CC BY-NC 3.0 IGO”. URI https://openknowledge.worldbank.org/handle/10986/39959 Generative artificial intelligence (AI) has been developing rapidly and has attracted significant attention in recent years, with numerous advances and breakthroughs. The generative AI market is expected to grow from 1.5 billion dollars in 2021 to 6.5 billion dollars by 2026 – a compound annual growth rate of 34.9 percent. Acknowledging the growing importance of generative AI in research and practical applications, including its use to solve international development challenges, this report provides a comprehensive overview of generative AI, introduces the basics, explains its development over time, and examines its types and applications. After highlighting the benefits and capabilities of generative AI, the report explores how it can be applied in various industries such as health care, manufacturing, media, and entertainment and then discusses potential opportunities and limitations users must consider. Finally, it describes initiatives and strategies that the Korean government and private sector players have implemented to adopt and advance generative AI in Korea and the global marketplace. The fifth issue in the Emerging Technology series, generative AI is the result of a collaboration effort of the World Bank Group Information Technology Solutions Technology and the World Bank Korea Country Office. The series captures new technology and trends and shares knowledge to help solve international development challenges.