Artificial intelligence (AI) technology has the potential to enhance banks’ efficiency, Bank of America (BAC) said in a research report Monday. It also brings risks.
“Whilst greater automation – likely to be the first and greatest application of AI technology for banks – has the potential to improve bank productivity and thereby enhance bank returns, we also see some vulnerabilities around broad use of AI in banks,” analysts led by Richard Thomas wrote.
The industry is highly regulated and has access to a large amount of sensitive data, which means that banks and supervisors will have to be “comfortable about the risks that accompany the institutionalization of AI,” the report said, noting that dialogue between the industry and regulators is ongoing.
Concerns are likely to be focused on security and the “challenge of keeping client assets safe in a world of democratized AI which has also delivered lower barriers to threat actors,” the authors wrote.
“Technology and social media have likely sped up deposit withdrawals,” the note said, in reference to the collapse of a number of U.S. banks earlier this year, and it is “less obvious that regulators have a clear antidote to this new reality.”
AI is already being used by most major banks, albeit cautiously, and if the technology is able to deliver tangible efficiencies for European banks and boost returns, “this is likely to be recognised with more stable to higher credit ratings and secure spreads,” the report added.
Bank of America says the revenue upside at this stage from the use of AI technology is “less tangible.”