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.”
Recommended For You
He also said that nonbanks may be “more nimble and risk-forward” in incorporating artificial intelligence into their operations, which might push more financial activities into less-transparent areas of the system. “We should be attuned to the impact of GenAI on our economic and political institutions,” Barr said. “There’s a risk that it concentrates economic and political power in the hands of the very few and could lead to the gains being realized only by a small group, while the rest are left behind.”
Barr said that the Fed has started using AI with a strong system of internal governance around it. He said it’s being used to test code and that it has improved efficiencies.
Barr, a Biden-era appointee, announced last month that he would step down from his role as the Fed’s top bank cop on February 28, or earlier if a successor is confirmed, citing the risk of a dispute over the position. He plans to remain on the Fed’s Board of Governors, so President Donald Trump would likely have to appoint a replacement from the current slate of board officials. The next Fed vacancy isn’t expected until 2026, although another board member could decide to step down before then.
Michelle Bowman, who sits on the supervision and regulation subcommittee at the Fed board, is considered to be a possible successor. She has been openly critical of some of Barr’s policy initiatives.
During a House hearing last week, Fed Chair Jerome Powell suggested that the central bank could proceed on financial regulation without a vice chair for supervision. He said the potential for larger swings in policy since the position was created has been “not great for the institutions that we regulate.”
————————————————————
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
