02.19.25

Generative AI Heightens Risks, Barr Warns

by: Caitlin Mullen

Outgoing vice chair for supervision for the Federal Reserve Michael Barr warns that competitive pressure around incorporating generative artificial intelligence could result in greater danger in the financial industry. “Nonbanks may be more nimble and risk-forward in incorporating genAI into their operations, which may push intermediation to less-regulated, less transparent corners of the financial sector,” Barr says, possibly prompting institutions to" take a more aggressive approach to genAI adoption.” He notes that “the very attributes that make genAI attractive — the speed, automaticity and ability to optimize financial strategies — also present risk.”

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