Rather than replacing humans, the power of AI lies in its ability to “free up more time for human analysis and judgement in an increasingly complex world”. This was the message in a recently published article by Elizabeth McCaul, a member of the Supervisory Board of the European Central Bank (ECB). If the risks of AI are understood and managed, she believes that it can be used to effectively and responsibly enhance the work of banking supervisors.

According to Elizabeth McCaul, ECB recognised at “an early stage” the need to “embrace digital innovation and AI”, and this is evident in its investment in supervisory technology (SupTech) applications. She claimed that a total of “14 applications and platforms have been developed in the past three years, serving more than 3,500 users across the ECB and the national supervisors”.

Examples of SupTech include Athena, which “translates and analyses the content of supervisory documents”; GABI, which “generates and optimises regression models on a large scale”; and NAVI, which “generates network diagrams to illustrate relationships in the data”.

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Filling a skill gap

Elizabeth McCaul singled out generative AI as particularly exciting, noting that the ECB “collected more than 40 potential use cases from supervisors and have developed several proofs of concept that demonstrate the potential of generative AI” in 2023.

An interesting use case for generative AI can be witnessed in Agora, the ECB’s single data lake for European banking supervision. It requires users to “have some understanding of programming” for access. However, by using generative AI to translate natural language queries into scripts, “supervisors with no programming experience can ask Agora where to find very specific data points”.

To conclude, Elizabeth McCaul emphasised the importance of training courses to keep supervisors up-to-date on recent technological developments and regulations, as well as the development of clear guidelines for the use of AI in banking supervision. “These tools are not intended to replace supervisors”, and “human judgement and expertise are and always will be key to ensuring a reliable outcome,” she wrote.