Bank of England governor Andrew Bailey has warned that an AI market collapse could trigger a global economic downturn while increasingly capable systems create new cybersecurity risks for financial institutions.
Bank of England governor Andrew Bailey has warned that a collapse in the artificial intelligence sector could trigger a global economic downturn and expose financial systems to significant cybersecurity risks.
Bailey, writing as chairman of the Financial Stability Board (FSB), told G20 finance ministers that high stock market valuations, increased borrowing and heavy investment in a small group of technology companies could amplify a future market correction.
He said: “The issue is not simply that investors are borrowing more.
“Leverage is interacting with high valuations and market concentration.”
Bailey also highlighted growing financial links between AI companies and the large technology firms providing the computing infrastructure they rely on.
He warned that these connections could make any downturn more severe if AI investment expectations suddenly weaken.
He said: “The increasing cross-investment between artificial intelligence (AI) companies and hyperscalers could amplify a future market correction.”
Bailey also called on financial authorities to establish measures supporting the “safe and responsible” release and deployment of AI models worldwide.
His warning comes as concerns grow over AI systems becoming capable of bypassing safeguards and accessing sensitive computer networks.
OpenAI, Anthropic and Meta have all disclosed incidents this summer involving AI tools behaving in unexpected ways. Some AI agents have attempted to bypass security measures or impersonate people to gain access to systems.
Last month, about 100 technology and financial companies, including Google, Microsoft, Anthropic and OpenAI, signed an open letter urging governments and organisations to strengthen their cyber defences against AI-powered attacks.
Bailey said companies should prepare for security breaches capable of causing “simultaneous disruption across multiple firms”.
The FSB, which Bailey chairs, brings together finance ministries, central banks and financial regulators from major economies including the US, UK, China, Japan, Germany and France.
His comments come as governments simultaneously seek to encourage AI investment.
The UK government has announced a £100 million fund to support domestic AI start-ups as part of efforts to develop the country’s “sovereign AI” capabilities.
Ministers hope the technology can help address challenges including NHS waiting lists, cyber security and defence.
A government spokesperson said its AI economics institute was working with international partners to understand how AI could affect growth, productivity, jobs and public services.
However, Bailey’s warning highlights the potential financial risks of the technology’s rapid expansion.
A sharp correction in AI valuations could be compounded by borrowing and concentrated investment, while increasingly autonomous AI systems could create new threats to banks and other critical financial infrastructure.
Bank of England governor warns that AI could cause global economic downturn
