In remarks at a virtual event hosted by the Federal Reserve today, Fed Governor Lael Brainard said that the federal banking agencies are in the process of drafting request for information on the risk management of artificial intelligence applications in financial services as they consider “whether additional supervisory clarity is needed to facilitate responsible adoption of AI.”
While acknowledging the potential of AI to improve accuracy and fairness of credit decisions and improve overall credit availability, Brainard discussed some of the pitfalls of these emerging technologies, including the “black box problem” that can arise with complex machine learning models when the operation of the model cannot be fully understood.
“Bank management needs to be able to rely on models’ predictions and classifications to manage risk,” Brainard said. “They need to have confidence that a model used for crucial tasks such as anticipating liquidity needs or trading opportunities is robust and will not suddenly become erratic.” She added that “regulators must provide appropriate expectations and adjust those expectations as the use of AI in financial services and our understanding of its potential and risks evolve.”
