Bank of England warns AI-driven finance risks could spark market volatility

The Bank of England (BoE) has highlighted artificial intelligence as a growing threat to financial stability. In its half‑yearly risk assessment, the BoE said investors are increasingly borrowing to buy AI‑related equities and that AI firms are taking on heavy debt to fund rapid infrastructure build‑out. It warned that a reassessment of AI earnings prospects could trigger a sharp fall in equity prices, amplified by high concentration and leveraged positions, and could heighten volatility across markets.

The BoE also flagged operational and cyber risks from advanced AI models, noting that frequent software updates could increase the chance of disruptions in financial institutions. Deputy Governor Sarah Breeden called for new regulatory frameworks to address autonomous AI agents, stating existing rules are not fit for purpose.

The warning echoes a broader concern from the Bank for International Settlements (BIS), which warned that the current AI investment boom—projected to exceed $1 trillion in capital spending by 2025‑26—could become unsustainable and lead to a market bust that would affect borrowers throughout the financial supply chain. Central banks in the United Kingdom, the Eurozone and Singapore have also signaled similar apprehensions.