February 3, 2024 / VOLUME NO. 299

Staying on Top of Generative AI

Attendees at Bank Director’s Acquire or Be Acquired conference last week heard a lot about generative artificial intelligence — how it works, how to use it, the technology’s rapid uptake and potential benefits. 

But what is the board’s role in overseeing the disruptive technology? Generative AI is evolving so quickly, and the potential risks and rewards are so far-reaching, that it can be tough to stay ahead.

Last summer, McKinsey & Co., the consulting firm, offered four broad questions that corporate boards should ask of management to get started. They include:

How will generative AI affect our industry in the short- and long-term?

The firm expects banking to be among the early movers in such areas as customer service, product development and marketing. Banks that don’t quickly seek out opportunities to leverage the technology risk falling behind the competition.

• Are we balancing value creation with risk management?

Innovative applications of generative AI should be balanced with cautious oversight around privacy, security and even the potential environmental risks of using more computing capacity. “Generative AI, if not well managed, has the potential to destroy value and reputations,” McKinsey wrote. To confront those challenges, boards should be satisfied that management is employing frameworks to measure and identify knowable risks.

• What management structure will help us to get the most from generative AI?

McKinsey suggested naming one senior executive as the point person for all generative AI activities; that individual would lead a group composed of staff from areas like data, marketing, legal and cyber to help plot and implement the organization’s strategy. Financial institutions should also examine how they manage vendor relationships. Few banks can develop generative AI solutions in-house, and vendors open the door to additional risks.

• Do we have the right capabilities? From technology to talent and culture, generative AI requires new skills, tools and mindsets. Embracing a “learning culture,” said McKinsey, can be critical to success.

Finally, McKinsey suggested that the board examine its own knowledge and skills. Do directors understand generative AI well enough to help guide strategy and manage risks? If not, reviewing board composition and education efforts are a must. One idea is to incorporate generative AI into board work processes — using it to identify trends that could improve financial projections or capital allocation decisions, for example. Only through hands-on work with the technology will directors be able to help position the bank for what’s to come. 

• John Engen, managing editor for Bank Director

A Conversation With Brian Moynihan

The CEO of Bank of America talked capital rules and mobile banking at Bank Director’s Acquire or Be Acquired Conference.

"The proposals would require us to have $195 billion in CET1, which we already have today. It wouldn’t require us to raise more capital, but it would trap capital that could have been used to make something like $500 billion in loans."

— Brian Moynihan, Bank of America

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