High inflation and rising interest rates make the risks to financial stability tangible and visible. This is what De Nederlandsche Bank says in its ‘Financial Stability Report’. Regulator AFM and the CPB have also published comparable risk analyses. However, we already know a lot about what the institutions write, says editor-in-chief Jasper Lukkezen of the economists magazine ESB.
“It doesn’t pay much,” says Lukkezen. After all, we already know a lot about what’s in the reports, and Lukkezen finds the report from the Dutch Financial Market Authority useful. Notably, the AFM calls artificial intelligence (AI) a risk to financial stability. According to the AFM, this involves trading with algorithms, algorithmic trading. Algorithms can trade, but then they trade with each other. And this can lead to flash crashes.
“Nobody understands that anymore, and that’s also the biggest problem for supervision,” says Lukkezen. Because if traders don’t understand why algorithms work, neither can they explain it to a regulator. Consequently, supervision is impossible.
There is also a second risk artificial intelligence do, i.e. when artificial intelligence is used in customer acceptance by banks. Understanding whether someone has received money legally or whether or not an account holder is evading sanctions is very challenging for banks. So they want to use artificial intelligence, but the regulator doesn’t know if it works well. According to Lukkezen, this can come at the expense of trust.
A third risk arose because the regulation of the energy market arrived at the European level. “This can lead to the energy market not working as well and that also creates a financial problem.” Finally, the regulator warns that the government should keep a close eye on the regulation of cryptocurrencies.
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
