Federal Reserve vice chair for supervision, Michael Barr, highlighted the potential benefits and risks of artificial intelligence (AI) in banking during the DC Fintech Week conference. The event saw discussions on the double-edged sword that AI presents - its ability to boost global productivity and its associated risks such as market manipulation and fairness issues. Specifically, Barr underscored the potential of generative AI to cause significant economic shifts by changing the structure of the labor force.
Barr's concerns were echoed by Acting Comptroller of the Currency Michael Hsu, who suggested that public discourse on AI in finance may be moving faster than its actual implementation in banks. He noted that banks have been adopting AI cautiously, focusing on applications that meet safety, soundness, and fairness standards.
Regulators are particularly interested in generative AI used in trading at financial institutions. The Federal Reserve is closely monitoring these developments due to the long-term risks they pose.
Banks have been cautious about adopting AI, with some still very reluctant to use it. However, fintech companies view generative AI as crucial for their survival. The Biden administration has recently issued an executive order calling for safety tests and bias mitigation in various AI use cases, indicating potential future legislation on the matter.
In addition to AI, Barr touched on the topic of stablecoins, cryptocurrencies anchored to fiat currencies. He warned of their potential to destabilize the financial system without stringent regulation, calling for increased oversight in this area.
The conference concluded with a general agreement that while AI has significant potential in the banking sector, its risks need to be carefully managed and monitored.
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