Lagarde Sounds Alarm on AI Risks in Financial System

At the European Systemic Risk Board's (ESRB) tenth annual conference in Frankfurt, Christine Lagarde warned about the risks of artificial intelligence (AI) on the financial system.

The ESRB was created 15 years ago to address the global financial crisis and Europe's sovereign debt crisis. Now, it's facing a new challenge from AI, which is increasingly being used by significant euro area banks and EU securities market firms.

Lagarde noted that generative AI is widely used in finance, with nearly nine out of ten significant euro area banks using it. However, she expressed concern about the potential risks of agentic AI, where machines take on more autonomy and can pursue goals independently of human overseers.

The ESRB has identified three areas of risk: financial market trading, cyber resilience, and geopolitics. In financial market trading, Lagarde warned that AI agents may pursue goals in ways their human overseers did not intend or detect, potentially leading to misalignment and distorted prices.

In cyber resilience, the rapid advancement of AI could leave financial institutions with less time to contain attacks, making them more vulnerable to exploitation. The ESRB has already issued warnings about the cyber risks posed by frontier AI models.

Lagarde also highlighted the geopolitical implications of relying on AI models developed in countries like the United States and China. She noted that access to these models can be a matter of fundamental national security, especially in an environment of growing tensions.