Bank of England Governor Andrew Bailey has warned that a collapse in the market for artificial intelligence investments could trigger a disorderly correction across global markets.
In a letter sent to G20 finance ministers and central bank governors on Monday, August 31, Mr Bailey said the combination of stretched AI valuations, rising borrowing and concentrated investment had increased the risk of a severe market shock. The letter was issued in his separate role as chairman of the Financial Stability Board, the international body responsible for monitoring threats to the global financial system. ([fsb.org](https://www.fsb.org/2026/08/fsb-chairs-letter-to-g20-finance-ministers-and-central-bank-governors-august-2026/?utm_source=openai))
Mr Bailey said markets were vulnerable to a correction spreading across borders, with the dangers compounded by fragilities in government debt markets and weaknesses in private credit. He warned that leverage could magnify losses if investors were forced to sell other assets after a sharp fall in the value of AI-related companies.
“Markets remain vulnerable to a potentially disorderly correction that could spread across borders,” he wrote, pointing to the way leverage was interacting with high valuations and concentration in financial markets.
The Bank of England has already identified the rapid expansion of AI-related companies and infrastructure as a potential financial stability risk. Its July Financial Stability Report noted that AI firms accounted for an increasing share of major global equity indices, particularly in the United States and East Asia. ([bankofengland.co.uk](https://www.bankofengland.co.uk/financial-stability-report/2026/july-2026?utm_source=openai))
Mr Bailey also highlighted a separate threat from so-called frontier AI models, which are becoming more capable of acting autonomously and identifying weaknesses in computer systems.
He said the immediate concern for financial institutions was the potential effect on cyber risk, warning that advanced AI could alter the speed and scale of attacks and undermine confidence across the financial system. Cyber disruption could spread internationally through shared technology providers, infrastructure and cross-border financial activity, he said. ([fsb.org](https://www.fsb.org/2026/08/fsb-chairs-letter-to-g20-finance-ministers-and-central-bank-governors-august-2026/?utm_source=openai))
The warning follows evidence given by Mr Bailey to MPs in July, when he said a collapse in an AI bubble based outside Britain could still have a significant impact on the UK because of the size and international links of the market. A Bank stress exercise found that such an event would reduce UK economic growth. ([committees.parliament.uk](https://committees.parliament.uk/oralevidence/17958/html/?utm_source=openai))
Mr Bailey has previously said that AI could become a major source of productivity growth, but cautioned that investors were relying heavily on the technology delivering a sustained stream of future earnings. He has called for stronger international co-operation and testing of advanced AI models before they are released widely. ([bankofengland.co.uk](https://www.bankofengland.co.uk/speech/2026/july/andrew-bailey-speech-at-manison-house?utm_source=openai))
