The story is a clear example of how artificial intelligence can produce bad outcomes for all concerned. It also offers a case study for exploring the root causes that lead to bad outcomes - and so in turn offers insights for boards on how to govern the introduction of artificial intelligence. The art of managing technology is an increasingly important strategic issue facing boards, financial services companies included. And since it is a mantra amongst banking regulators that governance failings are the root cause of almost all prudential failures, this is also a topic of increased concern to prudential regulators. In my comments, I will provide a quick overview of the scale of introduction of artificial intelligence in UK financial services; then make three observations about it, and suggest three principles for governance derived from them. Artificial Intelligence Technological innovation is inevitable and welcome. As the Governor noted during this year’s UK Fintech Week,1 we are shifting towards a new economy, which is powered by big data, advanced analytics, smartphone technology and more distributed peer-to-peer connections. This new economy will go hand in hand with fundamental changes to the structure and nature of the financial system supporting it. Indeed some of the largest international investment banks are now declaring that they are technology companies with banking licences. Some of the most important recent developments in technology are associated with the introduction of automation – by which I mean the replacement of humans by machines for conducting repetitive tasks.

But it is estimated to stand at anything up to $ billion in 2003 prices. Across Asia, growth rates were reduced by SARS by between 1 and 4 percentage points. Yet in the final reckoning, morbidity and mortality rates were, by epidemiological standards, modest. Only around 8000 people were infected and fewer than 1000 died. On 15 September 2008, Lehman Brothers filed for Chapter 11 bankruptcy in a New York courtroom in the United States. Panic ensued. Uncertainty about its causes and contagious consequences brought many financial markets and institutions to a standstill. The market for Credit Default Swaps (CDS) froze, as Lehman was believed to be counterparty to around $ trillion of CDS contracts. Media and modern communications fed this frenzy and transmitted it across markets. Banks hoarded liquidity for fear of lending to infected banks, causing gridlock in term money markets, spreads on lower-rated companies’ bonds spiked and there was an effective boycott of the remaining large US investment banks. Professor Paul Krugman, Nobel prize winner in economics, commented: “Letting Lehman fail basically brought the entire world capital market down.” The macroeconomic impact of Lehman Brothers’ failure will never be known with any certainty. IMF forecasts of global growth for 2009 have been revised down by over 5 percentage points since Lehman’s failure. Yet in the final reckoning, the direct losses from Lehman’s failure seem likely to be relatively modest. Net payouts on Lehman’s CDS contracts amounted to only around $ billion. These similarities are striking. An external event strikes.