Banks' AI race risks dangerous dependence on Big Tech, rating agency warns

Banks racing to adopt AI could end up dangerously dependent on a small handful of Silicon Valley firms, according to a new Moody's report that warns of outages, price hikes and eroding customer trust.

The rating agency's "Bank of the Future" analysis, published in late July, said AI would eventually cut costs and boost revenue across Wall Street and the City, but not without significant risk attached.

Moody's said most financial firms now depend on a relatively small group of foundation AI model and cloud computing providers, creating what it called a systemic dependency.

An outage at a single major provider, the report warned, could ripple across customers and entire sectors simultaneously, a risk regulators are likely to scrutinise more closely as adoption deepens.

More than three-quarters of City firms already use AI in some form, according to a UK Treasury select committee report published in January, with insurers and international banks leading adoption for tasks like claims processing and credit assessment.

Vendor dependency risk was another area of concern raised by Moody’s: the potential for pricing pressure to be placed on the banking industry due to the dominance of a few key providers of AI and infrastructure support.

This situation is likely to become increasingly difficult as unprofitable generative AI vendors such as OpenAI and Anthropic receive increasing pressure from investors to start making money.

The banks, however, also hold some leverage with respect to their proprietary data, technology negotiation experience, and the use of open-source models.

The report assigned a 20% probability that AI will be capable of performing the work of a "solid mid-level employee" by 2030. Lloyds Banking Group chief executive Charlie Nunn has already committed to a £13bn AI-driven strategy involving £2bn in cost cuts, telling reporters the changes would affect jobs even as the bank continues hiring and reskilling staff.

Moody's separately warned that AI could make it easier for customers to shift deposits toward higher-yielding accounts at short notice, putting pressure on banks to maintain depositor trust and funding stability.