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Artificial Intelligence Innovation by Financial Innovators: Evidence from US Patents

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  • Jean Xiao Timmerman

Abstract

This paper examines the evolution of artificial intelligence (AI) patent rates (i.e., the number of AI patents/number of firms of the same type) and concentration metrics (i.e., the Herfindahl-Hirschman Index (HHI) and Gini coefficient) among financial market participants from 2000 to 2020. It documents the historical trajectories of AI innovation for regulated banking entities and less-regulated firms, revealing that nonfinancial companies exhibit the highest baseline AI patent rate, while banks show the highest growth in AI patent rate over time. Banks have the highest HHI, and nonfinancial companies have the highest Gini coefficient, suggesting that a small number of banks dominate AI innovation and the distribution of AI innovation at nonfinancial firms � though higher in number � is highly skewed toward a subset of players. These findings indicate that the AI technological gap between small and large banks may be widening and the diversity of nonfinancial companies serving as third-party AI service providers may be limited.

Suggested Citation

  • Jean Xiao Timmerman, 2025. "Artificial Intelligence Innovation by Financial Innovators: Evidence from US Patents," Finance and Economics Discussion Series 2025-104, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2025-104
    DOI: 10.17016/FEDS.2025.104
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    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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