“And we recommend building further inter-agency expertise to analyse and monitor potential systemic risks associated with the use of AI in the financial services sector while facilitating innovation,” Yellen said.

FSOC, which also includes the heads of the Federal Reserve and Securities and Exchange Commission, was set up after the 2008 financial crisis to deal with systemic risks.

It has previously flagged a number of risks that AI could introduce or amplify at financial institutions, including its ability to apply discriminatory bias in lending, especially for AI programs that operate as “black boxes,” making their output difficult to explain.

This will be the council’s last annual report published under the Biden Administration. The outgoing Treasury chief has often defended the role of regulation in supporting a resilient financial system and took aim at the state of financial monitoring at the end of President-elect Donald Trump’s first term.

In her remarks, Yellen reiterated her views on the importance of a strengthened FSOC, including through increased staff, and the development of tools such as the analytic framework for financial stability risks.

– With assistance from Viktoria Dendrinou and Katherine Doherty.

– Bloomberg