Skip to content

FRM Part II · FRM Exam Part II · The Financial Stability Implications of Artificial Intelligence

Which of the following is a recognised reason why AI use in credit underwriting raises financial stability and consumer concerns?

AI in credit underwriting raises concern because opaque models trained on historical data can embed bias and be hard to explain, and widespread use of similar models can make lending decisions move together, amplifying procyclicality. Model risk management expectations still apply.

  1. AAI models cannot process alternative data
  2. BOpaque models trained on historical data may embed bias and be hard to explain, while widespread use of similar models may amplify procyclical lendingCorrect
  3. CAI always reduces default rates to zero
  4. DAI models are exempt from model risk management expectations

Explanation

Explainability, data quality and embedded bias are standard concerns, and similar models across lenders can make credit supply move together in stress. Option A is false because AI is often used with alternative data, and option D is wrong since model risk expectations still apply.

Did you get it right without looking?

One question tells you little. A timed set on The Financial Stability Implications of Artificial Intelligence shows your real accuracy, how long you take and where you lose marks.

Practise The Financial Stability Implications of Artificial IntelligenceFree diagnostic mock

More The Financial Stability Implications of Artificial Intelligence questions