Intelligent Financial System: How AI Is Transforming Finance

At the core of the financial system is the processing and aggregation of vast amounts of information into price signals that coordinate participants in the economy. Throughout history, advances in information processing, from simple bookkeeping to artificial intelligence (AI), have transformed the financial sector.

This study uses this framing to analyze how generative AI (GenAI) and emerging AI agents as well as, more speculatively, artificial general intelligence will impact finance. It focuses on four functions of the financial system: financial intermediation, insurance, asset management and payments. It also assesses the implications of advances in AI for financial stability and prudential policy. Moreover, it investigates potential spillover effects of AI on the real economy, examining both an optimistic and a disruptive AI scenario. To address the transformative impact of advances in AI on the financial system, the paper proposes a framework for upgrading financial regulation based on well-established general principles for AI governance.