Looking Ahead
Perhaps one of the most important early lessons is that not all potential consequences are knowable now — firms should be continually vigilant for new issues in the rapidly evolving area of AI. Throughout the history of banking, new products and processes have been an area where problems can arise. Further, firms should not assume that AI approaches are less susceptible to problems because they are purported to be able to "learn" or less prone to human error. There are plenty of examples of AI approaches not functioning as expected — a reminder that things can go wrong. It is important for firms to recognize the possible pitfalls and employ sound controls now to prevent and mitigate possible future problems.
For our part, we are still learning how AI tools can be used in the banking sector. We welcome discussion about what use cases banks and other financial services firms are exploring with AI approaches and other innovations, and how our existing laws, regulations, guidance, and policy interests may intersect with these new approaches. 27 When considering financial innovation of any type, our task is to facilitate an environment in which socially beneficial, responsible innovation can progress with appropriate mitigation of risk and consistent with applicable statutes and regulations.
As with other technological advances, AI presents regulators with a responsibility to act with thoughtfulness and perspective in carrying out their mandates, learning from the experience in other areas. As we move ahead in exploring the policy and regulatory issues related to artificial intelligence, we look forward to collaborating with a broad array of stakeholders.
1. I am grateful to Kelvin Chen and Carol Evans for their assistance in preparing this text. These remarks represent my own views, which do not necessarily represent those of the Federal Reserve Board or the Federal Open Market Committee. Return to text
2. Executive Office of the President, National Science and Technology Council Committee on Technology, Preparing for the Future of Artificial Intelligence (PDF) (Washington: Executive Office of the President, October 2016); and American Bankers Association, "Understanding Artificial Intelligence" (Washington: American Bankers Association, November 2018), https://www.aba.com/Tools/Function/Technology/Documents/understanding-artificial-intelligence.pdf. Return to text
3. Executive Office of the President, Preparing for the Future of Artificial Intelligence; and Financial Stability Board, Artificial Intelligence and Machine Learning in Financial Services (PDF) (Basel: Financial Stability Board, November 1, 2017). Return to text
4. See, e.g., Lael Brainard, "Where Do Consumers Fit in the Fintech Stack?" (speech at the FinTech Risks and Opportunities Conference, Ann Arbor, MI, November 16, 2017). Return to text
5. See, e.g., Brandon Vigliarolo, "Amazon AI: The Smart Person's Guide," TechRepublic, August 21, 2017, https://www.techrepublic.com/article/amazon-ai-the-smart-persons-guide/; and Fei-Fei Li and Jia Li, "Cloud AutoML: Making AI Accessible to Every Business," The Keyword (Google blog), January 17, 2018, https://www.blog.google/topics/google-cloud/cloud-automl-making-ai-accessible-every-business/. Return to text
6. SINTEF, "Big Data, for Better or Worse: 90% of World's Data Generated over Last Two Years," ScienceDaily.com, May 22, 2013, https://www.sciencedaily.com/releases/2013/05/130522085217.htm; and IBM, "10 Key Marketing Trends for 2017" (2017) (on file with author). Return to text
7. Executive Office of the President, Preparing for the Future of Artificial Intelligence. Return to text
8. AI tools are also likely to be useful for central banks and regulators in their responsibilities for supervision, financial stability, and monetary policy, although this is not addressed here. The 2017 Financial Stability Board report highlighted the potential use of AI tools by central banks and prudential authorities for applications ranging from systemic risk identification to detecting fraud and money laundering (Financial Stability Board, Artificial Intelligence and Machine Learning). Return to text
9. See Financial Stability Board, Artificial Intelligence and Machine Learning. See also, e.g., U.S. Department of the Treasury, A Financial System That Creates Economic Opportunities (PDF)(Washington: U.S. Department of the Treasury, June 3, 2018); Brainard, "Where Do Consumers Fit in the Fintech Stack?"; and American Bankers Association, "Understanding Artificial Intelligence." Return to text
10. See, e.g., Financial Stability Board, Artificial Intelligence and Machine Learning and National Consumers Law Center (on behalf of its low-income clients), California Reinvestment Coalition Consumer Action, Consumers Union, National Association of Consumer Advocates, U.S. PIRG, Woodstock Institute, World Privacy Forum, "Comments in Response to Request for Information Regarding Use of Alternative Data and Modeling Techniques in the Credit Process," Docket No. CFPB-2017-0005 (May 19, 2017); U.S. Department of the Treasury, A Financial System That Creates Economic Opportunities; and Carol A. Evans, "Keeping Fintech Fair: Thinking about Fair Lending and UDAP Risks," Consumer Compliance Outlook (Second Issue 2017), https://www.consumercomplianceoutlook.org/2017/second-issue/keeping-fintech-fair-thinking-about-fair-lending-and-udap-risks/. Return to text
