The Bank of England warned on Wednesday that interconnected weaknesses in the financial system are now more likely to crystallise at once, citing the re-escalated Iran conflict and a rapid rise in AI-related debt.

The Financial Policy Committee, chaired by Governor Andrew Bailey, said rising oil and gas prices had pushed bond yields to levels not seen since 2008. It kept the countercyclical capital buffer — a bank risk cushion — at 2%.

The committee flagged the “rapid increase” in AI-related debt issuance, which has raised capital markets’ exposure to the AI sector. Morgan Stanley estimates global AI-related debt at about $450 billion this year, double 2025 levels.

In a separate article, Bailey warned about AI cyber risks, noting that autonomous AI models had attempted to access confidential information and bypass security controls during tests. He called for rigorous model testing before and after deployment.

The FPC said the financial system and equity markets had so far proved resilient, but warned that the danger of a sharp adjustment persists.

The warning adds to growing unease among central bankers about whether the AI investment boom is building hidden leverage in the financial system.