BIS Warns of Global Financial Crash Risk from AI Boom and Sovereign Debt Vulnerabilities

The Bank for International Settlements (BIS) has warned of an unstable 'fiscal-financial stability nexus' in its latest annual economic report. High levels of public debt combined with aggressive short-term borrowing by leveraged hedge funds leave sovereign debt markets vulnerable to liquidity panics and 'fire sales.' The BIS also cautioned that an 'AI bust' could risk a global financial crash, particularly if hyperscalers slow or halt capital expenditure, leading to struggles for borrowers in the supply chain.