11. Lael Brainard, "Where Do Banks Fit in the Fintech Stack?" (speech at the Northwestern Kellogg Public-Private Interface Conference, April 28, 2017). Return to text
12. Executive Office of the President, Preparing for the Future of Artificial Intelligence. Return to text
13. U.S. Department of the Treasury, A Financial System That Creates Economic Opportunities. Return to text
14. Board of Governors of the Federal Reserve System, "Guidance on Model Risk Management," Supervision and Regulation Letter SR Letter 11-7 (April 4, 2011). See also Andrew Burt, "Leave A.I. Alone," New York Times, January 4, 2018, https://www.nytimes.com/2018/01/04/opinion/leave-artificial-intelligence.html. Return to text
15. See, e.g., FFIEC Outsourcing Technology Services Booklet (June 2004); and Board of Governors, "Guidance on Managing Outsourcing Risk," Supervision and Regulation Letter SR 13-19/Consumer Affairs Letter CA 13-21 (December 5, 2013). Return to text
16. Board of Governors, "Risk-Focused Safety and Soundness Examinations and Inspections," Supervision and Regulation Letter SR 96-14 (May 24, 1996). Return to text
17. See, e.g., Eric Lipton, David E. Sanger, and Scott Shane, "The Perfect Weapon: How Russian Cyberpower Invaded the U.S.," New York Times, December 13, 2016, https://mobile.nytimes.com/2016/12/13/us/politics/russia-hack-election-dnc.html; and Cormac Herley,"Why Do Nigerian Scammers Say They Are from Nigeria?" Microsoft Research, June 1, 2012, https://www.microsoft.com/en-us/research/wp-content/uploads/2016/02/WhyFromNigeria.pdf, ("A less outlandish wording that did not mention Nigeria would almost certainly gather more total responses and more viable responses, but would yield lower overall profit. Recall, that viability requires that the scammer actually extract money from the victim: those who are fooled for a while, but then figure it out, or who balk at the last hurdle are precisely the expensive false positives that the scammer must deter.") Return to text
18. Brian Krebs, "The Year Targeted Phishing Went Mainstream," Krebs on Security, (August 18, 2018), https://krebsonsecurity.com/2018/08/the-year-targeted-phishing-went-mainstream/. Return to text
19. In a 2017 request for public comment, the Bureau of Consumer Financial Protection noted that alternative modeling techniques may offer consumer benefits, such as greater credit access, enhanced creditworthiness predictions, lower costs, and better service and convenience, but also highlighted consumer risks, such as privacy concerns, data quality issues, loss of the ability to correct errors, and discrimination. See Bureau of Consumer Financial Protection, "Request for Information Regarding Use of Alternative Data and Modeling Techniques in the Credit Process (PDF)," (Washington: Bureau of Consumer Financial Protection, February 14, 2017), Return to text
20. See, e.g., Lael Brainard, "FinTech and the Search for Full Stack Financial Inclusion," (speech at the Conference on FinTech, Financial Inclusion, and the Potential to Transform Financial Services at the Federal Reserve Bank of Boston, Boston, October 17, 2018). Return to text
21. Federal Trade Commission, "In FTC Study, Five Percent of Consumers Had Errors on Their Credit Reports That Could Result in Less Favorable Terms for Loans," news release, (February 11, 2013); Federal Trade Commission, "FTC Issues Follow-Up Study on Credit Report Accuracy," news release, (January 21, 2015); and Bureau of Consumer Financial Protection, Data Point: Credit Invisibles (PDF) (Washington: Bureau of Consumer Financial Protection, May 2015). Return to text
22. The primary federal statutes governing fair lending are the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA). See, also Lael Brainard, "Where Do Consumers Fit in the Fintech Stack?" (speech at the FinTech Risks and Opportunities Conference, Ann Arbor, MI, November 16, 2017). Return to text
23. U.S. Department of the Treasury, "Opportunities and Challenges in Online Marketplace Lending (PDF)" (Washington: U.S. Department of the Treasury, May 2016). Return to text
24. Jeffrey Dastin, "Amazon Scraps Secret AI Recruiting Tool That Showed Bias against Women," Reuters, October 9, 2018, https://www.reuters.com/article/us-amazon-com-jobs-automation-insight/amazon-scraps-secret-ai-recruiting-tool-that-showed-bias-against-women-idUSKCN1MK08G. Return to text
25. See generally ECOA section 701, 15 USC 1691; 12 CFR § 1002.9; FCRA section 615, 15 USC 1681m; and 12 CFR §§ 1022.70-75. Return to text
26. See, e.g., Nanette Byrnes, "An AI-Fueled Credit Formula Might Help You Get a Loan," MIT Technology Review (February 14, 2017), https://www.technologyreview.com/s/603604/an-ai-fueled-credit-formula-might-help-you-get-a-loan/. Return to text
27. See, e.g., U.S. Department of the Treasury, A Financial System That Creates Economic Opportunities; Brainard, "Where Do Banks Fit in the Fintech Stack?"; and Lael Brainard, "The Opportunities and Challenges of Fintech" (speech at the Conference on Financial Innovation at the Board of Governors, Washington, December 2, 2016). Return to text
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a process or set of rules to be followed in calculations or other problem-solving operations, especially by a computer."a basic algorithm for division"
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