Federal Reserve Vice Chair for Supervision Michelle W. Bowman emphasized that regulatory frameworks must support, rather than hinder, banks’ use of artificial intelligence (AI) to promote financial inclusion. Speaking at the Fed’s Financial Inclusion Conference, Bowman outlined how AI can help expand credit availability to unbanked and underbanked communities by improving lenders’ ability to assess creditworthiness with greater precision.
Bowman acknowledged that AI-driven credit decisions introduce complex legal compliance challenges, underscoring the need for clear supervisory guidance that differentiates between various AI applications based on their associated risks. She advocated for a proportional regulatory approach that enables smaller banks to innovate and adopt AI in ways aligned with their unique business models, with lighter oversight for lower-risk uses of AI.
Financial institutions are encouraged to build on their existing risk management systems by integrating tailored controls responsive to the specific risks posed by their AI deployments. Bowman noted her role as chair of the Financial Stability Board’s Standing Committee on Supervisory and Regulatory Cooperation, which recently published a report addressing AI governance and risk mitigation for financial institutions. This report, open for public comment through late July, provides recommended practices to manage the ethical, operational, and third-party risks linked to AI integration.
Highlighting nearly a decade of dialogue between regulators and banks on AI, Bowman stressed the importance of ongoing collaboration to keep pace with innovation while protecting financial system safety and soundness. Recent industry analyses show that financial firms have chiefly adopted AI for applications where results are predictable and potential errors manageable, such as credit scoring, revenue forecasting, and sales optimization.