Fed’s Bowman: AI can expand credit access
Bloomberg News
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- Key insight: The Federal Reserve’s vice chair for supervision sees AI as an opportunity for expanding credit access and facilitating other innovations in the banking sector.
- Expert quote: “We can provide clarity on our expectations. But, ultimately, the decision of when and how to innovate rests with each bank and its management. They know their customers, their communities and their risk appetite better than we do.” —Federal Reserve Vice Chair for Supervision Michelle Bowman
- Forward Look: Through her work with the Financial Stability Board, Bowman is encouraging financial regulators around the world to take a hands-off approach to AI oversight.
The Federal Reserve’s top regulator sees artificial intelligence as a means for expanding access to consumer credit.
In brief remarks delivered at an event on financial inclusion Tuesday afternoon, Fed Vice Chair for Supervision Michelle Bowman championed the technology as a game changer for banks and their customers.
“AI applications hold real promise for expanding access to financial services and to help banks more effectively reach low- and moderate-income consumers,” Bowman said. “For example, AI can assist in expanding the availability of credit.”
Bowman has touted the potential for AI to be a source of innovation in several previous speeches, but Tuesday’s remarks were the first time she called out its ability to expand credit access. She explained that the technology could be used to expand the type and volume of data banks consider when evaluating a potential customer’s creditworthiness.
She noted that using AI for credit evaluations would open banks to greater legal scrutiny than other applications, but said it was not regulators’ place to say whether banks should or should not engage in this — or any other — use case.
“We can create a supportive regulatory environment by being receptive to new ideas and technologies. We can provide clarity on our expectations. But, ultimately, the decision of when and how to innovate rests with each bank and its management,” she said. “They know their customers, their communities and their risk appetite better than we do.”
In her remarks, Bowman highlighted the Financial Stability Board’s recent report on sound practices for AI use. Bowman serves as the chair of the international body’s standing committee on supervision and regulatory cooperation.
The report draws on current, real-world AI applications and provides “practical guidance that institutions can adapt to their specific circumstances and use cases,” she said, adding that it advocates an oversight approach that is flexible and
“Financial institutions should leverage their existing risk-management frameworks, adding appropriate enhancements and controls tailored to the specific risks that each AI application presents,” she said.
In this speech, as in others, Bowman struck a largely optimistic view of the emerging technology as a driver of growth and productivity. Fed Chair Kevin Warsh, in
“Over the long term, I think the U.S. is the winner,” Warsh said. “Over the long term, I think there is material improvement in productivity, which should have a material improvement, ultimately, in wages and the strength of the economy. But the long term can be quite far out, and we’ve got to monitor things month by month, quarter by quarter as we get there.”
Other policymakers have taken a more two-handed approach to the technology. Speaking at the same event as Bowman on Tuesday, Fed Gov. Michael Barr laid both the best- and worst-case scenarios for the technology as it takes root in both the broader economy and the banking system.
On one hand, Barr said, the technology could improve overall productivity, reduce barriers to entry into high-earning fields and democratize the most profitable sectors of the economy. On the other hand, he said, it could also exacerbate the economic inequality that has grown in American society during the information-technology age and concentrate even more wealth and resources in the hands of a small segment of the population.
Unlike Bowman’s laissez faire approach to AI adoption, Barr said the key to ensuring the optimal outcome for the AI era is implementing the right set of policies around the technology.
“We have heard many bold pronouncements about what AI will be able to do in the near and distant future,” he said. “Some will likely come to pass and others won’t. But future inequality will depend not only on what AI can do, but on what we choose to do with AI.”
