. com / article / amazon - ai - the - smart - persons - guide / ; and fei - fei li and jia li, “ cloud automl : making ai accessible to every business, ” the keyword ( google blog ), january 17, 2018, https : / / www. blog. google / topics / google - cloud / cloud - automl - making - ai - accessible - every - business /. sintef, “ big data, for better or worse : 90 % of world ’ s data generated over last two years, ” sciencedaily. com, may 22, 2013, https : / / www. sciencedaily. com / releases / 2013 / 05 / 130522085217. htm ; and ibm, “ 10 key marketing trends for 2017 ” ( 2017 ) ( on file with author ). executive office of the president, preparing for the future of artificial intelligence. - 3so it is no surprise that many financial services firms are devoting so much money, attention, and time to developing and using ai approaches. broadly, there is particular interest in at least five capabilities. 8 first, firms view ai approaches as potentially having superior ability for pattern recognition, such as identifying relationships among variables that are not intuitive or not revealed by more traditional modeling. second, firms see potential cost efficiencies where ai approaches may be able to arrive at outcomes more cheaply with no reduction in performance. third, ai approaches might have greater accuracy in processing because of their greater automation compared to approaches that have more human input and higher “ operator error. ” fourth, firms may see better predictive power with ai compared to more traditional approaches - - for instance, in improving investment performance or expanding credit access. finally, ai approaches are better than conventional approaches at accommodating very large and less - structured data sets and processing those data more efficiently and effectively. some machine learning approaches can be “ let loose ” on data sets to identify patterns or develop predictions without the need to specify a functional form ex ante. what do those capabilities mean in terms of how we bank? the financial stability board highlighted four areas where ai could impact banking. 9 first, customer - facing uses could combine expanded consumer data sets with new algorithms to assess credit quality or price insurance policies. and chatbots could provide help and even financial advice to consumers, ai tools are also likely to be useful for central banks and regulators in their responsibilities for supervision, financial stability, and monetary

largest banks submit living wills that describe how they could be resolved under bankruptcy. 12 and the federal reserve has mandated that systemically important banks meet total loss - absorbing capacity requirements, which require these firms to maintain long - term debt adequate to absorb losses and recapitalize the firm in resolution. these enhancements in resolvability protect financial stability and help ensure that the shareholders and creditors of failing firms bear losses. moreover, these steps promote market discipline, as creditors — knowing full well that they will bear losses in the event of distress — demand prudent risk - taking, thereby limiting the problem of too - big - to - fail. financial stability risks can also grow large outside the regulated banking sector, as amply demonstrated by the events of 2007 and 2008. in response, a number of regulatory changes affecting what is commonly referred to as the shadow banking sector have been instituted. a specific example of such risks, illustrative of broader developments, was the buildup of large counterparty exposures through derivatives between market participants and aig that were both inappropriately risk - managed and opaque. to mitigate the potential for such risks to arise again, new standards require central clearing of standardized over - the - counter derivatives, enhanced reporting requirements for all derivatives, and higher capital as well as margin requirements for noncentrally cleared derivatives transactions. 13 another important step was the congress ’ s creation of the financial stability oversight council ( fsoc ). the council is responsible for identifying risks to financial stability and for designating those financial institutions that are systemically important and thus subject to prudential regulation by the federal reserve. both of these responsibilities are important to help guard against the risk that vulnerabilities outside the existing regulatory perimeter grow to levels that jeopardize financial stability. 14 the financial system is safer the evidence shows that reforms since the crisis have made the financial system substantially safer. loss - absorbing capacity among the largest banks is significantly higher, with tier 1 common equity capital more than doubling from early 2009 to now. 15 the annual stress - testing exercises in recent years have led to improvements in the capital positions and riskmanagement processes among participating banks. large banks have cut their reliance on short - term wholesale funding essentially in half and hold significantly more high - quality, liquid assets. assets under management at prime institutional money market funds that proved susceptible to runs in the crisis have decreased substantially. and the ability of regulators to resolve a large institution has improved, reflecting both new