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In recent years, technological advances and competitive pressures have fueled rapid adoption of artificial intelligence (AI) in the financial sector, and this adoption is set to accelerate with the recent emergence of generative AI (GenAI). GenAI is a significant leap forward in AI technology that enhances its utility for financial institutions that have been quick at adapting it to a broad range of applications. However, there are risks inherent in the AI technology and its application in the financial sector, including embedded bias, privacy concerns, outcome opaqueness, performance robustness, unique cyberthreats, and the potential for creating new sources and transmission channels of systemic risks. GenAI could aggravate some of these risks and bring about new types or risks as well, including for financial sector stability. This paper provides early insights into GenAI’s inherent risks and their potential impact on the financial sector.

Artificial intelligence --- Banks --- Currency crises --- Depository Institutions --- Diffusion Processes --- Econometric and Statistical Methods: Special Topics: General --- Economic & financial crises & disasters --- Economic sectors --- Economics of specific sectors --- Economics --- Economics: General --- Financial crises --- Financial Institutions and Services: General --- Financial Institutions and Services: Government Policy and Regulation --- Financial Instruments --- Financial sector --- Financial services industry --- Financial technology (fintech) --- Fintech --- Foreign Exchange --- General Aggregative Models: Forecasting and Simulation --- Government and the Monetary System --- Industries: Financial Services --- Informal Economy --- Informal sector --- Innovation and Invention: Processes and Incentives --- Institutional Investors --- Intelligence (AI) & Semantics --- Large Data Sets: Modeling and Analysis --- Macroeconomics --- Micro Finance Institutions --- Model Construction and Estimation --- Monetary Systems --- Mortgages --- Non-bank Financial Institutions --- Payment Systems --- Pension Funds --- Regimes --- Standards --- Technological Change: Choices and Consequences --- Technological innovations --- Technology --- Underground Econom

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This paper discusses the impact of the rapid adoption of artificial intelligence (AI) and machine learning (ML) in the financial sector. It highlights the benefits these technologies bring in terms of financial deepening and efficiency, while raising concerns about its potential in widening the digital divide between advanced and developing economies.