Yellen warns that AI is posing a threat to financial stability

Mondo Technology Updated on 2024-01-29

The United States** is increasingly concerned about the financial systemic risks that AI technology may bring.

On Thursday, December 14, U.S. Treasury Secretary Janet Yellen said U.S. regulators will make AI and the threat it could pose a top regulatory priority next year.

In October of this year, Biden signed an executive order establishing security and privacy protection standards for AI technology, which the White House called necessary regulatory measures to ensure that the development of AI technology does not threaten personal privacy and privacy

"Supporting responsible innovation in AI can make the financial system more efficient, but it should also be consistent with established risk management principles and regulations," Yellen said ahead of the release of the Financial Stability Oversight Council's (FSOC) annual report. ”

Yellen said at the FSOC conference that there will be a focus on evolving technologies and associated risks.

For the first time, the FSOC also listed AI as one of the potential risks to the financial system in its annual report.

In particular, the report points to the use of AI in financial services as a loophole in the financial system. For example, the use of AI in financial services can lead to the erosion of consumer fairness.

As an example, imagine if an AI system was used for loan approval. AI systems operate on the basis of highly complex algorithms and large amounts of data. If an AI system has biases (such as gender, race, or other factors) in its upfront "Xi training" data, the system may "learn" to make unfair lending decisions. This will be detrimental to consumer protection.

Yellen also mentioned several other financial stability risks that the FSOC is keeping a close eye on, including high interest rates (which affect commercial and residential real estate), climate change, and cyber threats.

In addition to Yellen, U.S. Exchange Commission Chairman Gary Gensler (also a member of the FSOC) said in October that if regulators do not quickly control the risks of AI, the technology will "almost inevitably" trigger a financial crisis in the next decade.

Earlier, the Bank of England said it was studying the impact of AI on financial stability, but did not add the technology to its list of market risks for the time being.

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