AI risks financial stability, warns Indian central bank governor

As a seasoned researcher with a keen interest in the intersection of technology and finance, I find the recent concerns expressed by central banks about AI’s impact on financial stability both intriguing and concerning. Having closely observed the rapid advancements in AI and its applications across various sectors, I can attest to the transformative potential it holds. However, as the RBI Governor, Shaktikanta Das, rightly pointed out, these advancements come with their own set of challenges that need to be addressed proactively.


The Indian Reserve Bank (RBI) has voiced worries regarding how artificial intelligence might influence financial security, aligning with other significant banking bodies in issuing warnings.

At a gathering held in New Delhi on October 14th, Reserve Bank of India’s Governor, Shaktikanta Das, addressed concerns about the growing adoption of artificial intelligence (AI) and machine learning within the financial sector, as reported by Reuters.

Indian central bank AI concerns

As a crypto investor, I’ve noticed the potential dangers lurking in the dominance of a handful of tech giants in our sector. If their AI systems were to falter or face disruptions, it could spark systemic risks that might impact the entire industry.

While AI helps improve customer service and reduce costs, Das warned of other new vulnerabilities, including increasing amounts of cyberattacks, data breaches and the challenge of auditing opaque AI-driven algorithms.  

Das’s concerns echo those of other global financial institutions.

According to a report published in July, the European Central Bank (ECB) expressed its worries about how Artificial Intelligence (AI) might influence financial security.

According to the European Central Bank, although AI offers numerous advantages, if the supply of AI solutions becomes overly concentrated and these tools are extensively utilized within the financial industry, there could be an enhancement in operational risks, market concentration, and “too-big-to-fail” externalities. In other words, they warned that such a scenario could lead to increased vulnerabilities and systemic risks.

“Widespread AI adoption could heighten the potential for herd behaviour, market correlation, deception, manipulation and conflicts of interest.”

It also warned that widespread AI adoption could lead to herd behavior, market manipulation and inflationary pressures.

One of the examples given is the inflated demand for energy worldwide due to the computational power required for sustaining AI, pushing up energy costs. 

AI-driven financial stability challenges

Lately, on September 20th, the Canadian Central Bank too shared their apprehensions about Artificial Intelligence (AI) and potential threats to financial stability in a published report.

The report indicated that increased use of AI might potentially cause concerns related to financial security, given the fact that banks and financial organizations are integrating AI to strengthen client service, boost compliance and risk management, as well as for more accurate credit and liquidity risk evaluation.

Furthermore, it was indicated that the potential dangers could cluster within several external service vendors and propagate across the entire financial network.

“The predictive ability of AI can deteriorate unexpectedly, suffer from hallucinations or be biased and discriminatory. And AI makes everything move faster, which could amplify severe market runs and herding behavior in times of market volatility.”

In my role as an analyst, I’m keenly aware that artificial intelligence (AI) is increasingly making its way into the financial sector. Recognizing this, central banks and financial regulators worldwide are advocating for a collaborative approach among financial institutions, regulatory bodies, and technology innovators. This collaboration aims to address potential risks and ensure the long-term robustness of the global financial system.

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2024-10-14 17:33