On the use of artificial intelligence in financial regulations and the impact on financial stability *

38 Pages Posted: 14 Nov 2023 Last revised: 6 Jun 2024

See all articles by Jon Danielsson

Jon Danielsson

London School of Economics - Systemic Risk Centre

Andreas Uthemann

Bank of Canada; London School of Economics - Systemic Risk Centre

Date Written: June 05, 2024

Abstract

Artificial intelligence (AI) can undermine financial stability because of malicious use, misinformation, misalignment, and the AI analytics market structure. The low frequency and uniqueness of financial crises, coupled with mutable and unclear objectives, frustrate machine learning. Even if the authorities prefer a conservative approach to AI adoption, it will likely become widely used by stealth, taking over increasingly high-level functions driven by significant cost efficiencies and superior performance. We propose six criteria for judging the suitability of AI.

Keywords: artificial intelligence, systemic risk, financial regulations, central banks

JEL Classification: G01,G28,

Suggested Citation

Danielsson, Jon and Uthemann, Andreas, On the use of artificial intelligence in financial regulations and the impact on financial stability * (June 05, 2024). Available at SSRN: https://ssrn.com/abstract=4604628 or http://dx.doi.org/10.2139/ssrn.4604628

Jon Danielsson (Contact Author)

London School of Economics - Systemic Risk Centre ( email )

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+44.207.955.6056 (Phone)

HOME PAGE: http://www.riskreasearch.org

Andreas Uthemann

Bank of Canada ( email )

234 Wellington Street
Ottawa, Ontario K1A 0G9
Canada

London School of Economics - Systemic Risk Centre ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

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