Money News You Can Use

Jim Brogan, MBA

President and Founder of Brogan Financial

Knowledge is power, and that’s why we created ‘Money News You Can Use.’ We find articles each month and post them here so you can stay informed of the latest financial news and arm yourself with knowledge when preparing for retirement. We know most people don’t have time to sift through hundreds of articles to find the most relevant and helpful ones, which is why we do it for you!

This month's edition of Money News You Can Use dives into the transformative role of AI in the financial markets. We explore the potential benefits and major risks, including insights from an IBM study highlighting how banking and financial markets CEOs are leveraging generative AI to stay competitive despite workforce and culture challenges. Janet Yellen warns of the significant risks AI poses in finance, while other experts discuss AI's potential to predict financial crises before they emerge. With varying perspectives on the use of AI in finance, this edition provides a comprehensive look at the future of AI in the financial industry.

MONEY NEWS YOU CAN USE: 

AI and Finances

AI in the Financial Markets: Potential Benefits, Major Risks, and Regulators Trying to Keep Up

The Rapid Evolution of AI. The field of artificial intelligence (“AI”) is exploding. As the headlines proclaim, the race is on in the private sector to be the most successful AI company, with huge amounts of money driving the rush to be the leader in the field. The push to incorporate AI into banking and other financial markets is equally intense. Spending by financial services companies on AI now exceeds spending on AI in all other industries, even tech. Wall Street megabanks are the drivers of this growth. For example, the five largest investment banks filed 94 percent of AI related patents between 2017 and 2021, published two-thirds of the AI research papers, and accounted for half of AI investments. Experts expect that financial institutions’ spending on AI will continue to expand, doubling from 2023 to 2027 and topping $400 billion.

IBM Study: Banking and Financial Markets CEOs are betting on generative AI to stay competitive, yet workforce and culture challenges persist

Two-thirds (66%) of banking and financial markets CEOs surveyed said that the potential productivity gains from AI and automation are so great that they must accept the risks to stay competitive. 65% of financial institution leaders say that succeeding with AI will depend more on people’s adoption than the technology itself and 60% recognize they are pushing for AI adoption more quickly than some might find comfortable. Half (50%) of financial services CEOs surveyed say they are hiring for generative AI-related roles that did not exist last year and 53% indicate they are struggling to fill key technology positions.

Janet Yellen warns AI in finance poses ‘significant risks’

Treasury Secretary Janet Yellen is expected to warn bankers and tech executives on Thursday that while artificial intelligence could open the door to vast rewards for the financial system, the technology also threatens to introduce new dangers, according to speech excerpts shared first with CNN. Yellen’s speech at a conference on financial stability represents her most extensive remarks to date on AI. It comes as investors scramble to get a piece of the AI boom, tech giants embark on an AI arms race and regulators worry about what could go wrong. “The tremendous opportunities and significant risks associated with the use of AI by financial companies has moved this issue toward the top” of financial regulators’ agendas, Yellen plans to say in the prepared remarks to be delivered at the conference, which is being held on Thursday at the US Treasury Department and on Friday at the Brookings Institution. The event, including Yellen’s remarks, are set to be live-streamed.

AI may soon predict financial crises before they take root

As artificial intelligence (AI) evolves, so does its potential to transform various sectors — and at the cutting edge of this is the finance sector. When brought to bear in the finance sector, this emerging technology holds great promise for improving financial crisis forecasts, enhancing risk management and economic resilience. Crucially, there is a growing body of evidence showing that AI’s ability to analyze large datasets and identify financial patterns can pre-empt crises, providing early warnings and enabling proactive interventions. However, AI’s evolving potential to transform finance necessitates a dual approach: technology and robust governance.

Experts Disagree on Financial AI Use

June 11, 2024 – Experts disagree on the use of artificial intelligence in the financial sector, as discussed during the 2024 Conference on Artificial Intelligence & Financial Stability at the U.S. Department of the Treasury. Hilary Allen, professor of law at American University noted that AI’s lack of true intelligence and reliance on data are fundamental concerns. “A lot of people get confused by the term AI because you hear the term intelligence…But in fact, it’s not intelligent in the way that a human is intelligent,” she said, adding that it is “basically applied statistics.” Allen stressed the new operational risks and the importance of understanding the concentration risks of relying on third-party vendors and cloud providers. She explained that this understanding is critical to preventing future financial crises, such as data poisoning by cyber attackers, because corrupt data can disrupt an algorithm’s function.