Moody’s warns bank AI race risks “systemic dependency” on Silicon Valley

Could AI leave banks beholden to a handful of tech vendors? Banks racing to build AI into their operations risk becoming dependent on a small cluster of Silicon Valley models and cloud providers, The Guardian reports, citing a research note by Moody’s. The credit rating agency warns the trend could expose lenders to outages and pricing power wielded by profit-hungry tech firms.

The catch: Moody’s expects AI to eventually cut costs and lift revenue across banking but says that will require heavy upfront investment. However, competitive pressure, with rivals racing toward the same tools, will erode much of the payoff. The agency also flagged rising exposure to data privacy failures, cybersecurity gaps, fraud, and the risk of customers shifting large deposits between accounts at short notice as AI makes switching easier.

The concentration problem: Moody’s argues that leaning on a narrow set of foundation-model and cloud providers creates a “systemic dependency” — the report’s own term for a scenario where a single major outage could ripple across customers and entire sectors. It named OpenAI and Anthropic specifically, pointing out both are under pressure from investors to reach profitability despite ongoing losses — pressure Moody’s believes could eventually give those vendors leverage over the pricing terms of the institutions that build on their models.

Adoption is already deep. More than three-quarters of UK financial services firms use AI today, according to a UK Treasury select committee report. Adoption is highest among insurers and international banks, mostly for automating administrative work and handling core functions like claims processing and credit assessment. Lloyds Banking Group’s CEO Charlie Nunn has pressed ahead regardless, committing GBP 13 bn to an AI strategy that includes GBP 2 bn in cost cuts — acknowledging job impact. Moody’s separately put rough odds (about one in five) on AI matching the output of a capable mid-level employee by 2030.

Regional banks aren’t exactly waiting on the sidelines. Several GCC lenders have publicly disclosed their own AI push over the past year. Emirates NBD ranked first among 25 of the region’s largest banks in the inaugural Evident AI Index for Banks, Middle East and Africa (pdf). First Abu Dhabi Bank and Mashreq also ranked among the region’s top 10 most AI-mature banks, with Saudi Arabia’s Al Rajhi Bank the only other Gulf lender to crack the top 10. Abu Dhabi Commercial Bank, Qatar National Bank, National Bank of Kuwait, Banque Misr, Riyad Bank, Dubai Islamic Bank, Kuwait Finance House, Saudi National Bank, and Saudi Awwal Bank were also included in the index.

MARKETS THIS MORNING-

Shares across Asia rose in early trading this morning, alongside Wall Street after a soft US jobs report eased concerns over near-term rate increases. Japan’s Nikkei gained around 1.5%, while South Korea’s Kospi trailed behind at a 0.6% gain. The MSCI Asia Pacific ex-Japan Index rose 0.3%.

THE CLOSING BELL-

The ADX fell 0.3% on Friday on turnover of AED 679.7 mn. The index is up 1.0% YTD.

In the green: Abu Dhabi National Takaful Co. (+13.0%), Apex Investment (+5.3%), and E7 Group Warrants (+3.0%).

In the red: Ins. House (-4.9%), Agthia Group (-2.7%), and Gulf Cement Co. (-2.4%).

Over on the DFM, the index rose 0.5% on turnover of AED 549.9 mn. Meanwhile, Nasdaq Dubai was up 0.1%.