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arXiv · 2407.17048

Artificial intelligence and financial crises

Jon Danielsson·Andreas Uthemann
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Abstract

The rapid adoption of artificial intelligence (AI) poses new and poorly understood threats to financial stability. We use a game-theoretic model to analyse the stability impact of AI, finding that it amplifies existing financial system vulnerabilities - leverage, liquidity stress and opacity - through superior information processing, common data, speed and strategic complementarities. The consequence is crises become faster and more severe, where the likelihood of a crisis is directly affected by how effectively the authorities engage with AI. In response, we propose that the financial authorities develop their own AI systems and expertise, establish direct AI-to-AI communication, implement automated crisis facilities and monitor AI use.

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Jon Danielsson, Andreas Uthemann. 2024-07-24. Artificial intelligence and financial crises. https://arxiv.org/abs/2407.17048

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