BOJ’s Ueda warns AI could bring new financial stability risks

By Leika Kihara

TOKYO (Reuters) -Bank of Japan Governor Kazuo Ueda said on Thursday central banks must be mindful that technological advances, such as in the area of artificial intelligence (AI), could bring new risks to financial stability.

The growing use of online banking and social media has heightened the risk that concern over a bank’s credit status could spread rapidly and trigger a rush of deposit withdrawals, Ueda said.

The rise of generative AI also brings specific challenges such as data protection concerns, he added.

“As financial services grow more diverse and complex, the channels of risk transmission have become less transparent, and current financial regulations may not be fully equipped to manage new types of financial services,” Ueda said.

“This environment underscores the need for operational resilience, including robust management of cybersecurity and third-party risks,” he said in a speech at the Paris Europlace Financial Forum in Tokyo.

Ueda said it was crucial for central banks and other authorities to monitor evolving financial intermediation functions, encourage relevant entities to establish sound governance, and build management frameworks to address new risks.

“A regulatory and supervisory framework that adapts to technological advancements is also essential,” he added.