Artificial Intelligence Poses New Challenges to Financial Stability, Says RBI

The Reserve Bank of India (RBI) has raised concerns about the potential risks posed by artificial intelligence (AI) in the financial sector, joining other global central banks in warning about its impact on financial stability.

RBI Governor Shaktikanta Das, speaking at an event in New Delhi on October 14, emphasized the dangers of relying heavily on AI.

Das pointed out that while AI can enhance services and reduce costs, it also introduces vulnerabilities such as increased cyber threats, data breaches, and the challenges of auditing complex algorithms. He highlighted the risk of a few large tech providers dominating the AI landscape, potentially causing systemic issues if their systems fail or are disrupted.

These concerns align with those of other central banks. In July, the European Central Bank (ECB) expressed worries about widespread AI use leading to operational risks, market concentration, and other financial stability threats. The ECB noted that high AI adoption could intensify herd behavior, market manipulation, and even inflation due to increased energy demand for AI computations.

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The Bank of Canada also voiced similar warnings in September, cautioning that the rapid pace and unpredictability of AI could exacerbate market volatility and amplify risks throughout the financial system.

As AI integration in finance grows, central banks are calling for cooperation among financial institutions, regulators, and tech developers to address these risks and protect the stability of the global financial system.

Kosta Gushterov