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

As more financial institutions use AI for customer service applications, fraud monitoring, and underwriting, the Federal Reserve has “regular discussions” with the banks it regulates about managing the risks connected with the technology, according to a top official at the U.S. central bank on Thursday.

Fed Governor Christopher Waller issued a warning in prepared remarks, noting that while AI may improve bank operations in terms of efficiency, it also carries new hazards, such as the inability to spot errors or biases in vast datasets.

The self-executing transactions on the blockchain known as “smart contracts,” whose outcomes depend on pre-programmed inputs, may offer “considerable promise” for modernizing transaction settlements, according to Waller. However, he pointed out that smart contracts can have hazards, including as glitches and cyber vulnerabilities.