Artificial intelligence investment poses financial stability risks if expected returns disappoint or public trust weakens, Bank of England Governor Andrew Bailey said in remarks published by the central bank on Nov. 9.
AI investment is also helping Britain's economy hold up better than expected, particularly in business services, Bailey said. The central bank published his remarks under the title “Central Bank independence in today’s world - Speech by Andrew Bailey”.
Bailey set out possible ways an AI investment boom could run into trouble, without concluding that prices already constitute a bubble. “Bubble spotting is an imprecise science,” he said.
Markets could overestimate future returns even if AI delivers useful results, Bailey said. Returns could also meet expectations but take longer to arrive than investors anticipate, a pattern he linked to earlier technologies with broad economic uses.
Investors could price competing businesses as though all will succeed, despite historical experience showing otherwise, he said. A loss of public trust in AI could also affect asset values until authorities and businesses address the causes of that distrust.
Bailey said those possibilities create financial stability risks even before considering cyberattacks. He said advanced AI has increased the threat from such attacks, adding to a danger that central banks already face.
Bailey called for more extensive testing of AI models before and after release, alongside better reporting, monitoring and investigation of incidents. He said testing might show a need for more ways for human users to intervene in AI systems.
“AI will succeed as a tool of humans,” Bailey said. He argued that public confidence depends on reliable human intervention, and that protecting trust strengthens the connection between businesses' commercial success and public policy.
Bailey said he remained optimistic about AI, digital technology and robotics because they could help economies produce more and sustain faster growth. His comments linked those potential gains to the need to address risks that could weaken public confidence.
Turning to financial regulation, Bailey said fading memories of the financial crisis were contributing to pressure to relax rules. He acknowledged that Britain's regulations were imperfect but said reforms after the crisis had helped the financial system withstand recent economic shocks.
Sustained economic growth depends on financial stability, Bailey said. He argued that decisions about protecting the financial system face louder lobbying and more sharply defined competing interests than decisions about interest rates.
Bailey also said conflicts in Europe and the Middle East had created shocks that tend to raise prices while reducing economic activity. He said difficult conditions strengthened the case for independent central banks, whose legitimacy depends on serving and answering to the whole population.
