BIS warns AI investment boom could trigger sharp global financial crash

The SPAC and private tech boom concentrated speculative capital outside regulated bank balance sheets. When sentiment reversed, the correction in growth and venture-backed assets was faster than in prior cycles precisely because the absence of bank intermediation removed the gradual write-down process; marks collapsed in secondary markets before primary valuations adjusted, the same transmission mechanism BIS is now flagging for AI.

The BIS was among the earliest multilateral institutions to warn that structured credit risk had migrated outside regulated bank perimeters into hedge funds and conduits. That warning preceded the crisis but did not prevent it; the current BIS flag on AI financing through hedge funds and private credit follows the same diagnostic pattern, with a compressed timeline given higher-velocity capital flows.

The dot-com capital expenditure bust saw telecom and technology infrastructure investment collapse after a period the BIS would have characterised as 'exuberant.' The subsequent downturn was prolonged because overcapacity in fibre and servers took years to absorb, a precedent the BIS annual report warning on AI capex disappointment directly echoes.