Russian Central Bank Governor Nabiullina advises banks to test AI models in-house before integrating them in regulation
MOSCOW. April 8 (Interfax) - The Central Bank of Russia is open to the use of artificial intelligence in risk assessment regulation, though banks must first test the models on their in-house processes, Central Bank Governor Elvira Nabiullina said at the Data Fusion conference.
VTB Management Board Deputy Chairman Vadim Kulik, who moderated the session, proposed using AI to implement the internal ratings-based approach (IRB approach).
The IRB approach, part of Basel II, more accurately assesses credit risks using complex mathematical and statistical models, allowing banks to conserve capital and demonstrate higher capital adequacy. In Russia, only systemically important lending institutions with assets of at least 500 billion rubles can use it. Currently, Sberbank, Raiffeisenbank, Alfa-Bank, and VTB have received permission to use internal models to assess credit risk.
"Several years ago, we allowed large banks to build models that more accurately assess risks based on their large data sets. Banks are telling us now: 'Here's artificial intelligence, it calculated these risks better than we did. Take this model of ours. We calculated what our capital should be.' I am sure that you will say that it should be considerably lower than what the IRB calculates. However, let me remind you that the IRB approach is when you bring your models now, and we, as the regulator, validate them to ensure that there is no model rigging and that there is sufficient data. Unfortunately, this takes several months. It is rather complex work. AI models must be recalibrated several times a month to remain relevant. Imagine this process. It is quite complex. This is probably the future, and we are thinking about how, if you come to us with this model and say that AI calculated this, we of course will need to have AI on our side as a validator. They will communicate and the model and the validator," Nabiullina said.
Kulik joked that it is currently trendy for models to communicate with models. He also suggested that the Central Bank pilot the use of AI in the IRB approach.
"We are ready to discuss this with you on a practical level. However, until that decision has been taken, capital requirements will remain as they are," Nabiullina said.
"IRB is an advanced approach. It is called advanced. I do not know what is so advanced about it. You can use it for in-house purposes, to better assess risks, not necessarily for calculating capital adequacy. So practice it in-house at the bank, for credit scoring, use the models, and then approach the regulator," Nabiullina said.
