AI in Banking and Finance, October 31, 2023


“October 30, 2023, President Biden issued a landmark Executive Order to ensure that America leads the way in seizing the promise and managing the risks of artificial intelligence (AI). The Executive Order establishes new standards for AI safety and security, protects Americans’ privacy, advances equity and civil rights, stands up for consumers and workers, promotes innovation and competition, advances American leadership around the world, and more. As part of the Biden-Harris Administration’s comprehensive strategy for responsible innovation, the Executive Order builds on previous actions the President has taken, including work that led to voluntary commitments from 15 leading companies to drive safe, secure, and trustworthy development of AI.”

FACT SHEET, November 1, 2023: Vice President Harris Announces New U.S. Initiatives to Advance the Safe and Responsible Use of Artificial Intelligence. As part of her visit to the United Kingdom to deliver a major policy speech on Artificial Intelligence (AI) and attend the Global Summit on AI Safety, Vice President Kamala Harris is announcing a series of new U.S. initiatives to advance the safe and responsible use of AI. These bold actions demonstrate U.S. leadership on AI and build upon the historic Executive Order signed by President Biden on October 30.

Bank of England – FS2/23 – 26 October 2023. Artificial Intelligence and Machine Learning. The Bank of England (the Bank) (including the Prudential Regulation Authority (PRA)), and the Financial Conduct Authority (FCA) (collectively ‘the supervisory authorities’) published a discussion paper (DP) 5/22 – Artificial Intelligence and Machine Learning – in October 2022 to further their understanding and to deepen dialogue on how Artificial Intelligence (AI) may affect their respective objectives for the prudential and conduct supervision of financial firms. The DP is part of the supervisory authorities’ wider programme of work related to AI, including the AI Public Private Forum (AIPPF), and its final report published in February 2022.  This feedback statement (FS) provides a summary of the responses to DP5/22. Its aim is to acknowledge the responses to the DP, identify themes, and provide an overall summary in an anonymised way. The FS summarises the responses to DP5/22 as far as they concern the matters raised in that DP. It does not include policy proposals, nor does it signal how the supervisory authorities are considering clarifying, designing, and/or implementing current or future regulatory proposals on this topic. DP5/22 received 54 responses from a wide range of stakeholders. The chart below shows the number of respondents by type of institution. Industry bodies accounted for almost a quarter of respondents with banks accounting for a further fifth. There was no significant divergence of opinion between sectors.

Remarks by Assistant Secretary for Financial Institutions Graham Steele at the Amazon Web Services (AWS) Gov2Gov Summit on Responsible Artificial Intelligence Innovation for the Public Sector, October 24, 2023. As Prepared for Delivery. “…Financial institutions are increasingly becoming technology companies—from the use of mobile apps to digital payment services to models that assess the risks of certain activities or the creditworthiness of certain customers. As with other areas experiencing rapid innovation, such as fintech and cloud services, significant potential exists for financial institutions to harness the technology underlying AI products and services. However, there are also risks, including inadequate oversight and consumer harms. Treasury is actively engaged, including by coordinating with the official sector and other stakeholders, to ensure we achieve outcomes that benefit all Americans and our economic values of fairness, growth, and competitiveness.”

Generative AI, Productivity, the Labor Market, and Choice Behavior, Remarks by Lisa D. Cook, Member, Board of Governors of the Federal Reserve System at the National Bureau of Economic Research Economics of Artificial Intelligence Conference, Fall 2023, Toronto, Canada. “…I will focus my remarks on generative AI, which creates new content largely in response to natural language prompts.1 As this audience knows, image and text classification—discriminative AI—has been in use for many years and is remarkably effective. I have used it to identify demographic characteristics of entrepreneurs in my own research. In contrast, effective generative AI is a very recent development and seems to be a leap forward into something new. Applications of generative AI range from the prosaic, like reducing the monotony of writing routine memos, to the wonderous, like protein structure prediction and drug discovery.”


