Artificial intelligence and financial crises

Danielsson, Jon ORCID: 0009-0006-9844-7960 and Uthemann, Andreas ORCID: 0000-0002-7942-8530 (2025) Artificial intelligence and financial crises. Journal of Financial Stability. ISSN 1572-3089 (In Press)

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Abstract

The rapid adoption of artificial intelligence (AI) poses new and poorly understood threats to financial stability. We use a game-theoretic model to analyse the stability impact of AI, finding that it amplifies existing financial system vulnerabilities — leverage, liquidity stress and opacity — through superior information processing, common data, speed and strategic complementarities. The consequence is crises become faster and more severe, where the likelihood of a crisis is directly affected by how effectively the authorities engage with AI. In response, we propose that the financial authorities develop their own AI systems and expertise, establish direct AI-to-AI communication, implement automated crisis facilities and monitor AI use.

Item Type:	Article
Divisions:	Finance Systemic Risk Centre
Subjects:	H Social Sciences > HG Finance Q Science > QA Mathematics > QA75 Electronic computers. Computer science
Date Deposited:	07 Jul 2025 12:36
Last Modified:	10 Jul 2025 14:39
URI:	http://eprints.lse.ac.uk/id/eprint/128657

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