On December 14, the Financial Stability Oversight Council (FSOC) issued its 2023 Annual Report, addressing financial stability risks and providing recommendations. CFPB Director Rohit Chopra emphasized the need for action, not just reports, regarding digital technology’s impact on financial stability. The report affirms the overall resilience of the U.S. banking system but highlights regional banks’ higher exposure to commercial real estate loans.
Climate-related financial risks are identified as a threat, encompassing physical (e.g., floods) and transitional (e.g., policy shifts) risks. The FSOC notes a rise in climate disaster events, emphasizing the importance of monitoring third-party service providers, especially fintech firms, due to potential risks in core processing, payment services, and cloud computing. The report underscores human error as a significant factor in cloud breaches.
Notably, the FSOC is the first major regulator to identify Artificial Intelligence (AI) as an “emerging vulnerability” in the U.S. financial system. While acknowledging AI’s benefits, such as fraud detection and cost reduction, the report emphasizes the need for thoughtful implementation and supervision to mitigate potential risks.
By FCCT Editorial Team
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