Bank of England Governor Andrew Bailey has warned that increasingly advanced artificial intelligence models could pose a growing risk to global financial stability, potentially triggering a disorderly correction in financial markets.
Bailey raised the concerns in a two-page letter to G20 finance ministers and central bank governors published Monday. He wrote the letter in his role as chair of the Financial Stability Board (FSB), an international body that coordinates financial policies and makes recommendations to national authorities.
Frontier AI Models Raise Financial Stability Concerns
Bailey highlighted the rapid development of “frontier AI models” — the most advanced artificial intelligence systems — and their increasingly sophisticated autonomy, problem-solving capabilities and potential threat capabilities.
According to Bailey, cyber risk is the most immediate concern for the financial system as these advanced AI models become more capable.
He warned that frontier AI could significantly change the speed, scale and economics of cyberattacks, potentially undermining confidence across financial markets.
The risk could be particularly serious because financial institutions often rely on highly concentrated third-party technology and service providers.
AI Cyber Risks Could Affect Multiple Financial Firms
Bailey said advanced AI could increase the scale and speed at which cyber threats are carried out, creating the possibility of system-wide disruption.
He also pointed to gaps in regulations and preparedness across different countries.
Many jurisdictions currently do not have adequate protocols to manage the development, release and deployment of advanced frontier AI models, Bailey warned. This could increase risks not only for financial institutions but also for the broader economy.
Financial companies and technology providers may therefore need to strengthen their vulnerability management, incident response and recovery systems.
Bailey also urged institutions to prepare for more severe situations involving simultaneous disruptions across multiple financial firms or shared technology infrastructure.
Other Risks to Global Financial Stability
While advanced AI was a major focus of Bailey’s warning, the Bank of England governor also identified several other vulnerabilities affecting the global financial system.
These include:
- Fragilities in sovereign debt markets
- Increasing use of debt by investors in equity markets
- Stretched asset valuations
- High valuations in AI-related investments
- Potential disruption caused by shared technology dependencies
Bailey’s comments suggest that the rapid expansion of AI-related investments is becoming an additional area of concern for financial regulators, particularly as valuations remain elevated.
G20 Officials to Discuss Global Economic Risks
The warning comes as the United States hosts the G20 summit in North Carolina, bringing together finance ministers, central bank governors and senior economic officials from major economies.
The officials are expected to discuss a range of global economic and financial stability issues, including emerging risks linked to technology, markets and financial vulnerabilities.
Bailey’s warning adds to a growing debate over how governments and financial regulators should prepare for the potential economic and cybersecurity risks posed by increasingly autonomous AI systems.
As frontier AI models become more powerful, financial institutions may face pressure to strengthen their defenses and ensure that critical technology systems can withstand increasingly sophisticated cyber threats.
