FSB Warns Frontier AI Could Amplify Financial Shocks
FSB Chair and Bank of England governor Andrew Bailey warns that frontier AI could transform cyber risk while high valuations and leverage threaten to deepen a market correction.
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Frontier AI could make cyberattacks faster, cheaper and more disruptive, posing a growing threat to global financial stability, Andrew Bailey warned in a letter published Monday, August 31.
Bailey, chair of the Financial Stability Board and governor of the Bank of England, sent the letter to G20 finance ministers and central bank governors for their August 31 and September 1 meetings in Asheville, North Carolina.
“For the financial system, the most immediate concern is the potential impact of frontier AI on cyber risk,” Bailey wrote.
He said advanced models are gaining autonomy, problem-solving abilities and cyber capabilities while many countries lack protocols for managing their development and release.
The risks could cross borders through shared infrastructure, common technology providers and international financial activity. The sector’s dependence on a small group of technology companies also means a disruption at one provider could affect several institutions at once.
Bailey urged financial institutions to strengthen their cyber defenses and recovery plans, including preparations for simultaneous disruptions across multiple firms. Critical technology providers must also be able to withstand and recover from serious incidents, he said.
AI poses a separate market risk. Bailey said rising leverage in equity and government bond markets is interacting with high valuations, market concentration and cross-investment between AI companies and large cloud providers.
That combination could deepen losses if investor sentiment turns and a market correction spreads across countries. Bailey warned that a large shock, or several shocks at once, could trigger multiple vulnerabilities.
“I remain concerned therefore that a large shock or combination of shocks could concurrently trigger multiple vulnerabilities,” Bailey wrote.
The FSB, which coordinates financial stability policy among national regulators and international standard-setting bodies, said it is examining how it can respond within its mandate.
