Two Fed Views on AI: Bowman Favors Allowing Innovation; Barr Worries About Widening Inequality
Federal Reserve Board Vice Chair for Supervision Michelle Bowman urged clarity to let banks innovate for financial inclusion, while FRB Governor Michael Barr considered how AI will affect inequality.
The two officials' remarks came at "Next-Gen Financial Inclusion," the FRB's third annual Financial Inclusion Conference, in Washington.
Ms. Bowman said banks are central to financial inclusion and that responsible innovation can lower costs, widen product access, and reach underserved consumers. She said the FRB should encourage responsible innovation, adding that the FRB can offer a supportive environment and clear expectations but that the choice of when and how to innovate rests with each bank.
Ms. Bowman then focused on AI, noting that it can expand access to financial services, including credit for lower- and moderate-income consumers. She said AI that directly affects credit decisions raises larger legal-compliance challenges than other uses. She added that the FRB should give clearer guidance on the oversight appropriate for different AI uses, with lighter treatment for those that are lower-risk. Ms. Bowman said that smaller banks may lack the resources of larger peers and that guidance should not block them from innovating. She said firms should build on their existing risk-management frameworks with tailored controls.
Mr. Barr said AI could widen inequality in two ways: (i) it could displace labor, hitting new entrants and even younger college graduates, but workers who use advanced AI could gain most, and (ii) it could concentrate market power in a few large firms, or "hyperscalers," with returns flowing to the owners of AI.
He said AI could also narrow inequality by acting as a productivity tool that makes certain skills available for less experienced workers and by creating new jobs.
Mr. Barr said the outcome will turn on choices in education, job training, competition, and tax policy, which he said are for other policymakers to consider and decide, not the FRB.