AI Poses Biggest Threat To Financial System And Wider Global Economy: Fed Survey

Respondents to a new Federal Reserve survey on risks to financial stability have cited AI as the biggest threat, ahead of risk asset correction and cyberattacks.

As part of the Fed's new financial stability report released on Friday, employees of the New York Federal Reserve Bank reached out to "professionals at broker-dealers, banks,
investment funds, and advisory firms" to ask them about their views on the "salient" risks to U.S. financial stability.

The study, conducted in September and October, found that 87% of respondents considered AI a "salient risk" to the "U.S. financial system and broader global economy." A substantially lower proportion of those surveyed cited risk asset correction (52%), higher long-term rates (48%), cyberattacks (43%) and fiscal debt sustainability (43%) as threats to global and domestic financial stability.

All five "events or conditions" cited concerned respondents in the latest survey more than they did in the spring, when the Fed last conducted the study. Then, only half of respondents considered AI a "salient risk," while 35% thought the same of risk asset correction and 30% did of fiscal debt sustainability.

Furthermore, only 20% deemed higher long-term rates and cyberattacks a threat at the time.

The report covers the timeframe leading up to October 28, just under a week before the midterm elections, in which concerns about AI were also a prominent issue.

Exit polls showed that AI and critical AI infrastructure - data centers - had played either a "crucial" or "major" role in determining the votes of more than half of Americans.

Opposition to, as opposed to support for, the technology seems to have been the consensus opinion at the ballot box. NBC revealed that 76% of the midterm voters it polled would oppose the construction of an AI data center in their community, whilst less than 1 in 4 said that AI would "do more to help society," whereas 57% said the opposite was true.

The Fed's respondents aren't the only ones raising the issue of the risks which AI potentially poses to the financial system.

Earlier this week, Governor of the Bank of England Andrew Bailey spoke about the technology at the SIAF Lecture Series at Zurich University.

"I am an optimist on AI, digital technology and most probably robotics too. They have the potential to lift the sustainable growth rates of many economies through raising productivity growth," Bailey asserted.

However, the British banker also cautioned that "Frontier AI has increased the risk from cyber-attacks" and warned of the "financial stability risks" associated with an "asset price bubble in AI."

Bailey identifies market overvaluation of uncertain future returns from AI, returns taking longer to be realized than anticipated, a failure to account for the inevitable collapse of certain AI competitors - "[pricing] everyone ... to be a winner" - and a potential decline in public trust in the technology as four key ways in which the bubble could "burst and potentially cause a problem" for financial stability.