Yellen says regulators, institutions should deepen AI awareness

US TREASURY Secretary Janet Yellen urged financial institutions, regulators and market participants to deepen their expertise and monitoring capacity in the field of artificial intelligence, highlighting the critical role and potential risks the technology can have for financial services.

The increasing use of AI in finance “brings potential benefits such as reducing costs and improving efficiencies, and potential risks like cyber and model risk,” Yellen said at a US House hearing, in prepared remarks on the annual report of the Financial Stability and Oversight Council (FSOC).

In her testimony to the House Financial Services Committee, the Treasury chief set out the key takeaways of the report by FSOC, which also includes the heads of the US Federal Reserve and Securities and Exchange Commission. The panel was set up after the 2008 financial crisis to deal with systemic risks.

Yellen also said regulators support plans to reassess capital adequacy at banks and address vulnerabilities, according to the prepared remarks. 

FSOC “supports member agencies’ plans to review whether capital measures appropriately reflect a banking institution’s ability to absorb losses; improve resolvability at large, complex, or interconnected banks; and address vulnerabilities from uninsured deposit levels and depositor composition,” Yellen said. 

The hearing comes after a year that saw the collapse of three banks that faced major deposit outflows, and subsequent emergency measures by the Federal Deposit Insurance Corp and the Fed to stabilise the situation. 

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Yellen is also scheduled to testify on Thursday before the Senate Banking Committee. BLOOMBERG