The next financial crisis could start with an algorithm
With AI becoming embedded in financial institutions, there is a risk that a faulty model could trigger a chain reaction across banks and borders.
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The risk is not that AI becomes malicious, says the writer. The greater concern is that it becomes universally trusted without sufficient safeguards.
PHOTO: ISTOCKPHOTO
Hari Suciono
Financial crises have long spread through familiar channels: excessive leverage, fragile balance sheets, liquidity shortages and sudden shifts in market sentiment. The 1997 Asian financial crisis and the 2008 global financial crisis demonstrated how instability in one segment of the financial system can rapidly spread across institutions, markets and borders. Today, however, a new source of contagion is emerging. As artificial intelligence becomes deeply embedded in modern finance, future instability may spread not through banks alone, but through algorithms.
AI is no longer a futuristic concept in finance. Banks, asset managers, payment providers and fintech companies increasingly rely on it for credit assessment, fraud detection, customer service, investment decisions and risk management. According to the International Monetary Fund, AI could affect nearly 40% of jobs worldwide, with the financial sector among the industries expected to experience the most significant transformation. As AI adoption accelerates, financial systems are becoming faster, more efficient and more interconnected. Yet, efficiency can come with new vulnerabilities.