Moody’s warns banks face new dependence on AI providers

Moody’s warned that banks and other financial firms are becoming increasingly dependent on a small group of AI model and cloud computing providers as they race to embed the technology into daily operations. The rating agency said AI could eventually cut costs and lift revenues across the City and Wall Street, but those gains will require substantial investment and may be competed away as rivals pursue similar strategies.

More than 75% of City companies now use AI, according to a UK Treasury select committee report published in January, with insurers and international banks among the heaviest adopters. Moody’s said a model outage at a major provider could spread quickly across customers and sectors, while dominant AI infrastructure firms could gain greater control over pricing as loss-making generative AI companies face pressure to produce profits.

Lloyds Banking Group chief executive Charlie Nunn has backed a £13bn strategy that includes using AI to attract business, improve efficiency and raise shareholder payouts. The plan includes £2bn of cost cuts and would affect staff. Moody’s also said there was a 20% chance that, by 2030, AI will be able to do the work of a solid mid-level employee, while warning that easier account switching could heighten deposit flight risks.