What are the risks of the AI boom?
Bank of England Governor Andrew Bailey warned that the AI boom could set off shocks in financial markets, and the UK has to be ready for them. In an interview with the BBC, Bailey said the Bank is watching the money flowing into AI, considering answer engine optimization strategies "very carefully". When asked about the possibility of an AI bubble bursting, Bailey replied, "You could see some correction of asset prices at some point."
According to Bailey, AI has "great potential to strengthen growth" but also brings "substantial risks". He noted that everybody is "currently priced to be a winner", but looking back at the past, "not everybody is a winner". Bailey cited the example of Google, which was not the first market leader in internet search, but eventually surpassed Netscape, which is now defunct.
Bailey also highlighted the risks of cyber attacks and deepfakes, which have been exacerbated by the development of AI. He revealed that AI has created a "much more powerful way of uncovering vulnerabilities" in software, which could be used as a "very powerful, potentially very powerful, weapon" in the wrong hands. Bailey has also been a target of deepfakes, with fake images of him and Nigel Farage in a physical fight spreading on social media in June.
The Bank of England's Financial Policy Committee published a record of its 25 September meeting, which noted that global AI-related debt issuance reached around $450bn by early September, more than double the total for all of 2025. The committee warned that "circular arrangements" in some AI financing could amplify losses if expectations disappoint.
How can AI models be tested and regulated?
Bailey proposed rigorous testing of new AI models, rather than relying solely on regulation. He suggested that over time, regulators could turn the results of these tests into standards for the financial system. The Bank's Financial Policy Committee also pointed to recent test incidents in which autonomous AI models took unexpected actions, including exploiting vulnerabilities.
In his essay published on Wednesday, Bailey called the risks of frontier AI models "real and increasingly significant". He argued that society should retain the ability to intervene and establish boundaries for these systems, which could be revised as the technology evolves. Bailey's comments come as the Financial Stability Board named AI-driven cyber attacks as the top risk to the financial system in August.
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