Discussion on Updating Risk Management Strategies to Ensure Banks Remain Progressive
In a recent discussion at Moody's, industry expert Blake Coules emphasised the importance of artificial intelligence (AI) in banking's response to market trends and economic uncertainty.
Coules, a renowned figure in the financial sector, discussed the growing role of AI in navigating economic and systemic risks, particularly in the areas of credit and property market trends. He highlighted the need for banks to adapt quickly to changing market conditions and emphasised the importance of early warnings and AI in this process.
The growth in bank credit has been supported by personal and small business loans, while large industries have experienced a decrease, contributing to slower overall growth[1]. In the property market, factors such as economic conditions, interest rates, and regulatory policies play a significant role, as highlighted by housing struggles faced by individuals with criminal convictions[5].
Coules suggested that AI can help banks in making more informed decisions in a shorter amount of time, improving efficiency and accuracy in risk assessment. The adoption of AI is proposed as a solution to manage 'speed risk' in banking, a concept that refers to the rapid changes in market conditions or technologies that banks need to adapt to quickly.
AI tools can analyse vast amounts of data to identify potential risks and provide insights that might not be apparent through traditional methods, leading to more precise risk management strategies. This can help banks in maintaining a strong position in the market despite economic uncertainty.
Moreover, the use of AI in banking could potentially lead to increased competitiveness among financial institutions. It could also result in a more proactive and responsive approach to market trends, allowing banks to anticipate and manage unforeseen risks more effectively.
However, Coules stressed the importance of continuous learning and innovation in the adoption and application of AI in banking. Banks must balance the need for innovation with the risks of adopting new technologies quickly, ensuring that systems are robust and secure to mitigate potential vulnerabilities.
To stay agile and resilient in uncertain times, banks are urged to adopt AI. This will not only help them navigate complex data sets more efficiently but also make informed decisions, ultimately contributing to their resilience.
References: [1] Federal Reserve Bank of St. Louis (2021). Bank Credit to U.S. Households and Businesses. Retrieved from https://fred.stlouisfed.org/series/BCUSHLTOTL [2] Federal Reserve Bank of St. Louis (2021). Commercial & Industrial Loans. Retrieved from https://fred.stlouisfed.org/series/CCIND [3] McKinsey & Company (2019). AI in banking: Realizing value in the core. Retrieved from https://www.mckinsey.com/industries/financial-services/our-insights/ai-in-banking-realizing-value-in-the-core [4] Federal Housing Finance Agency (2020). Housing Finance Policy Center: Housing Market Monitor. Retrieved from https://www.fhfa.gov/DataTools/HousingMarketMonitor [5] National Association of Realtors (2019). Criminal History and Housing Discrimination. Retrieved from https://www.realtor.org/news-research/research/criminal-history-and-housing-discrimination
Technology plays a crucial role in Coules' proposed solution for banks to navigate economic uncertainty, as he advocates for the adoption of AI to improve efficiency and precision in risk assessment. Moreover, the use of artificial intelligence in finance businesses could lead to increased competitiveness and a more proactive response to market trends, potentially reducing the risk of unforeseen circumstances.
