Bank of England Raises Red Flags Over AI-Driven Debt
The Bank of England (BOE) is said to be looking at the huge rise in financing that is driving the building of data centers throughout the world. This is because there are growing worries that a possible AI market bubble might cause problems in the financial system.
Bloomberg says that the central bank is looking at how billions of dollars, most of which are loans, are going into projects that assist the growth of artificial intelligence, such as AI data centers, GPU purchases, and energy infrastructure.
Source: Reuters
The AI Boom’s Financial Backbone Under Scrutiny
Most of the money used to construct AI infrastructure has come from equity capital, but more and more of it is coming from leveraged loans, especially from startups and smaller companies that are trying to grow quickly. These loans generally pay for expensive gear like NVIDIA GPUs and complex networking systems that are very important for training and deploying AI models.
Insiders believe that the BOE is worried about how finance works together, with suppliers funding their customers and vice versa. This creates circular dependencies that might make risks worse if values drop.
AI’s Outsized Role in Market Growth
AI-driven businesses currently account for 44% of the total market value of the S&P Top 500. This shows how much they affect how people feel about money throughout the world. Also, investments in AI added 1.1% to U.S. GDP growth in the first half of 2025, which is a major macroeconomic driver that has not been observed in past cycles of innovation.
But economists say that the fast rate of spending, which is typically driven by speculation, is similar to what happened before market declines like the dot-com boom in the early 2000s.
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The Risk of Overbuilt Infrastructure
The bank’s investigation is mostly on how long AI-related infrastructure will last and how useful it will be. A lot of data centers being constructed these days are created just for AI workloads, so they do not have many other applications if AI demand slows down or financing gets tight.
The BOE is said to want to know how much money has moved from hiring more workers to buying fixed assets that might become useless if AI adoption slows down. If the predicted future value of data centers goes down, these structural investments might put lenders at great risk of losing their collateral.
$48 Billion in AI-Linked Securities Raises Alarm
Bank of America said that the market already has over $48 billion in data center asset-backed and commercial mortgage-backed securities (CMBS). This is 61% of all the existing securities linked to comparable assets.
Analysts say that this concentration of securitized debt linked to risky assets might put banks at risk if defaults spread through the AI industry.
BOE Issues Caution on Financial Stability Risks
The Bank of England did not want to talk about it explicitly, but its blog post on Friday did say that AI investment is becoming more risky for the whole system. The article said, “AI investment has been a big part of US GDP growth in the first half of 2025.” It also said that while there are some similarities to the dot-com bubble, today’s situation is different and has its own problems.
The Bank said that “if the projected scale of debt-financed AI and associated energy infrastructure investment materializes over this decade, financial stability risks are likely to grow.”
Direct and Indirect Bank Exposures
The essay went on to say that banks are in danger from AI in two ways: directly through loans to AI companies and indirectly through loans to private funds and financial intermediaries that are linked to AI asset values. The BOE said that “the degree of risk, like all credit, depends on its size and quality.”
Financial observers saw the announcement as a way to check for weaknesses in the system before the AI sector’s financial problems get worse.
Bank of England’s Inquiry Signals Heightened Oversight of AI Spending Boom
The Bank of England (BOE) is taking a cautious approach to AI, reminiscent of the dot-com crash in the early 2000s, which caused a slight recession in the U.S. The world’s higher interest rates, complicated financial arrangements, and global connections may worsen contagion if an AI correction occurs.
Authorities are preparing for potential consequences as banks and other financial institutions capitalize on the AI investment boom while protecting themselves from potential risks.
