Today, Congressman Blaine Luetkemeyer (MO-3) raised concerns over artificial intelligence-spurred bank runs. During a House Financial Services Committee hearing, the representative referenced his proposed legislation that would create tools for banking regulators to contain crises from devastating the broader banking system.

Rep. Luetkemeyer: “I sit on the China Select Committee. It scares the heck out of me because we've just handed the Chinese the way to mess with our banking system and our economy. All you do is short sell tonight, go up tomorrow morning with a tweet, or an artificial intelligence Facebook post of Larry Kudlow, Bloomberg, Dave Ramsey, somebody who is respected in the investment field.

It could be an artificial individual on there, and nobody could tell the difference. I've seen these commercials myself. You can't tell the difference and you have somebody of that reputation go up there and say, ‘I've got a hundred banks that are in trouble.’ And suddenly it's like, ‘wow.’ And you have real-time payments.

You have instantaneous ability to make these transfers. And also, now you do have a run. People kind of laugh at me when I talk about runs. I say, you know, we had a run on toilet paper three years ago. Don't tell me you can't have runs. I think people value their money more than toilet paper, but one of the things I think that we need to do is have the ability of the regulators FDIC in this situation to have, and you made this comment with regards to transaction guarantee of accounts for a short period of time, to be able to stymie this sort of run, nip it in the bud before there's a contagion here that goes through the entire system.

I’d appreciate your comments on that.”

Prof. Simon Johnson: “Congressman, I think you're exactly right on, on all the dimensions there, including the fact that AIs can already fake images and messages very credibly. And then the point made by Gary Gensler actually when he was still on the faculty at MIT, before he joined the SEC, was we should think about a future in which financial institutions tend to use similar AI engines themselves internally, which will be reacting to the messages from the outside, which will just exacerbate the speed of runs.

Rep. Luetkemeyer: “So, that's exactly why having the FDIC with the Treasury and arguably with the Fed, because they can all move fast, giving them the ability to put a temporary transaction account guarantee program in place very quickly, I think is exactly the right direction to go.”

I think it's a tool that needs, the regulators need to have a toolbox. I'm not trying to protect a single bank here. I'm trying to protect the system. From going down when you have a run that can be a contagion that could spread to everything.”

Background: Last year, Rep. Luetkemeyer introduced the Small Business Stability Act which would allow the Federal Deposit Insurance Corporation (FDIC)  upon the written recommendation of the FDIC Board of Directors, the Board of Governors of the Federal Reserve System, and approval of the Secretary of the Treasury, to guarantee deposits in some noninterest-bearing transaction accounts for up to 60 days. Banking regulators would reserve this step for crises that threaten the stability of the entire banking system.