Artificial intelligence and financial crises

Publication Date
Financial Markets Group Discussion Papers DP 935
Publication Date
Systemic Risk Centre Discussion Papers DP 133
Publication Authors

The rapid adoption of artificial intelligence (AI) poses new and poorly understood threats to financial stability. We use a game-theoretic model to analyse the stability impact of AI, finding that it amplifies existing financial system vulnerabilities - leverage, liquidity stress and opacity - through superior information processing, common data, speed and strategic complementarities. The consequence is crises become faster and more severe, where the likelihood of a crisis is directly affected by how effectively the authorities engage with AI. In response, we propose that the financial authorities develop their own AI systems and expertise, establish direct AI-to-AI communication, implement automated crisis facilities and monitor AI use.

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