Bank of England chief warns that inflated AI valuations and rising leverage could trigger the next financial crisis
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Bank of England Governor Andrew Bailey, in his capacity as chair of the Financial Stability Board, has warned G20 finance ministers about mounting risks to the global financial system. He highlighted inflated AI valuations and rising leverage from investment strategies such as leveraged ETFs and hedge fund positions as potential amplifiers of the next market shock. Bailey also pointed to dense cross-investments between AI firms and hyperscalers, suggesting a stumble by one major AI company could drag down the broader market. A second major concern is frontier AI's ability to alter cyber risks, making attacks cheaper, faster, and more frequent, potentially eroding trust in finance. He noted that banks' reliance on a few large tech providers and uneven cyber defenses across nations could compound the danger. Bailey argued that many countries still lack rules for developing and deploying advanced AI models, and called for global steps toward safe AI releases. The FSB is currently studying how financial firms could safely use frontier models for cyber defense. The letter arrives amid broader worries, with NYU professor Aswath Damodaran separately warning that an AI crash could hurt more than the dot-com bust due to heavy debt-financed infrastructure spending.
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