The governor of the Bank of England and chair of the Financial Stability Board, Andrew Bailey, has warned that countries are unprepared for the consequences of advanced AI and that the wider economy remains vulnerable to a dramatic market correction triggered by a potential slump in AI and tech stocks.

Ahead of a G20 meeting between finance ministers, Bailey warned that high issuance in sovereign debt, vulnerabilities in private credit and “stretched” pricing on AI investments were putting pressure on markets.

He said high levels of borrowing to fund an AI boom could “amplify a future market correction” and put global markets at risk.

“I remain concerned therefore that a large shock or combination of shocks could concurrently trigger multiple vulnerabilities,” Bailey wrote.

Many of the world’s largest companies, including Nvidia and Microsoft, are depending on sizable returns over the next year after financiers backed heavy investments in chips, software and other digital assets.

A fall in stock prices could wipe out trillions of dollars in value, forcing investors to adjust holdings across bond markets and other sectors, potentially setting off a chain reaction. That makes the issue one for financial regulators as well as investors, because the risks Bailey highlighted sit across sovereign borrowing, private credit and technology valuations rather than in a single market.

Several senior finance officials have raised similar concerns, with Bank of England deputy governor Sarah Breeden warning that stock prices could fall because high valuations do not reflect risks in the global economy.

Bailey also said advanced AI presents a specific and evolving cyber security risk.

“The risk landscape has been further complicated by the emergence of frontier AI models, which are showing increasingly sophisticated autonomy and problem-solving abilities, as well as threat capabilities,” he said.

“For the financial system, the most immediate concern is the potential impact of frontier AI on cyber risk.

“Frontier AI may have the ability materially to alter the speed, scale and economics of cyber risk, which could undermine market confidence system-wide.”

He warned that a cyber crisis at one institution could spread quickly to other businesses and systems.

“The global financial system is highly interconnected and cyber disruption can spread across jurisdictions through common technology providers, shared infrastructure and cross-border financial activity,” he said.

Countries ‘do not have’ rules for AI

Bailey, whose role at the FSB involves coordinating responses to problems facing the global financial system, said several countries are not prepared to deal with the cyber security fallout from AI risks.

He said several jurisdictions “do not have the protocols in place” to manage the roll-out of advanced AI models, thereby “heightening risks for the financial sector and beyond”.

His warnings come as regulators and governments have scrambled to ensure new models are unable to break into systems.

Anthropic’s Mythos model, which was tested by some government agencies such as the UK, was highlighted as a key risk earlier this year. The Silicon Valley firm said its Fable 5 model is a safer version of Mythos.

Meta and OpenAI have also both admitted that AI models have managed to connect to the internet and hack into other services.

Bailey said there was a “higher volume of vulnerabilities”, and the FSB is now looking to support the “safe deployment of frontier models” across financial services firms.

Before the G20 meeting in North Carolina, Chancellor John Healey said he would make “good growth” his top priority.

He is also expected to say that the UK’s gilt issuance will be £58bn lower this year compared with last year. Talks on financing a surge in defence spending are also set to take place.