Bank of England Sounds Alarm on Interconnected Financial System Risks

The Bank of England has warned that the risk of interconnected weaknesses in the financial system crystallizing has increased, citing rising oil and gas prices and AI-related debt issuance.

The Financial Policy Committee (FPC) noted that bond yields have reached levels not seen since 2008 due to the increase in oil and gas prices. Despite the resilience of the financial system and equity markets so far, the FPC warned that a sharp adjustment remains a possibility.

BoE Governor Andrew Bailey expressed concerns about AI risks, emphasizing the need for rigorous model testing before deployment and a more formal regulatory framework may emerge over time. The rapid increase in AI-related debt issuance has also raised concerns about capital markets exposure to developments in AI.