Bank of England Governor Warns AI Poses Global Financial Stability Risk.

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Andrew Bailey, Governor of the Bank of England and Chairman of the Financial Stability Board (FSB), warned of a severe downturn in global stock markets if the AI bubble bursts. He issued this warning in an August 28 letter to G20 finance ministers and central bankers. Bailey raised concerns over the economic fallout if debt-fuelled AI investment unravels, stating soaring debt could amplify a future market correction. He highlighted stretched asset valuations in AI as a key risk. Investors could lose trillions of dollars if AI company valuations plummet, potentially forcing them to sell other assets. The risk is compounded by investors borrowing large sums to invest in a small number of AI companies and data center providers, pushing valuations to astronomical levels. Nvidia, valued over $US5.2 trillion, recently raised $US500 billion from a consortium of US banks and investors for its AI investment; its share price rose 850 percent over five years. Bailey warned that markets remain vulnerable to a potentially disorderly correction that could spread across borders. In the same letter, Bailey warned AI risked unleashing cyberattacks that could cripple the global economy. He identified the potential impact of frontier AI on cyber risk as the most immediate concern for the financial system. Bailey stated frontier AI may have the ability materially to alter the speed, scale and economics of cyber risk. Many jurisdictions reportedly lack protocols to manage advanced frontier AI models, heightening risks. Financial institutions and technology providers need to improve vulnerability management, response, and recovery, and prepare for more severe scenarios involving simultaneous disruption across multiple firms or shared technology dependencies. The UK government unveiled a £100 million fund to back British AI start-ups.

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