Janet Yellen says AI offers opportunities but also significant risks for finance

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Treasury Secretary addresses conference on Artificial Intelligence and Financial Stability.

Treasury Secretary Janet Yellen noted that artificial intelligence could help financial services. Important address At a conference last week on artificial intelligence and financial stability. However, he also warned of significant risks to the industry.

“As I know many of you know today, AI presents tremendous opportunities for the financial system,” Yellen said. “And if we define AI broadly, the financial services sector is already taking advantage of these opportunities. For years, AI's predictive capabilities have helped in forecasting and portfolio management. AI's ability to detect irregularities has automated many customer support services in these and many other use cases has seen that AI, when used appropriately, can improve efficiency, accuracy and access to financial products.”

He noted how “the rapid evolution of AI could mean additional use cases.” These include using natural language processing, image recognition, and generative AI “to make financial services less expensive and easier to access.”

But with opportunities come risks, Yellen said. In its 2023 annual report, the Financial Stability Oversight Council “identified for the first time the widespread adoption of AI in financial services as a threat.”

The complexity and opacity of AI models can lead to specific vulnerabilities. inadequate risk management framework for AI risks; and interconnections that emerge as many market participants rely on the same data and models,” Yellen said. “Concentration among vendors that develop models, provide data, and provide cloud services also creates risks. may introduce, which may increase the risks of existing third-party service providers. And insufficient or flawed data can also perpetuate new biases in financial decision-making.

He said the Biden administration is “focused on harnessing the potential of AI to spur innovation while mitigating risk.”

“Treasury, the Council, and member agencies have frameworks and tools that can help mitigate the risks associated with the use of AI, such as model risk management guidance and third-party risk management,” Yellen said. said “That said, there are new issues to face, and this is a rapidly evolving field. We have our work cut out for us and a variety of initiatives to identify and address emerging threats. are doing.”

“Like Yellen, Securities and Exchange Commission Chair Gary Gensler has similarly warned of the dangers that centralized AI could pose to financial systems,” Reported Hill. In a Fireside Chat earlier this year, Gensler said he believes there will likely be only a handful of large base models and data aggregators, with hundreds or thousands of financial actors relying on a single data or model. will create a 'monoculture' with

All of this could pose a threat to commercial real estate, whether directly through the use of AI in the industry or indirectly if problems in financial institutions affect CRE.

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