The chief economist of the Bank for International Settlements (BIS) has sounded a stark warning about the rapid escalation of capital expenditures in artificial intelligence (AI) across corporations and financial institutions worldwide. According to the BIS official, the current wave of AI investment is being financed largely through opaque forms of debt that lack clear transparency, a situation that could sow the seeds of systemic risk throughout the global financial system. In his recent briefing, the BIS chief highlighted how the enthusiasm for AI technologies—ranging from large‑language models to advanced machine‑learning platforms—has prompted firms to embark on aggressive spending programmes. These programmes are often justified by the promise of future competitive advantage, higher productivity, and new revenue streams.
However, the underlying financing structures are frequently shrouded in complexity. Companies are tapping into a mix of high‑yield bonds, private placements, and off‑balance‑sheet financing vehicles that obscure the true level of leverage being taken on. The chief economist drew a historical analogy, recalling two infamous periods of speculative excess: the railway boom of the 19th century and the dot‑com bubble of the late 1990s.
In both cases, investors poured massive amounts of capital into emerging technologies without a solid foundation of earnings. When the anticipated profits failed to materialise, markets corrected sharply, leading to widespread bankruptcies, job losses, and a loss of confidence in the financial system. "The AI capex race bears a striking resemblance to those past episodes," he said. "What differentiates it today is the opacity of the debt instruments being employed, which makes it harder for regulators and market participants to gauge the true exposure." The BIS official explained that many AI projects are being funded through debt that is not fully disclosed in public filings.
For example, special purpose vehicles (SPVs) may be created to hold AI‑related assets, allowing the parent company to keep the associated liabilities off its balance sheet. Similarly, convertible notes and mezzanine financing can be structured in ways that delay the recognition of debt until certain performance milestones are met, further clouding the picture. This lack of transparency hampers the ability of investors, rating agencies, and supervisory authorities to assess the sustainability of the borrowing.
Beyond the immediate financial concerns, the BIS chief warned of broader macro‑economic implications. If a substantial portion of the AI‑driven debt were to become non‑performing, banks and other lenders could face a wave of defaults that would erode capital buffers. The resulting credit crunch could stifle not only the AI sector but also the wider economy, as firms across industries rely on credit to fund operations and growth. Moreover, the interconnected nature of modern finance means that distress in one segment can quickly spread to others, amplifying systemic risk.
To mitigate these dangers, the BIS chief called for several policy measures. First, he urged regulators to enhance disclosure requirements for AI‑related financing, ensuring that all debt, regardless of its form, is reported in a standardized and timely manner.
Second, he suggested that supervisory bodies develop specific stress‑testing frameworks that incorporate scenarios where AI investments underperform, thereby gauging the resilience of financial institutions to such shocks. Third, the BIS head recommended that central banks monitor the concentration of AI‑related credit exposure across the banking sector, similar to how they track real‑estate or sovereign risk. The speech also touched on the role of corporate governance.
Executives, the chief argued, must adopt a disciplined approach to AI spending, aligning capital allocation with realistic return expectations rather than succumbing to hype. Boards should scrutinise the financing terms of AI projects, demanding clear visibility into the debt structures and the associated risk profiles.
By doing so, firms can avoid the trap of over‑leveraging in pursuit of technological leadership. In addition to regulatory and governance reforms, the BIS chief highlighted the importance of market discipline. Investors, he said, should perform rigorous due diligence, looking beyond headline figures to understand the underlying debt composition. Credit rating agencies, too, need to adapt their methodologies to capture the nuances of AI‑related financing, ensuring that ratings reflect the true credit quality of borrowers.
The warning comes at a time when AI spending is accelerating at an unprecedented pace. Recent surveys indicate that global AI capex could exceed $300 billion within the next few years, dwarfing previous technology investment cycles.
While the potential benefits of AI—such as efficiency gains, innovation, and new business models—are substantial, the BIS chief cautioned that unchecked, debt‑driven expansion could undermine those very gains. In concluding his remarks, the BIS chief emphasized that a balanced approach is essential.
"We must harness the transformative power of AI while safeguarding financial stability," he asserted. "Transparent financing, prudent risk management, and vigilant oversight will be the pillars that allow the AI revolution to unfold without jeopardising the health of the global economy."