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The rise of artificial intelligence: benefits and risks for financial stability

Author

Listed:
  • Leitner, Georg
  • Singh, Jaspal
  • van der Kraaij, Anton
  • Zsámboki, Balázs

Abstract

The emergence of generative artificial intelligence (AI) tools represents a significant technological leap forward, with the potential to have a substantial impact on the financial system. Conceptually, AI brings both benefits and risks to the financial system. Practically, the overall impact will depend on how the challenges related to data, model development and deployment are addressed – both at the level of financial institutions and for the financial system as a whole. If new AI tools are used widely in the financial system and AI suppliers are concentrated, operational risk (including cyber risk), market concentration and too-big-to-fail externalities may increase. Furthermore, widespread AI adoption may harbour the potential for increased herding behaviour and market correlation. Should concerns arise that cannot be tackled by the current regulatory framework, targeted initiatives may need to be considered. JEL Classification: G01, G10, G14, G20, G41

Suggested Citation

  • Leitner, Georg & Singh, Jaspal & van der Kraaij, Anton & Zsámboki, Balázs, 2024. "The rise of artificial intelligence: benefits and risks for financial stability," Financial Stability Review, European Central Bank, vol. 1.
    • Handle: RePEc:ecb:fsrart:2024:0001:2
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    File URL: https://www.ecb.europa.eu//press/financial-stability-publications/fsr/special/html/ecb.fsrart202405_02~58c3ce5246.en.html
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    More about this item

    Keywords

    artificial intelligence; automation; efficiency gains; financial institutions; financial stability; foundation models; generative AI; herding behaviour; supplier concentration; technological penetration; too big to fail;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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