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Fed in discussions with banks about managing risks of AI: Waller


Artificial Intelligence words are seen in this illustration taken March 31, 2023. REUTERS/Dado Ruvic/Illustration

The Federal Reserve has “regular discussions” with the banks it supervises about managing the risks associated with artificial intelligence, as more financial institutions utilize AI for customer service applications, fraud monitoring and underwriting, a top official at the U.S. central bank said on Thursday.

In prepared remarks, Fed Governor Christopher Waller cautioned that although AI could bring new efficiencies to bank processes, it also involves novel risks, including difficulties detecting problems or biases in large datasets.

Waller also said that so-called smart contracts – or self-executing transactions on the blockchain whose results depend on pre-programmed inputs — could hold “considerable promise” to modernize transaction settlements. Still, he noted that smart contracts also pose risks, such as cyber vulnerabilities and bugs.