Intelligent financial system: how AI is transforming finance

Inaki Aldasoro, Leonardo Gambacorta, Anton Korinek, Vatsala Shreeti and Merlin Stein

No 19181, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: At the core of the financial system is the processing and aggregation of vast amounts of information into price signals that coordinate participants in the economy. Throughout history, advances in information processing, from simple book-keeping to artificial intelligence (AI), have transformed the financial sector. We use this framing to analyse how generative AI (GenAI) and emerging AI agents as well as, more speculatively, artificial general intelligence will impact finance. We focus on four functions of the financial sy stem: financial intermediation, insurance, asset management, and payments. We also assess the implications of advances in AI for financial stability and prudential policy. Moreover, we investigate potential spillover effects of AI on the real economy, examining both an optimistic and a disruptive AI scenario. To address the transformative impact of advances in AI on the financial system, we propose a framework for upgrading financial regulation based on well-established general principles for AI governance.

Keywords: Artificial intelligence; generative AI; Financial system; Financial institutions (search for similar items in EconPapers)
JEL-codes: E31 J24 O33 O40 (search for similar items in EconPapers)
Date: 2024-06
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