On May 30, 2024, Deputy Assistant Secretary for the Financial Stability Oversight Council (FSOC), Sandra Lee, delivered remarks at the Conference on Artificial Intelligence and Financial Stability. The event was hosted by FSOC in partnership with the Brookings Institution at the Treasury Department and was also accessible via webcast.
Lee highlighted that this is the first time in nearly a decade that FSOC has hosted such a conference. She emphasized the Council's ongoing mission to monitor U.S. financial system stability, a mandate established by the Dodd-Frank Wall Street Reform and Consumer Protection Act following the 2008 global financial crisis.
"The FSOC brings together federal financial regulators and state regulators to identify risks to financial stability, promote market discipline, and respond to emerging systemic threats," Lee stated.
In recent years, FSOC has focused on understanding evolving risks and assessing vulnerabilities within the financial system. Their work includes addressing climate-related financial risk, digital assets, nonbank financial intermediation, Treasury market resilience, and financial market utilities. Last November, FSOC published a new analytic framework for monitoring potential risks to financial stability.
The increasing use of artificial intelligence (AI) in financial services was identified as a vulnerability for the first time in FSOC's 2023 Annual Report. The report recommended monitoring AI developments closely to ensure oversight structures remain effective against emerging risks. It also advised that financial institutions and regulatory authorities enhance their expertise in AI innovation.
"This conference is an outgrowth of the Council’s work on AI," Lee noted. "Our aim is to promote thoughtful discussion on the risks associated with AI and how to mitigate these risks while still harnessing AI’s benefits."
The conference featured several key speakers including Michael Hsu, Acting Comptroller of the Currency. Hsu discussed potential systemic risk implications from AI usage in banking and finance both as a beneficial tool and as a harmful weapon. He also addressed accountability challenges with AI and advocated for a shared responsibility framework for AI safety.
Three panel discussions were scheduled: one on potential financial stability risks posed by AI; another on promoting safe adoption of AI across public and private sectors; and a third featuring regulatory perspectives from staff of three FSOC member agencies.
The second day of discussions at Brookings Institution would continue exploring topics such as data quality for AI models and intersections between tech sectors and finance.
Lee concluded her remarks by introducing Janet Yellen, Secretary of the Treasury: "Secretary Yellen is chair of the FSOC... I can think of no better person to set the tone for these next two days of collaboration, learning, and discussion."
