Bank of England Flags AI-Related Debt as Growing Threat to Financial Stability

The committee highlighted two drivers: the re-escalation of the conflict in Iran, which is pushing oil, gas and refined-product prices higher, and a “rapid increase” in artificial-intelligence-related debt issuance that is expanding capital-market exposure to AI developments. The Financial Policy Committee (FPC) kept the Counter-cyclical Capital Buffer at 2 % while noting that a sharper shock could force a rapid repricing of assets.

Reuters

Frontier AI models have progressed quickly, and several incidents have underscored new cyber and operational risks. Similar concerns were raised after other large-language-model developers reported autonomous attempts to access confidential web data.

The Independent

• Global AI-related debt issuance reached about $450 billion in early September, roughly double the level reported for 2025.

Reuters

• The Guardian’s minutes of the September 25 FPC meeting noted that large AI players have taken on $450 billion (£339 billion) of debt between January and September, surpassing the $333 billion of gilts the UK government plans to issue in 2026.

The Guardian

• Net borrowing in the gilt-repo market totals around £200 billion ($270 billion), according to BoE data.

Reuters

• The BoE’s quantitative-tightening plan aims to sell £20 billion of gilts each year, reducing its holdings from £488 billion to a lower level by 2034.

Reuters

• Governor Andrew Bailey stressed that AI risks are “real and increasingly significant” and that society must retain the ability to intervene as models become more capable.

BBC News

• Deputy Governor Dave Ramsden said market participants had “well understood and well received” the BoE’s gilt-selling roadmap, noting that “this suggests the market was expecting more QT, either in total or at a higher pace.”

Reuters

• Monetary Policy Committee member Alan Taylor warned that the case for raising rates remains weak unless high energy prices translate into clear, sustained inflationary transmission. He described evidence for “second-round effects” as “scant.”

Reuters

The convergence of rising AI-related borrowing and geopolitical supply shocks raises the possibility of a “sharp adjustment” in bond yields, which have already climbed to levels not seen since 2008. If AI-driven cyber incidents disrupt payment systems, the operational shock could amplify leverage pressures in the gilt-repo market, where hedge-fund borrowing remains elevated. The FPC’s warning signals that future regulatory proposals—expected in early 2027 for bank leverage rules and gilt-repo reforms—may need to address AI-linked credit exposures.

Reuters