AI & Banking Collapse - Issue #408 March 23rd, 2023

The Union Bank of Switzerland – UBS – agreed to buy the troubled Credit Suisse in an historic deal worth over $3 billion. The deal represents one of the biggest mergers since the 2008 financial crisis, and can help those regulators willing to avoid the decline in trust in the banking system.

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Although the UBS-Credit Suisse deal will help the customers of CS, this doesn’t necessarily mean that the European banking system – and the banking system as a whole – has solved all the issues related to the recent collapses. Investors are still nervous and the risk of global contagion is still a reality.

Actually, there are still doubts on when the banking crisis will end. Regulators don’t seem to be in full control of the current situations and similarities with the 2008 crisis seem always more evident.

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One of the most discussed bank collapses of the past weeks is the collapse of the Silicon Valley Bank – the 16th bank in the US. Despite many experts rejecting the idea of a global domino effect, the consequences of the troubles of the banking system are spreading – especially when it comes to industries that are not as strictly regulated as banks. Fintech in general – and cryptos in particular – make headlines, and one of the most interesting news of the past days is that also Australia started asking financial institutions to report any exposure to crypto businesses.

In the meantime, and as we mentioned in our Weekend Newsletter, the importance of CBDCs might increase over time. Central Bank Digital Currencies can represent a good compromise between control and a necessary bridge between traditional and digital economies. The Biden administration is evaluating the possibility of introducing CBDCs, but not all US politicians agree. Recently, Florida Gov. Ron DeSantis proposed a law to prohibit the use of Central Bank Digital Currencies within the state.

Questions arise also when it comes to the future of artificial intelligence – AI – in banking. As Alex Kreger points out, ChatGPT is the “fastest-growing app in history” – as reported by UBS. Banks can use artificial intelligence for many reasons – to automate daily tasks, to create customized customer experiences, to make banking easier for customers. Despite this, regulatory frameworks may represent a challenge: to use AI, banks should solve some security and privacy related concerns, first.

Also, Elon Musk, one of the top personalities in the tech and AI spaces, talked about the currency banking situation. Following the tweet of the financial blog Zero Hedge, which talked about the impact of small and medium companies on the US economy and saying that if the Fed won’t be able to contain the banking collapse there will be another great depression, Elon Musk answered that this is actually a real risk.

Artificial intelligence can have a huge impact also in emerging markets. As Nigel Green, CEO of deVere Group, highlighted, AI has the capability to reshape the African financial system and also to influence people’s lives.

But fintech, as we often said, is resilient, and fintech companies continue to look for innovative solutions despite regulatory and financial issues. The top fintech company Stripe wants to introduce AI into its digital payment processes, thanks to the AI model – GPT-4 – created by the Microsoft backed AI company OpenAI.

San Francisco is for sure one of the US cities that most rely on tech. And investment in artificial intelligence and generative tech are an important part of the economy of this area, but the collapse of SVB – mainly focused on tech startups – put investors on edge. Now, investors and startups are wondering if AI hype will continue or if it was just a bubble.

We at FinTech Weekly analyzed – and also shared some opinions – on the current economic and financial situation. The main question is – will the collapse affect the world? We found some pivotal similarities with the 2008 global financial crisis and analyzed possible future outcomes concerning fintech.