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The New Economy
When we talk about artificial intelligence (AI) and banking, we tend to do so tactically. How could AI streamline lending processes, for example, or help banks serve customers more effectively and efficiently? But as AI is increasingly intertwined with the mechanics of the U.S. economy, bank boards and C-suite executives will need to think bigger.
Short term, the rapid investment in AI threatens to disrupt markets such as private credit. Investors have been pulling money from funds such as Blue Owl Capital due to concerns about loans to the software sector, which is being disrupted by AI. JPMorgan Chase & Co. recently marked down the value of some private credit loans in its portfolio tied to software companies, The Financial Times reported earlier this month, adding that the bank would restrict further lending in the space.
Software valuations have declined, wiping billions in gains. Tech stocks account for one-third of the S&P 500, around $20 trillion in value, The New York Times noted on Feb. 27, and a handful of tech companies dominate the index. Those giants — Nvidia Corp., Apple and Microsoft Corp. among them — are betting big on AI, raising alarms about ripple effects across the economy.
AI’s potential to disrupt labor and the broader economy is another pebble in the pond. Jed Kolko, a senior fellow at the Peterson Institute for International Economics, recently wrote that “research on AI’s impact on the labor market has barely scratched the surface” — in part because studies have focused on current occupations, not future work.
Further, artificial intelligence, along with higher interest rates and persistent inflation, could amplify the K-shaped economy, referencing how economic gains increasingly and disproportionally favor the wealthiest Americans. “AI and automation are accelerating productivity in capital-intensive sectors, reinforcing advantages for firms and workers with specialized skills,” economists for U.S. Bank wrote in January. “If these benefits remain concentrated among larger corporations and high-income households, the K-shape will harden.”
As academics, analysts and researchers grapple with the effects of AI, I’m increasingly seeing references to Amara’s Law, a principle attributed to late futurist Roy Amara that states: “We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.”
Bank leaders should keep those words in mind as AI reshapes the economy.
• Emily McCormick, vice president of editorial & research for Bank Director
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