Global policymakers are sounding the alarm about a rising array of threats to financial stability — including the economic and financial fallout from the conflict in the Middle East, coupled with the growing cybersecurity threat posed by increasingly powerful AI models — which are compounding a series of existing risks.
At its plenary meeting in London on Monday, the Financial Stability Board (FSB) highlighted two new threats — the U.S.-Iran war and the latest AI models — that are complicating the existing risk landscape, which already faced a collection of vulnerabilities, including stretched asset valuations, elevated sovereign debt, increased leverage and risks arising from the growth of the private credit sector.
“There is growing concern over new vulnerabilities to global financial stability,” said Andrew Bailey, chair of the FSB, and governor of the Bank of England, in a release.
Indeed, the meeting highlighted concerns about the impact of the conflict in the Middle East on commodity markets, particularly energy markets.
“Inflation has gone up, and bond yields have increased,” the FSB noted. “While financial markets have continued to function well so far, uncertainty and volatility are heightened.”
At the same time, the latest AI models released “may sharply increase cyber risks,” the FSB said. While efforts to patch the weaknesses exposed by these models are important, they may “add to problems if rushed or poorly executed,” it warned.
“Members expressed particular concern that a combination of shocks could concurrently trigger multiple vulnerabilities, threatening financial stability,” the FSB said.
Against that backdrop, the FSB noted that it will publish a consultation paper in the “coming weeks” that sets out “sound practices” for financial institutions when adopting AI — with a final report to be delivered to the G20 finance ministers and central bank governors in October.
“Heightened uncertainty and rapid transformation within the financial system and beyond underscore the need for robust vigilance and sustained international cooperation to address shared challenges,” Bailey added.
The FSB also reported that many of its members are reviewing their regulatory policies and their supervisory practices “to assess whether they are well suited for changes in the financial system, to facilitate economic growth, and to remain forward looking and adaptive to current and future material risks, without compromising resilience.”