In a research report released on Monday, Bank of America (BAC) highlighted the potential benefits of using artificial intelligence (AI) technology in the banking industry. The report was led by analyst Richard Thomas and stated that AI can greatly improve bank productivity and increase returns. However, the use of AI also poses some risks that need to be carefully considered by banks and regulators.
One of the main risks associated with AI is its potential to compromise client assets due to the highly regulated nature of the banking industry and access to sensitive data. This requires banks and supervisors to be comfortable with the risks involved in institutionalizing AI. Ongoing dialogue between the industry and regulators is necessary to address these concerns, as it is “less obvious that regulators have a clear antidote to this new reality.”
While there are certainly benefits to using AI technology in banking, it’s important for banks to be cautious about how they implement it. The collapse of several US banks earlier this year was linked to deposit withdrawals accelerated by technology and social media, highlighting the importance of security measures when using AI in banking.
Despite these risks, many major banks are already cautiously implementing AI technology in their operations. If used effectively, AI has the potential to deliver tangible efficiencies for European banks and boost returns, leading to more stable credit ratings and secure spreads. However, at this stage, the revenue upside from using AI technology is less tangible. Ultimately, it will be up to banks and regulators working together closely to ensure that any risks associated with AI are mitigated while still allowing for its full potential benefits