BIS and BoE warn AI investment boom could trigger financial bust

A Bank of International Settlements paper authored by principal economist Phurichai Rungcharoenkitkul warns that rapid front‑loading of AI investment and reliance on circular financing arrangements create conditions for a systemic bust. The report estimates that total capital expenditure by major hyperscalers could exceed $700 billion in 2026 and that current AI spending is 1.5‑to‑3 times above the socially optimal level. It highlights that stress in a single firm could cascade through tightly linked financial exposures, threatening the broader AI sector.

At the European Central Bank Forum, Bank of England Deputy Governor for Financial Stability Sarah Breeden highlighted a shift from cash‑backed tech spending to increasingly complex debt financing for AI infrastructure. She warned that the path to repaying this debt is unclear and that such financing poses risks to financial stability, including impacts on cybersecurity, financial markets and payment systems. The BoE’s Financial Policy Committee plans to release an updated AI‑related risk assessment on July 7.