Is Artificial Intelligence a game-changer for banks?
Frankfurt School Verlag / 15 July 2019
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Master of Finance Class of 2019
Matthias studies in the Master of Finance program at Frankfurt School where he enjoyed several courses related to risk management. While studying at Frankfurt School, he worked for Commerzbank in market risk valuing various derivatives such as interest rate swaps, swaptions, and options. He currently works as a risk consultant for FIS, the world’s leading technology provider for the financial services industry.

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This year I got the chance to participate in the conference for the “Gesamtbanksteuerung 2019”, with the central topics regulation, digitalization, and Artificial Intelligence (AI).

How are regulation and digitalization affecting banks?

As always, the “Gesamtbanksteuerung 2019” conference was full of high caliber speakers having distinguished backgrounds ranging from consulting, banks, to the European Central Bank (ECB). Professor Dr. Nils Stieglitz, President and Managing Director at Frankfurt School of Finance and Management, started the opening speech with a warning. Financial institutions are at risk of losing their business model due to disruptive technologies such as AI and blockchain.

Dr. Matthias Danne, CFO of DekaBank, discussed new developments from Basel III. He showed multiple ratios over time across banks such as the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). The next speaker, Thomas Groß, CRO of Landesbank Hessen-Thüringen, demonstrated that not only banks but also regulators are concerned about the current digital state of the banks. Many banks are therefore looking for cooperation with various fintech companies, with more than 60 % of fintech companies working already together with banks.

Is artificial intelligence a game-changer?

The afternoon debate focused on AI and their applications, led by Prof. Dr. Gregory Wheeler, Director of the Centre for Human and Machine Intelligence of Frankfurt School of Finance and Management.

Patrick Maccury, Head of Prudential Domain Services Division, ECB spoke about his view of AI and the applications for regulators. While most discussions emphasized the high importance of AI, he indicated that AI could be some hype and not necessarily a game-changer. In his experience, many “AI-winters” and “AI-summers” already passed by, meaning AI was either a hot topic or often ignored by the public and the companies. There are many obstacles to implementing AI, such as moral questions as well as finding qualified employees across different disciplines such as statistics, economics, and computer science.

After that, the panel discussion emphasized the importance of cloud technology for AI and how machine learning can increase the value for both clients and banks. AI may detect anomalies in payments, detect fraud as well as wrong data quicker and easier than humans can for a fraction of the costs. Although the cases for using AI are potentially unlimited, it is essential that it remains clear what the decision is based upon to avoid discrimination and ensure public trust.

Finally, Vahe Andonians, Serial Entrepreneur and Senior Lecturer at Frankfurt School of Finance and Management showed an outlook for the enormous change in the labor market and the accompanying challenges.

Conclusion and outlook

In a nutshell, we may conclude that it often seems that banks lack digitalization; however, banks and regulators are aware of it and are willing to change that. While AI might (arguably) be the biggest game-changer for the financial sector, the consequences are yet unclear.

It could be that many currently hyped technologies might disappear with new, unexpected technologies replacing them. Which technologies could they be? A new blockchain technology? A new machine learning technique? Quantum computing? I am already looking forward to the next discussion in 2020!