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Artificial intelligence and financial crises

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  • Danielsson, Jon
  • Uthemann, Andreas

Abstract

The rapid adoption of artificial intelligence (AI) poses new and poorly understood threats to financial stability. We use a game-theoretic model to analyse the stability impact of AI, finding that it amplifies existing financial system vulnerabilities — leverage, liquidity stress and opacity — through superior information processing, common data, speed and strategic complementarities. The consequence is crises become faster and more severe, where the likelihood of a crisis is directly affected by how effectively the authorities engage with AI. In response, we propose that the financial authorities develop their own AI systems and expertise, establish direct AI-to-AI communication, implement automated crisis facilities and monitor AI use.

Suggested Citation

  • Danielsson, Jon & Uthemann, Andreas, 2025. "Artificial intelligence and financial crises," LSE Research Online Documents on Economics 128657, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:128657
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    JEL classification:

    • F3 - International Economics - - International Finance
    • G3 - Financial Economics - - Corporate Finance and Governance

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