The Governance Gap That Could Break Financial Markets

The Federal Reserve's updated model risk management guidance explicitly excludes generative and agentic AI models, which are increasingly deployed by major banks like Goldman Sachs and JPMorgan. This regulatory gap raises systemic risk concerns: multiple banks using similar AI models could lead to coordinated market movements, reminiscent of the 2010 flash crash. The channel is regulatory: lack of oversight may increase operational and systemic risk for banks, potentially affecting trading revenues and compliance costs. The impact is global, with specific focus on US and UK banking sectors.