Bowman urges flexible AI supervision to expand financial inclusion
Federal Reserve Vice Chair for Supervision Michelle W. Bowman advocated for tailored regulation of artificial intelligence in banking, arguing that flexible oversight is essential to expand financial inclusion for underserved consumers without overburdening smaller institutions.
Alternative data and algorithms for credit
Artificial intelligence offers significant promise for expanding credit availability to unbanked and underbanked consumers through alternative data sets like cash flow history.
However, using artificial intelligence in direct lending decisions introduces complex legal compliance challenges that require clear supervisory expectations rather than rigid micromanagement.
As chair of the Financial Stability Board's Standing Committee on Supervisory and Regulatory Cooperation, Bowman highlighted a newly released report titled "Sound Practices for Responsible Adoption of Artificial Intelligence.
" The document gathers real-world adoption cases and seeks public feedback through July 22 to establish pragmatic, risk-tailored guardrails.
Tailoring rules for community banks
Supervisors must ensure that regulatory guidance does not inadvertently block smaller community banks from adopting modern financial technology.
Smaller institutions often lack the vast resources of global peers but need flexibility to implement artificial intelligence according to their specific risk profiles and business models.
Regulators should calibrate oversight by applying a lighter touch to lower-risk applications while encouraging banks to build on existing risk-management frameworks.
Principles over prescriptions
The Fed's pledge for flexible AI oversight offers essential encouragement for banking innovation.
Yet general supervisory promises rarely stop risk-averse examiners from halting novel projects in practice.
Without concrete operational guidelines, smaller lenders will continue to hesitate.