Bloomberg Law, October 31, 2023. Biden’s AI Order Pushes Bank Regulators to Curb Bias: Explained. President Joe Biden’s new artificial intelligence executive order will boost efforts underway at federal banking, consumer finance, and housing regulatory agencies to police uses of the new technology for discrimination and privacy violations.

AI Snake Oil, October 31, 2023. What the executive order means for openness in AI. Good news on paper, but the devil is in the details Arvind Narayanan and Sayash Kapoor

Markets Insider, October 30, 2023. Will Biden’s Landmark AI Executive Order Push Banking Industry Deeper Into Artificial Intelligence? – President Joe Biden issued a new executive order on artificial intelligence on Monday, making it the first of a kind to require new safety assessments, equity and civil rights guidance, and research on AI’s impact on the labor market. The order is divided into eight sections, which include creating new safety and security standards for AI, protecting consumer privacy, and many others. The announcement comes as financial firms and banks have started to adopt AI-based systems to not only make day-to-day activities easier for staffers, but also make better informed, safer, and profitable loan and credit decisions. However, generative AI also faces some challenges in the financial space, mainly highlighting how to assess the risks and how the risks can be minimized.

Forbes, October 30, 2023. When The Bank’s Customers Are Replaced By Custobots – I was interested to see that Gartner’s IT top ten strategic technology trends for 2024 include the arrival of machine customers (what they call ‘custobots’ but what I call “economic avatars”, a precise and descriptive label that the virtual reality visionary Jaron Lanier introduced some years ago). These are the smart, non-human actors that can autonomously negotiate and purchase goods and services in exchange for payment. Gartner think that in five years there will be 15 billion connected products with the potential to behave as customers, with billions more to follow in the coming years.

Pensions & Investments, October 30, 2023. Treasury to issue report on ‘best practices’ for Wall Street to manage AI.

Bloomberg, October 30, 2023. Global Regulatory Brief: Digital finance, November edition. The growing role of technological innovation in financial services continues to attract the attention of regulators and policy-setters as they embark on a range of initiatives to manage risks and set appropriate standards. From Australia to the EU, the following global developments in digital finance over the past month stand-out…, October 27, 2023. [read free] How Sunak’s Bletchley Park summit aims to shape global AI safety. Global political leaders and tech executives will gather in UK next week to discuss risks of new technology…Expected to join the effort to establish ground rules for the development of “frontier AI” next week are political leaders from around 28 countries, including the US, Europe, Singapore, the Gulf states and China, alongside top executives from Big Tech companies and leading AI developers. The Financial Times has obtained a list of companies, governments and organisations expected to attend the summit, which is published in full at the end of this article.

See also TechCrunch, November 1, 2022. The world is locked in a race, and competition, over dominance in AI, but today, a few of them appeared to come together to say that they would prefer to collaborate when it comes to mitigating risk. Speaking at the AI Safety Summit in Bletchley Park in England, the U.K. minister of technology, Michelle Donelan, announced a new policy paper, called the Bletchley Declaration, which aims to reach global consensus on how to tackle the risks that AI poses now and in the future as it develops. She also said that the summit is going to become a regular, recurring event: another gathering is scheduled to be held in Korea in six months, she said; and one more in France six months after that. As with the tone of the conference itself, the document published today is relatively high level.


Artificial intelligence, services globalisation and income inequality, BIS Working Papers | No 1135 | 25 October 2023 by Giulio Cornelli, Jon Frost and Saurabh Mishra. PDF full text | 35 pages Summary – Artificial intelligence (AI) is increasingly embedded into modern economies. This prompts fundamental questions about its implications for income distribution. This study seeks to explore how AI-related investment is associated with changes in income and income shares for various segments of the population. As AI continues to expand its capabilities, outperforming human capabilities in an array of tasks, the implications of this technological evolution for income inequality become even more important. The primary focus is on how AI-induced structural shifts in production and the labour market relate to income disparities.

