Researchers at University College London (UCL) and Queen Mary University of London have developed an AI tool which could help governments to decide whether or not to bail out a bank in crisis.

The tool predicts if the intervention will save taxpayers money over the long term, suggests how much should be invested in the bank and which banks should be bailed out at any given time.

The full research paper has been published in the journal Nature Communications.

The researchers created an algorithm to assess optimal bail out strategies and tested it by using data from the European Banking Authority on a network of 35 important European financial institutions.

Dr. Neofytos Rodosthenous , co-author of the paper at UCL, said: "We believe the AI approach we have developed can be an important tool for governments, helping officials assess specifically financial implications—this means checking if a bailout is in the best interest of taxpayers, or whether it would be better value for money to let the bank fail. Our techniques are freely available for banking authorities to use as tools in their decision-making process."

Professor Vito Latora, co-author of the paper at Queen Mary University of London added: "Governments and banking authorities can also use our approach to retrospectively review past crises and gain valuable learnings to inform future actions.”

She continued: “One could, for example, review the UK government bailout of the Royal Bank of Scotland (RBS) during the financial crisis of 2007-9 and reflect on how this could potentially be improved (from a financial standpoint) in the future in order to primarily benefit taxpayers."

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