BIS Examines Use of Big Data and Machine Learning at Central Banks
BIS published a paper that provides an overview on the use of big data and machine learning in the central bank community. The paper leverages on a survey conducted in 2020 with responses from 52 central banks worldwide. The paper examines how central banks define and use big data, as well as which opportunities and challenges they see. Institutions use big data and machine learning for economic research, in the areas of financial stability and monetary policy, as well as for suptech and regtech applications. Data quality, sampling, and representativeness are major challenges for central banks and so is legal uncertainty around data privacy and confidentiality. The paper notes that cooperation among public authorities could improve central banks’ ability to collect, store, and analyze big data.
Among other challenges, several institutions report constraints in setting up an adequate IT infrastructure and in developing the necessary human capital. Overall, the analysis highlights that central banks define big data in an encompassing way that includes unstructured non-traditional as well as structured data sets. Central banks' interest in big data and machine learning has markedly increased over the last years. In 2020, over 80% of central banks report that they use big data, up from just 30% five years ago. Among the institutions that currently use big data, over 70% use it for economic research, while 40% state that they use it to inform policy decisions. These numbers suggest that big data and machine learning offer many useful applications and can help central banks in fulfilling their mandate. The vast majority of central banks are now conducting projects that involve big data and the central banks are willing to join forces to reap the benefits of big data. Indeed, half of them reported an interest in collaborating in one or more specific project, with three types of cooperation envisaged:
- By sharing knowledge among those institutions that have developed specific expertise that can be reused in other jurisdictions. These expertise include general big data techniques (for example, data visualization, network analysis, machine learning tools), more general information management issues (for example, development of open-source coding, data-sharing protocols, encryption and anonymization techniques for using confidential data) as well as specific applications that are more devoted to the central bank community (for example, suptech and regtech areas).
- By using big data to work on global issues such as international spillovers, global value chains, and cross-border payments.
- By developing joint exploratory projects to benefit from economies of scale and collectively share (limited) financial and human resources.
International financial institutions can greatly support these cooperative approaches. They can facilitate innovation by promoting technological solutions to harmonize data standards and processes among jurisdictions. With this spirit, the BIS Innovation Hub has been established to identify and develop insights into critical trends in financial technology of relevance to central banks, explore the development of public goods to enhance the functioning of the global financial system, and serve as a focal point for a network of central bank experts on innovation. Such a network could undoubtedly play an important role in facilitating international cooperation to exploit big data sources and techniques.
Related Links
Keywords: International, Banking, Big Data, Regtech, Suptech, Machine Learning, BIS
Previous Article
BCB Establishes Committee to Oversee Regulatory Sandbox OperationsRelated Articles
EBA Finalizes Templates for One-Off Climate Risk Scenario Analysis
The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.
EBA Mulls Inclusion of Environmental & Social Risks to Pillar 1 Rules
The European Banking Authority (EBA) recently published a report that recommends enhancements to the Pillar 1 framework, under the prudential rules, to capture environmental and social risks.
BCBS Consults on Disclosure of Crypto-Asset Exposures of Banks
As a follow on from its prudential standard on the treatment of crypto-asset exposures, the Basel Committee on Banking Supervision (BCBS) proposed disclosure requirements for crypto-asset exposures of banks.
BCBS and EBA Publish Results of Basel III Monitoring Exercise
The Basel Committee on Banking Supervision (BCBS) and the European Banking Authority (EBA) have published results of the Basel III monitoring exercise.
PRA Updates Timeline for Final Basel III Rules, Issues Other Updates
The Prudential Regulation Authority (PRA) recently issued a few regulatory updates for banks, with the updated Basel implementation timelines being the key among them.
US Treasury Sets Out Principles for Net-Zero Financing
The U.S. Department of the Treasury has recently set out the principles for net-zero financing and investment.
EC Launches Survey on G7 Principles on Generative AI
The European Commission (EC) launched a stakeholder survey on the draft International Guiding Principles for organizations developing advanced artificial intelligence (AI) systems.
ISSB Sustainability Standards Expected to Become Global Baseline
The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.
IOSCO, BIS, and FSB to Intensify Focus on Decentralized Finance
Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.
BCBS Assesses NSFR and Large Exposures Rules in US
The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.
