As transactions are processed, the machine learning applications assigns a risk score and  Page 6  this allows card issuers to block potential fraud losses before the transaction proceeds. The Bank, PRA and FCA will publish a Discussion Paper later this year on how the current UK regulatory framework applies to artificial intelligence and machine learning. The paper will also explore how policy can best support further safe and responsible adoption and whether additional clarification of existing regulation may be helpful. Financial market developments: a real-time case study Let me return from the possible futures represented by the adoption of AI to the here and now and the financial market developments we have seen this week in the UK which have meant that I haven’t been able to join you in Vilnius. As is the case for all central banks the Bank utilises various data to provide detailed coverage of financial market developments, ranging from real time quantitative data from wholesale markets through to qualitative market intelligence (MI). We complement the views of external market contact base with the views of our own specialist experts among Bank staff[12]. The Bank’s focus is primarily around those financial markets closest to our mission. The backdrop to the latest events is that financial markets globally have been volatile in recent months, with increases in government bond yields and falls in risky asset prices. While largely orderly in most markets, pressures were observed in parts of the financial system, including challenging liquidity conditions across some markets.
In the US, households had to borrow if they wanted to increase consumption. “Let them eat cake” had become “let them eat credit.” Financial innovation made it easier to do so. And the ready supply of foreign capital from the global savings glut made it cheaper. Most importantly – and this is the lie – complacency among individuals and institutions, fed by a long period of macroeconomic stability and rising asset prices, made this remorseless borrowing seem sensible. After the reckoning, the ensuing crisis and feeble recovery would look very much like all others that have followed prolonged credit booms. Policymakers quickly disassociated themselves from the received wisdoms of the Great Moderation and scrambled to re-learn the lessons of the Great Depression. That process continues today as central banks contemplate current parallels with the late 1930s. The aftermath of the global credit crunch has been severe. Global output is now ten percent below its pre-crisis trend, and with global nominal growth running two percentage points short of its pre-crisis average, the challenge of deleveraging remains acute. These challenges appear more pressing as some are now questioning their faith in another new era – China’s glide path to global economic hegemony. China’s economic miracle over  2  2  For an extensive survey, see Reinhart, C and Rogoff, R, (2009), This time is different: eight centuries of financial folly, Princeton University Press.