Bank of England Warns Rising AI Debt and Iran Conflict Heighten Financial Stability Risks

The Bank of England warned on Wednesday that the risk of financial turmoil is rising, pointing to the re-escalation of the conflict involving Iran and a rapid increase in borrowing linked to artificial intelligence.

In a record of its Financial Policy Committee meeting, the central bank said “the likelihood that interconnected vulnerabilities in the financial system crystallise has risen,” according to Reuters. The committee said rising oil, gas and refined-product prices tied to the Iran conflict were causing “a more protracted negative supply shock” to the global economy, pushing sovereign bond yields in several advanced economies to levels not seen since 2008.

Governor Andrew Bailey, who chairs the committee, said in an article published alongside the record that “rigorous model testing, conducted both before and after deployment” of frontier AI systems must come before regulation.

The committee also flagged a “rapid increase” in AI-related debt issuance, which it said had increased capital markets’ exposure to developments in the technology. Morgan Stanley estimated in early September that global AI-related debt had reached about $450 billion, roughly double the 2025 total.

The committee kept the countercyclical capital buffer, a key bank-risk cushion, unchanged at 2%. While it judged the financial system and equity markets resilient so far, it warned that the danger of a sharp market adjustment persists.

Sources

• Bank of England, Financial Policy Committee Record – September 2026 → https://www.bankofengland.co.uk/financial-policy-committee-record/2026/september-2026
• Reuters: Bank of England sees growing risk that dangers from AI and debt will materialise → https://www.reuters.com/business/finance/bank-england-sees-growing-risk-that-dangers-ai-debt-will-materialise-2026-09-30/