How the AI boom exposes investors to risk, while a downturn could see a sharp crash: BIS

The Bank for International Settlements warned that the artificial intelligence investment boom is funneling capital through loosely regulated non-bank channels, exposing the financial system to risks that could lead to a sharper crash than traditional banking crises during a downturn. BIS chief representative Zhang Tao highlighted the potential for rapid unwinding due to interconnectedness and regulatory blind spots.

How the AI boom exposes investors to risk, while a downturn could see a sharp crash: BIS Bank for International Settlements says AI funding is funnelled through loosely regulated private credit channels, raising stability fears artificial intelligence investment boom https://www.scmp.com/business/article/3354407/ai-boom-fuels-us116b-data-centre-investment-asia-pacific-hong-kong-eyes-niche-role?module=inline&pgtype=article and capital flows surge through loosely regulated, non-bank channels, a key international organisation has warned that an AI downturn https://www.scmp.com/business/china-business/article/3356289/hong-kong-stocks-slumped-ai-rallies-asia-unwind-us-rate-increase-anxiety?module=inline&pgtype=article could develop into a sharper, faster crash than a traditional banking crisis. hedge funds https://www.scmp.com/topics/hedge-funds?module=inline&pgtype=article , private credit vehicles and other non-bank intermediaries. These firms commonly operated with less oversight than conventional lenders, which could create blind spots, according to Zhang Tao, BIS chief representative for Asia and Pacific regions. BIS, a Switzerland-based institution that is often dubbed the “bank of central banks”, said in its report that the system could unwind far more rapidly in a downturn. “If the market has any sort of correction, the interconnectedness of the financial system and interplay of vulnerabilities could mean the speed of a correction could be much faster than previous banking crisis episodes,” Zhang said in an interview with the South China Morning Post in Hong Kong. financial markets https://www.scmp.com/business/markets?module=inline&pgtype=article and raise broader stability concerns.