We've been told that artificial intelligence is going to make banking faster, cheaper, safer and smarter. Now the people who regulate the financial system are starting to ask a different question. What if AI becomes the biggest systemic risk since the global financial crisis?
That isn't coming from technology sceptics. It's coming from the Bank of England, the European Central Bank and financial regulators who spend every waking hour worrying about the stability of the global economy.
Read between the lines of their latest reports and a striking picture emerges.
The conversation has shifted away from whether banks should use AI to what happens when everyone uses the same AI.
For decades regulators worried about banks owning the same mortgage securities, making the same lending decisions or relying upon the same funding markets. Now they're worrying that every financial institution could end up relying on the same foundation models, the same cloud providers, the same software and perhaps even the same autonomous AI agents. Diversity disappears. Herd behaviour accelerates. A mistake made by one machine becomes a mistake made by thousands.
That isn't the only concern.
The Bank of England is warning that investors have become so intoxicated by the AI story that leverage is building around AI companies, private credit is flowing into the sector, and hedge funds are increasingly borrowing to chase the boom.
If expectations suddenly collide with reality, the correction won't just hit technology stocks. It could ripple through lenders, derivatives, government bond markets and financial institutions that have become deeply interconnected with the AI economy.
Sound familiar? It should. Every bubble believes this time is different until it isn't.
Then there is the cyber dimension, which is arguably even more unsettling.
For years cybersecurity has been an arms race between attackers and defenders. AI changes the economics completely. Instead of hackers patiently searching for weaknesses one by one, frontier AI models can discover vulnerabilities across thousands of systems almost instantly.
The ECB is sufficiently concerned that it has ordered Europe's largest banks to submit detailed plans explaining how they will defend themselves against AI-powered cyberattacks. This is no longer theoretical. Regulators are preparing for a world where machines attack machines at machine speed.
What's fascinating is how differently regulators are responding.
The Europeans are moving aggressively, demanding action plans, vulnerability assessments and stronger resilience. The Bank of England is taking a more measured approach, recognising the risks while trying not to strangle innovation. Both approaches acknowledge the same uncomfortable reality. AI is no longer another technology project sitting inside the IT department. It has become part of the financial system itself.
This is why I think we are entering a completely new phase of financial regulation.
The first wave of regulation focused on capital. The second focused on liquidity. The third focused on operational resilience. The fourth will be about intelligence itself.
Can you explain how your AI reaches decisions? Can you override it? What happens if your primary model provider fails? What happens if every bank's AI reaches exactly the same conclusion at exactly the same moment? How do you supervise software that rewrites itself every few minutes?
These are no longer science-fiction questions. They are questions being discussed inside central banks today.
Ironically, the greatest promise of AI is that it removes human error. The greatest fear is that it removes human diversity. Markets survive because investors disagree. Banks remain resilient because institutions think differently. If artificial intelligence causes everyone to think the same way, then intelligence may become the very thing that makes the financial system less intelligent.
For more:
Financial stability at risk from artificial intelligence
Bank of England sees growing risks to financial stability from AI
Top banking watchdogs issue stark warning over AI-driven cyber attacks
ECB tells Europe's biggest banks to prepare for AI-powered cyber threats
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...