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Tail Risk for Banks Posed by Investments in Generative Artificial Intelligence
Generative artificial intelligence (AI) has the potential to significantly increase our productivity and alter how we work and live in many ways. Because of this potential—and the related financial gain—there has been an enormous investment influx across the AI value chain. Commercial loans, underwritten by banking institutions, have been one of the mechanisms fueling this increase in capital expenditure. In this article we explore the ways banks are directly exposed to AI-adjacent investments and discuss the possible AI bubble tail risk—or the risk of losses due to extremely rare ...