Artificial intelligence (A.I.) and machine learning tools can enable banks to significantly improve their credit underwriting practices, leading to healthier balance sheets and, ultimately, a safer banking system. But the risks these tools present cannot be ignored. As Federal Reserve Governor Lael Brainard recently cautioned, “the opaque and complex data interactions relied upon by A.I. could result in discrimination by race, or even lead to digital redlining.” The development and adoption of A.I. will need to be an area of thoughtful scrutiny by regulators in the near term.
Fed could require senior management to explain AI models A new era of accountability might see the Federal Reserve demand model explainability to keep financial system safe.