NBER. AI Adoption in America: Who, What, and Where. Kristina McElheran, J. Frank Li, Erik Brynjolfsson, Zachary Kroff, Emin Dinlersoz, Lucia S. Foster, Nikolas Zolas. Working Paper 31788. DOI 10.3386/w31788. Issue Date October 2023. We study the early adoption and diffusion of five AI-related technologies (automated-guided vehicles, machine learning, machine vision, natural language processing, and voice recognition) as documented in the 2018 Annual Business Survey of 850,000 firms across the United States. We find that fewer than 6% of firms used any of the AI-related technologies we measure, though most very large firms reported at least some AI use. Weighted by employment, average adoption was just over 18%. AI use in production, while varying considerably by industry, nevertheless was found in every sector of the economy and clustered with emerging technologies such as cloud computing and robotics. Among dynamic young firms, AI use was highest alongside more-educated, more-experienced, and younger owners, including owners motivated by bringing new ideas to market or helping the community. AI adoption was also more common alongside indicators of high-growth entrepreneurship, including venture capital funding, recent product and process innovation, and growth-oriented business strategies. Early adoption was far from evenly distributed: a handful of “superstar” cities and emerging hubs led startups’ adoption of AI. These patterns of early AI use foreshadow economic and social impacts far beyond this limited initial diffusion, with the possibility of a growing “AI divide” if early patterns persist.

IMF. Global Financial Stability Report, October 2023: Chapter 1 – Soft Landing or Abrupt Awakening?

NBER. Economic Growth under Transformative AI. Philip Trammell & Anton Korinek. Working Paper 31815. DOI 10.3386/w31815. Issue Date October 2023. Industrialized countries have long seen relatively stable growth in output per capita and a stable labor share. AI may be transformative, in the sense that it may break one or both of these stylized facts. This review outlines the ways this may happen by placing several strands of the literature on AI and growth within a common framework. We first evaluate models in which AI increases output production, for example via increases in capital’s substitutability for labor or task automation, capturing the notion that AI will let capital “self-replicate”. This typically speeds up growth and lowers the labor share. We then consider models in which AI increases knowledge production, capturing the notion that AI will let capital “self-improve”, speeding growth further. Taken as a whole, the literature suggests that sufficiently advanced AI is likely to deliver both effects.

ECB. Discussion Paper Series Number 10. Financial intermediation and technology: what’s old, what’s new? We study the effects of technological change on financial intermediation, distinguishing between innovations in information (data collection and processing) and communication (relationships and distribution). Both follow historic trends towards an increased use of hard information and less in‐ person interaction, which are accelerating rapidly. We point to more recent innovations, such as the combination of data abundance and artificial intelligence, and the rise of digital platforms. We argue that in particular the rise of new communication channels can lead to the vertical and horizontal disintegration of the traditional bank business model. Specialized providers of financial services can chip away activities that do not rely on access to balance sheets, while platforms can interject themselves between banks and customers. We discuss limitations to these challenges, and the resulting policy implications.

IMF. Ghiath Shabsigh; El Bachir Boukherouaa. August 22, 2023 Generative Artificial Intelligence in Finance: Risk Considerations. In recent years, technological advances and competitive pressures have fueled rapid adoption of artificial intelligence (AI) in the financial sector, and this adoption is set to accelerate with the recent emergence of generative AI (GenAI). GenAI is a significant leap forward in AI technology that enhances its utility for financial institutions that have been quick at adapting it to a broad range of applications. However, there are risks inherent in the AI technology and its application in the financial sector, including embedded bias, privacy concerns, outcome opaqueness, performance robustness, unique cyberthreats, and the potential for creating new sources and transmission channels of systemic risks. GenAI could aggravate some of these risks and bring about new types or risks as well, including for financial sector stability. This paper provides early insights into GenAI’s inherent risks and their potential impact on the financial sector.

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