Artificial intelligence and financial crises

Jon Danielsson and Andreas Uthemann

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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.

Keywords: crises; systemic risk; AI (search for similar items in EconPapers)
JEL-codes: F3 G3 (search for similar items in EconPapers)
Pages: 7 pages
Date: 2025-09-30
New Economics Papers: this item is included in nep-ain and nep-rmg
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Published in Journal of Financial Stability, 30, September, 2025, 80. ISSN: 1572-3089

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http://eprints.lse.ac.uk/128657/ Open access version. (application/pdf)

Related works:
Working Paper: Artificial intelligence and financial crises (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:128657

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