Daily Update: Generative AI Will Continue Legacy of Innovation in Banking
Today is?Wednesday, November 8, 2023, and here’s your?curated selection of essential intelligence on financial markets and the global economy?from?S&P Global .?Subscribe?to be notified of each new?Daily?Update.?
Banks love technology. All banks are in the data business, and any technology that allows them to handle data with more grace and rigor is going to be briskly adopted. Banks were early adopters of traditional AI and look to be speedy adopters of generative AI. Miriam Fernández, associate director of financial institutions at S&P Global Ratings, examined the adoption, application and challenge of generative AI for the banking sector in a recent analysis, “AI in Banking: AI Will Be An Incremental Game Changer .”
According to Fernández and other contributors to the analysis, banks have been using traditional machine learning, a pattern recognition technology, for decades to help classify data, supplement employee capabilities, automate processes, uncover fraud and predict events. The closely related fields of banking, financial services and insurance account for about 18% of the total market for machine learning. Financial services companies typically rely on large third-party machine learning providers such as Amazon Web Services, Microsoft Azure and Google ML.?
In one sense, the advanced capabilities of generative AI will create only incremental changes for banks. Generative AI remains primarily adept at pattern recognition, so pattern-heavy functions will see the greatest impact. However, generative AI’s ability to digest large amounts of information — including text, image, video and code — and subsequently create content based on this information is a game changer. Personalization, algorithmic trading and risk management are just three of many areas in which generative AI will make a difference.
This year, spending on generative AI is expected to top $166 billion, with banking making up almost 13% of the total. In the near term, banks are likely to focus on incremental improvements to existing processes where generative AI can offer efficiencies.?
Generative AI is not without its doubters. Some have voiced concerns that algorithms trained on current practices may amplify and extend existing biases with regard to gender, race and ethnicity. Regulation is another area of concern, with many governments having expressed a willingness to aggressively circumscribe the adoption of generative AI. There are also potential workforce issues. Many banks have been careful to emphasize that their interest in generative AI is to augment their existing employees. But some believe that the adoption of efficient technologies will lead to job losses. Finally, generative AI comes at a significant environmental cost. According to some estimates, training a generative AI model consumes more energy per year than 100 American homes.
Concerns aside, the biggest worry for the banking sector may be the speed with which it can upgrade its IT infrastructure to include generative AI. In banking, adopting technology too late is often worse than adopting it too early.
Today is Wednesday, November 8, 2023, and here is today's essential intelligence.
Written by Nathan Hunt.
Economy
Australia M&A by the Numbers: Q3 2023
For Q3 2023, Australia witnessed 217 M&A transactions with USD 7.6 billion total transaction value. Compared to Q3 2022, Q3 2023 saw a decrease in both M&A deal counts and transaction value by 34.6% and 62.6%, respectively. For YTD 2023, as compared to YTD 2022, domestic and outbound markets both saw a large drop in aggregate transaction value by 70.4% and 54.1%, respectively, while inbound market saw a large increase in aggregate transaction value, with a 220.6% year-over-year growth rate.
—Read the article from S&P Global Market Intelligence
Capital Markets
US BSL CLO And Leveraged Finance Update: Elevated Rates Expected To Keep Pressure On Low-Rated Corporates
Downgrades of corporate ratings in US broadly syndicated loan (BSL) collateralized loan obligation (CLO) collateral pools continue to outnumber upgrades, but the pace has moderated in recent months. Third-quarter 2023 saw 85 downgrades of CLO obligors, versus 108 in second-quarter 2023, and there were also far fewer downgrades into the ‘CCC’ range: 15 companies in third-quarter 2023 versus 35 in second-quarter 2023.
—Read the report from S&P Global Ratings
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Global Trade
Economics & Country Risk: Ep. 191 — Global construction outlook update
In this episode, Economics & Country Risk shares an excerpt from the recent webinar exploring S&P Global Market Intelligence’s latest global construction outlook. An expert discusses the global economic drivers of construction markets, highlight changes in the forecast and pinpoint areas of strength and weakness.
—Listen and subscribe to Economics & Country Risk, a podcast from S&P Global Market Intelligence
Sustainability
Listen: US Elections 2024: For Democrats, Climate ‘A Frontline Priority’
It’s November, and that means US elections are just one year away. But how will energy policy, climate change and prices at the pump play into this election cycle? Capitol Crude spoke with a Democratic and a Republican strategist for their take. Capitol Crude is going to present its views over two episodes. First up this week, you’ll hear from Antjuan Seawright for the Democratic perspective, and Tom Hassenboehler will be on the podcast next week to weigh in on the GOP’s thinking.
—Listen and subscribe to Capitol Crude, a podcast from S&P Global Commodity Insights
Energy & Commodities
Fuel For Thought: A Middle East Oil Embargo Is Irrational, Not Unthinkable
Oil prices are reflecting the view that a 1973-style Arab embargo on oil exports is an extremely unlikely response to the crisis in Gaza. They signal Middle East producers keeping oil shipments flowing and geopolitics separate as the only rational scenario. However, leaders of OPEC’s largest producers have a track record for acting irrationally at times, often when markets least expect it.
—Read the article from S&P Global Commodity Insights
Technology & Media
AI In Banking: AI Will Be An Incremental Game Changer
Given banks' material investment capacity, management of large amounts of proprietary data and often fluid business models, it was perhaps inevitable that they proved to be enthusiastic early adopters of machine and deep learning technology (so-called traditional AI). These systems have (for decades, in fact) been used to improve risk management processes, loss mitigation, fraud prevention, customer retention and to deliver efficiency gains and profit growth.
—Read the article from S&P Global
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