Fed Cracks Down on AI Risks in Banking Sector

The Federal Reserve is taking steps to ensure US banks protect themselves against AI-related cyber threats. The central bank has been monitoring banks' use of AI for nearly a decade and has seen an increase in adoption across all sizes. However, only the largest and most systemically important banks have the ability to use frontier AI models.

Michelle Bowman, the Fed's vice chair of supervision, is working with service providers for smaller banks to ensure they maintain safe and compliant products. She has also had conversations with core service providers like Mastercard (MA) and Visa (V), and is working on the next iteration of that with cloud service providers.

The Financial Stability Board recently proposed practices for the financial services industry to use as it integrates AI, which will help regulators supervise how financial institutions use AI. Treasury Secretary Scott Bessent said the Trump administration has been working on artificial intelligence safeguards since the release of Mythos in April.