AI in Finance and Banking June 30, 2024

This semi-monthly column highlights news, government reports, NGO/IGO papers, industry white papers, academic papers, conferences 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.


Reuters via MSN, June 28, 2024. Financial industry grappling with AI’s gifts and perils, executives say. The spread of artificial intelligence-based systems offers big opportunities for financial services firms, executives say, but asset managers also face higher stakes than other consumer-facing businesses because they manage sensitive information. For example, AI systems could be better than humans at explaining to clients why they arrived at recommendations like portfolio allocations or lending decisions, said Zack Kass, a former head of business partnerships at OpenAI. People, he said, are not good at explaining subconscious biases that could affect such decisions.

Coin Telegraph, June 28, 2024. AI ‘Skeleton Key’ attack found by Microsoft could expose personal, financial data. Aside from being wary about which AI services you use, there are other steps organizations can take to protect against having data exposed.

Forbes, June 25, 2024. Monkeys, Models, And Markets: AI Vs. Behavioral Finance When our silicon brethren finally take over all securities trading, will there still be evidence of biases and empirical anomalies in market prices, or will the rational robots elbow out us earlier, more emotional, more behavioral lifeforms? Like you, I’ve ridden the behavioral finance roller coaster for decades. I used to be a purely rational guy. I thought behavioral finance was a joke. Pick a decision-making bias, pick a price pattern, see if they match, lather, rinse, repeat. If people can be underconfident or overconfident, obviously you can explain both mean reversion and momentum. If people can’t tell that “Linda is a feminist bank teller” is a subset of “Linda is a bank teller,” then people can probably believe almost anything.

citi – AI in Finance. Bank, Bot and Beyond, June 24, 2024. Artificial Intelligence (AI) could be the General-Purpose Technology (GPT) of the 2020s-2030s. And it will profoundly change finance and money. GPTs have the potential to transform entire economies, changing the way we live and work. They create new opportunities for growth and innovation, often improving our overall quality of life. They also destroy existing ways of doing things. And as such they also create losers. Especially in the short term. The steam engine commoditized production and physical movement, powering the industrial revolution. More recently, the Internet revolutionized communication and ushered in the age of information. Similarly, AI may commoditize human intelligence, including analysis, decision making and content creation. Finance will be at the forefront of the changes. Existing jobs have disappeared in prior cycles, to be replaced by new ones. So have firms. What a bank or financial firm looks like in the mid-2020s, be it retail or wholesale finance, looks very different to the mid-1980s, or the mid-1940s! AI will repeat this cycle, possibly speeding it up. AI itself has gone through many waves of hype and disillusionment from the 1950s onwards (see Appendix for a summary history, especially Figure 40). We wrote about AI in Finance in our 2018 GPS report (The Bank of the Future – The ABCs of Digital Disruption in Finance), but interest in the topic is much higher now. Advances in generative AI (GenAI), including the release of ChatGPT in November 2022, marked a turning point. GenAI brought a user interface (UI) to AI and placed it literally in the palm of our hands. The advent of GenAI brought AI to the masses, sparking interest among consumers and key decision makers alike. Generative AI, a subset of AI, refers to models that can generate high-quality text, images, videos, and other data. For now, GenAI in finance is largely at a proof of concept (POC) stage, but it is rapidly transitioning. In this report, we discuss what use cases are likely in 2024-25, and also look further ahead. Based on the results of a recent Citi TTS Client Survey, we estimate the global banking sector 2028E profit pool could increase 9% or $170 billion from the adoption of AI, rising from just over $1.7 trillion to close to $2 trillion. The tech adoption strategy of most incumbents involves adding it on top of existing products or using the new technology to improve productivity. Startups, by contrast, use new technology to unbundle what incumbents do. Disruptive startups create new products and services that are native.

The Hill, June 24, 2024. The International Monetary Fund (IMF) is warning that the world economy will likely face a “painful transition as artificial intelligence (AI) pushes “large swaths” of people out of work for extended periods. “New generative-AI technologies hold immense potential for boosting productivity and improving the delivery of public services, but the sheer speed and scale of the transformation also raise concerns about job losses and greater inequality,” the IMF wrote in a Monday blog post. In an accompanying paper released Monday, the agency argued that countries should strengthen their social safety nets and invest in education and training to help workers adjust amid the AI transition.

