AI meets banking: the key to reducing risk - Professor Md Shams Tabrize Pathan

Event Date: 7 October 2026

Speaker: Professor Md Shams Tabrize Pathan, German International University, Egypt

Venue: Strathclyde Business School, Cathedral Wing, CW406b

Time: 2pm

Abstract:

We study AI adoption in US commercial banks and its impact on their risk-taking. Using machine learning validated by Large Language Models, we develop a novel bank-level AI measure and document a consistent upward trend in AI adoption over time. Our analysis shows that banks with higher AI adoption exhibit significantly lower risk-taking, primarily attributable to enhance loan quality and to improve operational efficiency. This effect is more pronounced in small banks, those engaged predominantly traditional banking activities, and banks in highly concentrated markets. In additional analysis, we further show that AI adoption does not accentuate banks’ exposure to cyber security risk but reduces systematic (market) risk. Our findings are robust across techniques addressing endogeneity: a quasi-natural experiment utilising the 2020 California Consumer Privacy Act, propensity score matching, two-stage least squares with instrumentals, and variable omission tests.

Published: 14 October 2026