Banks Immerged in AI Competition for Countering Cyber Attacks: Barr

In a live-streamed cyber risk conference hosted by the Federal Reserve Bank of Cleveland, Michael Barr, the Federal Reserve's vice chair for supervision, sounded the alarm about potential cybersecurity risks for the banking sector due to the rapid growth of generative artificial intelligence (AI).

Barr highlighted the interconnected nature of the U.S. financial system, stating that a data breach at any firm, including smaller banks, could have devastating consequences for the entire sector. He emphasized the need for both small and large institutions to be vigilant about third-party relationships, particularly those moving to cloud-based solutions.

Barr also stressed the importance of managing third-party risks in the banking sector, stating that banks have a responsibility to ensure their vendors are properly managing cyber risk. He noted that generative AI could lead to an "arms race" between those using AI for attacks and those using it to block attacks in the financial sector.

To combat these potential threats, Barr emphasized the need for financial institutions to invest in generative AI to safeguard against cyberattacks. He also highlighted the importance of internal and external testing, and finding creative ways for banks to recover and resume operations with minimal client disruption in the event of a cyberattack.

Rohit Chopra, Director of the Consumer Financial Protection Bureau, also voiced concerns about the risks of generative AI from a consumer perspective, particularly in the context of customer care. Chopra's bureau is currently monitoring how generative AI could undermine or create risks in customized customer care due to the introduction of biases or the provision of incorrect information.

An interagency initiative launched by the Justice Department, Federal Trade Commission, and Equal Employment Opportunity Commission in April aims to crack down on "unchecked AI" in lending, housing, and employment. However, no specific actions or regulations in response to the potential cybersecurity risks posed by generative AI in the banking sector have been mentioned.

The Bundesaufsichtsbehörden are examining banks and institutional providers of generative AI involved in lending, housing construction, and employment within the framework of the interagency initiative launched in April 2023. Specific bank and institution names are not disclosed in the available information.

Barr did not specify any particular cyberattack scenarios or threats related to generative AI in the banking sector. He did, however, state that generative AI could be a significant concept for the economy, finance, and various aspects of economic life, but it will also have risks.

A cyberattack at a financial institution could disrupt the payment system and liquidity provision channels of the affected firm. If a bank needs to cut off its services to protect the system from a cyberattack, it could cause ripple effects that could lead to bank failures.

In light of these potential risks, Barr stressed the need for resiliency in critical service providers, with banks having a central role in ensuring this. The article does not provide information on any specific purchases of licensing rights related to AI technology.