US Treasury Secretary Janet Yellen has called on financial institutions, regulators, and market participants to enhance their understanding and oversight of artificial intelligence (AI) in the field of finance. During a hearing before the US House Financial Services Committee, Yellen highlighted both the potential benefits and risks associated with the increased use of AI in finance.
Yellen emphasized that AI has the potential to reduce costs and improve operational efficiency in the financial services sector. However, she also noted the risks of cyber threats and model risk that come with the adoption of this technology. As a result, Yellen urged regulators and financial institutions to deepen their expertise and monitoring capacity in order to mitigate these risks effectively.
The US Treasury Chief referred to the annual report of the Financial Stability and Oversight Council (FSOC), which includes the heads of the US Federal Reserve and Securities and Exchange Commission. The objective of the FSOC is to address systemic risks in the financial industry, following the 2008 financial crisis.
Yellen also mentioned that regulators support plans to review capital adequacy at banks and address vulnerabilities. The measures will focus on assessing whether capital measures properly reflect a bank’s ability to absorb losses, improving resolvability for large, complex, or interconnected banks, and addressing potential vulnerabilities from uninsured deposit levels and depositor composition.
Yellen’s remarks come after a challenging year for the banking industry, with three banks collapsing due to significant deposit outflows. Consequently, emergency measures were taken by the Federal Deposit Insurance Corp. and the Federal Reserve to stabilize the situation.
Additionally, Yellen is scheduled to testify before the Senate Banking Committee on Thursday, where she is expected to discuss further financial matters.
