Bailey Warns G20: Leveraged Funds Could Exacerbate Market Sell-Offs

Andrew Bailey, Governor of the Bank of England and Chair of the Financial Stability Board (FSB), has warned G20 finance ministers and central bank governors that leveraged exchange-traded funds (ETFs) could worsen market sell-offs. In a letter dated August 28, Bailey expressed concern about the growing use of leveraged ETFs among retail investors. These funds aim to magnify both gains and losses by using financial instruments to seek multiple times the daily return of an underlying index or share.

According to the FSB, US leveraged equity ETF holdings reached approximately $200 billion in July, while unlevered equity ETFs held around $15 trillion. Bailey noted that although these funds represent a small portion of the market, their use of leverage can amplify price moves beyond what their size suggests.

The Bank of England also highlighted the growing reliance on speculation, citing data from Morningstar showing that nearly 90% of trading in leveraged single-stock ETFs comes from individual investors. Trading in these funds accounted for 8% of total trading volume on US exchanges in 2025. Bailey's warning is not just about market volatility but also about potential losses and forced reductions in positions, particularly in AI-related shares.

Bailey linked the rise of leveraged trading to the increasing popularity of artificial intelligence (AI) shares, which now account for around half of the S&P 500 index. He warned that highly leveraged positions concentrated in a small number of AI-related shares could trigger significant losses if those shares fall sharply.