Better late than never! BSP eyes using machine learning to supervise banks better

The Bangko Sentral ng Pilipinas is catching on with latest technology now widely used by its regulated institutions.
In a statement, the central bank said it is now exploring how it can tap machine learning (ML) techniques for nowcasting and even banking supervision. It’s artificial intelligence that’s been employed by foreign and even local financial firms.
Algorithms would dictate the next steps in processing data and interpreting them.
“Central banks’ interest in ML has been increasing over the years, mainly due to its potential to enhance the existing tools used for regular monitoring as well as its ability to uncover underlying relationships between data to better understand the economy and the financial system,” Governor Benjamin Diokno said.
There is some hesitation.
“Like traditional econometric techniques, ML algorithms may also encounter some challenges in accurately predicting tail risk or low likelihood events,” the BSP added. “The adoption of ML models would also necessitate investments in IT infrastructure and capacity building as well as a change in the organizational mindset.”
Will the regulator manage to keep up with the regulated?

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