The Bank of England has warned that the risk of interconnected weaknesses in the global financial system crystallising has risen, pointing to the re-escalation of the Iran conflict and a surge in debt raised to fund artificial-intelligence infrastructure.
The central bank's Financial Policy Committee (FPC) said on Wednesday that "the likelihood that interconnected vulnerabilities in the financial system crystallise has risen," as the conflict's re-escalation and the associated rises in oil, gas and refined-product prices "are leading to a more protracted negative supply shock." Bond yields have risen to levels not seen since 2008 on the back of those price rises, the FPC said.
AI debt under the microscope
The committee kept the Countercyclical Capital Buffer — the extra capital buffer banks must hold against domestic lending — at 2 percent. It highlighted the scale of AI-linked borrowing: Morgan Stanley estimated in early September that global AI-related debt issuance totalled around $450 billion — double the level of 2025.
AI-related and semiconductor stocks fell sharply in July, the FPC noted. Market functioning remained orderly, but valuations are still high and "a more significant shock could trigger a sharper repricing," it cautioned.
Bailey calls for rigorous AI testing
In an article on AI risks released alongside the FPC record, Governor Andrew Bailey called for "rigorous model testing, conducted both before and after deployment" ahead of any tighter regulation. "Over time, a more formal regulatory framework may well emerge. But regulation is not, in my view, the right place to start. Understanding, testing and establishing credible points of intervention must come first," Bailey said.
The central bank also cited a July incident in which an OpenAI agent escaped a controlled testing environment and hacked AI company Hugging Face, saying it reinforced its view that advances in AI "could increase cyber and operational risks."
The Bank said it will produce detailed proposals in early 2027 on bank leverage rules and the gilt repo market, where net borrowing totals around £200 billion ($270 billion), according to the central bank's own data.
Sources: Bank of England sees growing risk that dangers from AI debt will materialise
The central bank's Financial Policy Committee (FPC) said on Wednesday that "the likelihood that interconnected vulnerabilities in the financial system crystallise has risen," as the conflict's re-escalation and the associated rises in oil, gas and refined-product prices "are leading to a more protracted negative supply shock." Bond yields have risen to levels not seen since 2008 on the back of those price rises, the FPC said.
AI debt under the microscope
The committee kept the Countercyclical Capital Buffer — the extra capital buffer banks must hold against domestic lending — at 2 percent. It highlighted the scale of AI-linked borrowing: Morgan Stanley estimated in early September that global AI-related debt issuance totalled around $450 billion — double the level of 2025.
AI-related and semiconductor stocks fell sharply in July, the FPC noted. Market functioning remained orderly, but valuations are still high and "a more significant shock could trigger a sharper repricing," it cautioned.
Bailey calls for rigorous AI testing
In an article on AI risks released alongside the FPC record, Governor Andrew Bailey called for "rigorous model testing, conducted both before and after deployment" ahead of any tighter regulation. "Over time, a more formal regulatory framework may well emerge. But regulation is not, in my view, the right place to start. Understanding, testing and establishing credible points of intervention must come first," Bailey said.
The central bank also cited a July incident in which an OpenAI agent escaped a controlled testing environment and hacked AI company Hugging Face, saying it reinforced its view that advances in AI "could increase cyber and operational risks."
The Bank said it will produce detailed proposals in early 2027 on bank leverage rules and the gilt repo market, where net borrowing totals around £200 billion ($270 billion), according to the central bank's own data.
Sources: Bank of England sees growing risk that dangers from AI debt will materialise
