AI could jeopardize the employment of managers at large companies, but also routine jobs at insurance companies. In life insurance, it is necessary to evaluate the risks of potential clients seeking private insurance and many employees are necessary to follow the evolution of policies and risks. AI could only give good results if there were databases of several decades and antecedents by type of risk. The same does not happen with banks. In the US, Newsweek was able to choose the best small bank in each of the States of the Union based on 19 criteria. Did you turn to AI?
Until March of this year, small American banks attracted the savings of many customers. There is no general data, but it is estimated that few resorted to the service of AI as they would not have suffered the bankruptcies that occurred. In California, where many companies that are starting a new business and those that have already matured are based, in March 2023 there was the bankruptcy of a relatively small bank that no one could have expected. When U.S. government debt offers good yields, it can be tempting for a small bank to dip into customer deposits and buy long-term Treasury debt. The bank began this strategy in 2021 and dedicated itself to maintaining growing volumes of long-term debt in its portfolio. But in 2022 and 2023 the Federal Reserve, faced with the threat of rising inflation, began to raise interest rates. That caused unexpected losses in the bank that had accumulated this type of securities apparently without risk.
The increase in rates made the cost of loans more expensive and many companies that had deposits in small banks decided to recover their liquidity by requesting the refund of the deposits. To meet the unexpected demand for liquidity, the bank announced in March that it had sold more than $21 billion in public debt. The announcement was enough for customers to withdraw more than twice as much from the bank the next day. When central banks want to tackle inflation, an immediate remedy is to raise rates. And because of the inverse relationship between interest rates and the value of the bonds, the depositors of that bank suffered losses and the bank went bankrupt.
AI is increasingly being used to assess the size of a market for a new product and gauge potential prices and margins. On Wall Street, by tone of voice, AI can reject the good news uttered by the president of a company. And disrupt financial plans presented in a simple Excel sheet, reconstruct them and code new computer programs.
