AI and Operational Losses: Evidence from U.S. Bank Holding Companies

Abstract This study demonstrates that banking organizations with higher artificial intelligence (AI) investments are exposed to more operational risk. Using comprehensive supervisory data on operational losses from large U.S. bank holding companies (BHCs) combined with detailed company-level data on AI-skilled human capital, we show that BHCs with more AI investments suffer higher operational losses per dollar of total assets. The impact of AI investments on operational losses significantly varies by loss type and is driven by external fraud, client-related issues, and system failures. These losses stem not only from small, frequent incidents but also from severe, tail-risk events. The risk-enhancing effect of AI is more pronounced for BHCs with weaker risk management practices. Our findings have important implications for banking performance, risk, and supervision.

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Publication Details

Journal
The Review of Corporate Finance Studies
Published
2026-02-11
DOI
https://doi.org/10.1093/rcfs/cfag003
Primary Topic
Financial Distress and Bankruptcy Prediction
Type
article
Field-Weighted Citation Impact
0.00
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article

AI and Operational Losses: Evidence from U.S. Bank Holding Companies

Ping McLemore, Atanas Mihov
The Review of Corporate Finance Studies
Financial Distress and Bankruptcy Prediction
article

AI and Operational Losses: Evidence from U.S. Bank Holding Companies

Ping McLemore, Atanas Mihov
article en

Abstract

Abstract This study demonstrates that banking organizations with higher artificial intelligence (AI) investments are exposed to more operational risk. Using comprehensive supervisory data on operational losses from large U.S. bank holding companies (BHCs) combined with detailed company-level data on AI-skilled human capital, we show that BHCs with more AI investments suffer higher operational losses per dollar of total assets. The impact of AI investments on operational losses significantly varies by loss type and is driven by external fraud, client-related issues, and system failures. These losses stem not only from small, frequent incidents but also from severe, tail-risk events. The risk-enhancing effect of AI is more pronounced for BHCs with weaker risk management practices. Our findings have important implications for banking performance, risk, and supervision.

The Review of Corporate Finance Studies
University of Kansas (US), Federal Reserve Bank of Richmond (US)
Peace, Justice and strong institutions
Openalex Percentile: Top 53%
Financial Distress and Bankruptcy Prediction
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AI and Operational Losses: Evidence from U.S. Bank Holding Companies — Ping McLemore, Atanas Mihov · The Review of Corporate Finance Studies (2026) | TGRS Research Map | TGRS