Bailey warns AI valuations and leverage could trigger global crisis

Bank of England Governor Andrew Bailey has issued a stark warning to G20 finance ministers that inflated valuations in the artificial intelligence sector, combined with rising investor leverage, could trigger a global financial crisis. In a letter sent ahead of the G20 meeting in North Carolina, Bailey, who also chairs the Financial Stability Board, outlined how a potential correction in AI-related assets could spill over into broader markets and the wider economy. Bailey's central concern is the interaction between high valuations, heavy borrowing, and market concentration. He noted that investors are increasingly using borrowed money to speculate on AI companies, with leveraged ETFs and trend-following strategies drawing in more retail investors. This leverage is layered on top of already stretched valuations and a growing web of cross-investments between AI firms and hyperscale technology providers.