Fortune, June 22, 2024. Beware, finance bros: AI is coming for banking before any other kinds of jobs, Citigroup warns

JD Supra, June 19, 2024. Treasury requests information on AI in financial services sector. On June 6, the Department of the Treasury released a request for information (RFI) to collect from financial institutions, consumers, advocates, academics, and other stakeholders’ data on the uses, opportunities and risks presented by artificial intelligence (AI). The Treasury’s release stated that the Department will be interested in gaining greater insight into how AI would be used in risk management, capital markets, internal operations, customer service, regulatory compliance, and marketing. The RFI posed 19 questions related to general topics such as types of models, AI use, and barriers to entry, as well as questions focused on potential opportunities and risks associated with AI. The Secretary of the Treasury, Janet Yellen, discussed the RFI in her remarks at the Financial Stability Oversight Council (FSOC) Conference on AI and Financial Stability. Yellen noted that the Treasury would be convening a roundtable on AI and insurance and would support FSOC’s monitoring and analysis of AI’s impact on financial stability., June 16, 2024. AI in finance is like ‘moving from typewriters to word processors’ The accounting and finance professions have long adapted to technology — from calculators and spreadsheets to cloud computing. However, the emergence of generative artificial intelligence presents both new challenges and opportunities for students looking to get ahead in the world of finance. Research last year by investment bank Evercore and Visionary Future, which incubates new ventures, highlights the workforce disruption being wreaked by generative AI. Analysing 160mn US jobs, the study reveals that service sectors such as legal and financial are highly susceptible to disruption by AI, although full job replacement is unlikely. Instead, generative AI is expected to enhance productivity, the research concludes, particularly for those in high-value roles paying above $100,000 annually. But, for current students and graduates earning below this threshold, the challenge will be navigating these changes and identifying the skills that will be in demand in future. Generative AI is being swiftly integrated into finance and accounting, by automating specific tasks. Stuart Tait, chief technology officer for tax and legal at KPMG UK, describes it as a “game changer for tax”, because it is capable of handling complex tasks beyond routine automation.


IMF – Broadening the Gains from Generative AI: The Role of Fiscal Policies Fernanda Brollo ; Era Dabla-Norris ; Ruud de Mooij ; Daniel Garcia-Macia ; Tibor Hanappi ; Li Liu ; Anh D. M. Nguyen June 17, 2024

IMF – New AI Preparedness Index Dashboard tracks 174 economies based on their digital infrastructure, human capital, labor policies, innovation, integration and regulation, Giovanni Melina Artificial intelligence can increase productivity, boost economic growth, and lift incomes. However, it could also wipe out millions of jobs and widen inequality. Our research has already shown how AI is poised to reshape the global economy. It could endanger 33 percent of jobs in advanced economies, 24 percent in emerging economies, and 18 percent in low-income countries. But, on the brighter side, it also brings enormous potential to enhance the productivity of existing jobs for which AI can be a complementary tool and to create new jobs and even new industries. Most emerging market economies and low-income countries have smaller shares of high-skilled jobs than advanced economies, and so will likely be less affected and face fewer immediate disruptions from AI. At the same time, many of these countries lack the infrastructure or skilled workforces needed to harness AI’s benefits, which could worsen inequality among nations…As the Chart of the Week shows, wealthier economies tend to be better equipped for AI adoption than low-income countries. The data draw from the IMF’s new AI Preparedness Index Dashboard for 174 economies, based on their readiness in four areas: digital infrastructure, human capital and labor market policies, innovation and economic integration, and regulation.

Speeches & Conferences:

Banking on the Future – The  Next Era of Fintech. Join Semafor on July 10 in Washington DC for an in-depth discussion on fostering a regulatory environment that supports innovation while ensuring financial stability and security with policymakers and industry leaders. RSVP for in-person or livestream access here.

Posted in: AI in Banking and Finance, Cybersecurity, Economy, Education, Government Resources