AI emerges as new financial stability test for US: Bessent

Washington:Artificial intelligence is becoming a new focus for US financial regulators. Treasury Secretary Scott Bessent told Congress that AI can strengthen markets, but it also poses risks that require close monitoring.

Bessent was testifying before the House Financial Services Committee on the Financial Stability Oversight Council’s 2025 annual report. He said AI is now one of the four top priorities for protecting the financial system. The others are Treasury markets, cybersecurity, and regulatory modernisation.

“The council is prioritising the responsible use of artificial intelligence to strengthen financial stability,” Bessent said.

He said regulators are working with public and private partners. The goal is to monitor risks while improving resilience across the system.

Bessent said AI is spreading quickly across banks and financial markets. Firms are using it for risk management, compliance and operations. But he warned that poorly understood or unchecked use could worsen shocks during times of stress.

The FSOC report reflects a shift in approach, he said. Regulators are moving away from broad warnings. They are focusing instead on specific vulnerabilities that could trigger systemic disruption.

“We’re tuning out the noise to concentrate on the issues that matter most for US financial stability,” Bessent said.

Democratic lawmakers voiced concern over AI-driven decisions. They warned that opaque algorithms could introduce bias and discrimination, especially in lending and credit decisions. They said similar blind spots had contributed to past financial crises.

Bessent acknowledged the risks. But he said FSOC’s mandate is limited. “It could be a concern,” he said when asked about explainability in AI systems. “But we don’t view it as a priority for financial stability.”

Republican lawmakers largely backed the administration’s approach. They said innovation should not be choked by premature regulation. They argued that AI can help detect fraud, improve customer service and strengthen compliance.

Bessent said regulators are also watching concentration risks. Heavy reliance on a few AI vendors or systems, he said, could amplify damage from cyberattacks or technical failures.

“Nation-state actors and criminal groups continue to target our financial institutions and infrastructure,” he said.

Bessent added that FSOC is coordinating with international counterparts. He said AI risks are global and require cooperation across borders to avoid regulatory gaps.

IANS