Bank of England flags rising AI debt and financial stability risks
The Bank of England warned Wednesday that risks of financial vulnerabilities crystallizing have increased, citing rising AI-related debt and geopolitical tensions. The Financial Policy Committee said higher oil and gas prices had pushed bond yields to levels not seen since 2008. It kept the Countercyclical Capital Buffer at 2%.
The central bank also highlighted the rapid growth of AI-related borrowing. Morgan Stanley estimated global AI debt issuance at about $450 billion in early September, twice the 2025 level. The Bank said heavy AI investment could expose markets to sharper repricing if expectations for future earnings weaken. It also warned that advances in frontier AI could increase cyber and operational risks across financial institutions.
Meanwhile, the Bank said financial and equity markets had remained resilient so far. Governor Andrew Bailey called for rigorous testing of advanced AI models before tighter regulation develops. The central bank plans detailed proposals in early 2027 covering bank leverage rules and the gilt repo market.
Why it matters
Growing AI borrowing links technology investment more closely to credit markets. A sharp change in AI valuations or earnings expectations could increase market volatility and financing pressures.
