AI’s Speed Presents Risks to Financial Markets

Cables connect to servers at a data center inside the VK Company Ltd. office in Moscow on January 19, 2022. Photographer: Andrey Rudakov/Bloomberg.

The Federal Reserve’s top bank cop says the attributes that make artificial intelligence (AI) attractive also present risk, with speed and automaticity potentially generating new issues at a wide scale.

Financial regulators have said that AI and other emerging technologies present enormous opportunities, including significant improvements in productivity. But use of generative AI could “lead to herding behavior and the concentration of risk, potentially amplifying market volatility,” vice chair for supervision Michael Barr said Tuesday in prepared remarks before the Council on Foreign Relations. “As GenAI agents will be directed to maximize profit, they may converge on strategies to maximize returns through coordinated market manipulation, potentially fueling asset bubbles and crashes.”