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Intelligent financial system: how AI is transforming finance

Author

Listed:
  • Iñaki Aldasoro
  • Leonardo Gambacorta
  • Anton Korinek
  • Vatsala Shreeti
  • Merlin Stein

Abstract

At the core of the financial system is the processing and aggregation of vast amounts of information into price signals that coordinate participants in the economy. Throughout history, advances in information processing, from simple bookkeeping to artificial intelligence (AI), have transformed the financial sector. We use this framing to analyse how generative AI (GenAI) and emerging AI agents as well as, more speculatively, artificial general intelligence will impact finance. We focus on four functions of the financial system: financial intermediation, insurance, asset management and payments. We also assess the implications of advances in AI for financial stability and prudential policy. Moreover, we investigate potential spillover effects of AI on the real economy, examining both an optimistic and a disruptive AI scenario. To address the transformative impact of advances in AI on the financial system, we propose a framework for upgrading financial regulation based on well-established general principles for AI governance.

Suggested Citation

  • Iñaki Aldasoro & Leonardo Gambacorta & Anton Korinek & Vatsala Shreeti & Merlin Stein, 2024. "Intelligent financial system: how AI is transforming finance," BIS Working Papers 1194, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:1194
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    References listed on IDEAS

    as
    1. Erik Brynjolfsson & Danielle Li & Lindsey Raymond, 2023. "Generative AI at Work," Papers 2304.11771, arXiv.org, revised Nov 2024.
    2. David Autor, 2022. "The Labor Market Impacts of Technological Change: From Unbridled Enthusiasm to Qualified Optimism to Vast Uncertainty," NBER Working Papers 30074, National Bureau of Economic Research, Inc.
    3. Georges, Christophre & Pereira, Javier, 2021. "Market stability with machine learning agents," Journal of Economic Dynamics and Control, Elsevier, vol. 122(C).
    4. Edward Felten & Manav Raj & Robert Seamans, 2021. "Occupational, industry, and geographic exposure to artificial intelligence: A novel dataset and its potential uses," Strategic Management Journal, Wiley Blackwell, vol. 42(12), pages 2195-2217, December.
    5. Jon Danielsson & Andreas Uthemann, 2023. "On the use of artificial intelligence in financial regulations and the impact on financial stability," Papers 2310.11293, arXiv.org, revised Jun 2024.
    6. Jian Huang & Junyi Chai & Stella Cho, 2020. "Deep learning in finance and banking: A literature review and classification," Frontiers of Business Research in China, Springer, vol. 14(1), pages 1-24, December.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Leonardo Gambacorta & Vatsala Shreeti, 2025. "The AI supply chain," BIS Papers, Bank for International Settlements, number 154.
    2. Jon Danielsson & Andreas Uthemann, 2024. "Artificial intelligence and financial crises," Papers 2407.17048, arXiv.org.

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    More about this item

    Keywords

    artificial intelligence; generative AI; AI agents; financial system; financial institutions;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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