Interesting intervention of Michael S. Barr, Member Board of Governors of the Federal Reserve System, at Federal Reserve Bank of San Francisco.
Michael S. Barr opens by highlighting how generative AI (Gen AI) can transform banking. Banks, being data-heavy institutions, can use Gen AI to enhance everything from credit underwriting to customer service. Gen AI’s capabilities go beyond traditional AI by handling vast and diverse data sources and mimicking human-like interactions. In trading, it can boost the speed and quality of decision-making by building on existing algorithmic tools.
Despite the promise, Gen AI hasn't been fully adopted in banking. Why? First, banks are cautious due to their regulated nature. Second, the tech isn’t mature—hallucinations, inconsistent outputs, and explainability issues pose real risks. Third, there are security concerns: unauthorized access and misuse of customer data are major threats. Lastly, many banks have legacy tech systems and siloed data, making integration difficult.
Barr contrasts fintechs and banks:
Fintechs are young, agile, and tech-native. They build with modern stacks and can adapt quickly.
Banks have scale, trust, and data depth, but are slower to move.This creates a complementary dynamic—fintechs bring speed, banks bring reach and resilience.
Barr argues that collaboration or competition between banks and fintechs can drive Gen AI adoption:
Competition forces banks to modernize.
Partnerships allow banks to leverage fintech innovation while fintechs gain access to scale and capital. This synergy could accelerate AI adoption responsibly, benefiting consumers with better products and services.
AI adoption must come with clear accountability:
Banks must manage AI-related risks in their operations and demand transparency from fintech partners.
Fintechs should build AI tools that align with banking standards—especially on bias, explainability, and data privacy.
Regulators must stay informed, update guidance, and consider adopting Gen AI themselves to better understand its impact.
Barr closes by calling for collaborative leadership. Banks, fintechs, and regulators must foster innovation while building strong guardrails. The goal is a sound, fair, and resilient financial system that harnesses Gen AI’s benefits and mitigates its risks.
Interesting intervention of Michael S. Barr, Member Board of Governors of the Federal Reserve System, at Federal Reserve Bank of San Francisco.
Michael S. Barr opens by highlighting how generative AI (Gen AI) can transform banking. Banks, being data-heavy institutions, can use Gen AI to enhance everything from credit underwriting to customer service. Gen AI’s capabilities go beyond traditional AI by handling vast and diverse data sources and mimicking human-like interactions. In trading, it can boost the speed and quality of decision-making by building on existing algorithmic tools.
Despite the promise, Gen AI hasn't been fully adopted in banking. Why? First, banks are cautious due to their regulated nature. Second, the tech isn’t mature—hallucinations, inconsistent outputs, and explainability issues pose real risks. Third, there are security concerns: unauthorized access and misuse of customer data are major threats. Lastly, many banks have legacy tech systems and siloed data, making integration difficult.
Barr contrasts fintechs and banks:
Fintechs are young, agile, and tech-native. They build with modern stacks and can adapt quickly.
Banks have scale, trust, and data depth, but are slower to move.This creates a complementary dynamic—fintechs bring speed, banks bring reach and resilience.
Barr argues that collaboration or competition between banks and fintechs can drive Gen AI adoption:
Competition forces banks to modernize.
Partnerships allow banks to leverage fintech innovation while fintechs gain access to scale and capital. This synergy could accelerate AI adoption responsibly, benefiting consumers with better products and services.
AI adoption must come with clear accountability:
Banks must manage AI-related risks in their operations and demand transparency from fintech partners.
Fintechs should build AI tools that align with banking standards—especially on bias, explainability, and data privacy.
Regulators must stay informed, update guidance, and consider adopting Gen AI themselves to better understand its impact.
Barr closes by calling for collaborative leadership. Banks, fintechs, and regulators must foster innovation while building strong guardrails. The goal is a sound, fair, and resilient financial system that harnesses Gen AI’s benefits and mitigates its risks.