AI risk surges to top concern in US Fed financial stability survey
The US Federal Reserve's latest Financial Stability Report shows AI-related risks have become the top-cited concern among survey respondents, cited by 87 per cent. The central bank also flagged a fivefold surge in advanced computing-related debt issuance to US$680 billion, warning of complex interli
The US Federal Reserve's semi-annual Financial Stability Report, released on Friday, found that risks tied to the artificial intelligence sector surged to become the top-cited concern for financial stability. Eighty-seven per cent of contacts surveyed cited AI as a salient risk to the financial system, up from just 50 per cent in the May version of the survey. Respondents pointed to worries about cyberattacks, risks associated with complex forms of AI-related financing, and the possibility of an AI earnings slowdown spurring a broad market correction.
Other top concerns also had heavy AI implications. The second most-cited concern was a broad correction in risk assets, at 52 per cent of those surveyed, while cyberattacks were flagged as a worry by 43 per cent of respondents. Forty-eight per cent of those surveyed fretted about higher long-term interest rates, and 43 per cent cited fiscal debt sustainability as a worry.
The increased focus on AI was underpinned by the report itself, as the Fed devoted a chunk of the report to examining the rapid increase in debt issuance tied to data centres and other advanced computing infrastructure. The Fed found that advanced computing-related debt issuance had surged to US$680 billion by October 2026, a fivefold increase on debt issued in all of 2023. Advanced computing-related borrowing now accounts for nearly a third of all nonfinancial investment-grade corporate debt issuance, after amounting to less than 6 per cent three years ago.
The Fed noted that the rapid influx of debt issuance and investment in AI-related infrastructure could be compared to the broadband telecom investment cycle of the late 1990s, although it said the current cycle may soon surpass that era. The central bank also focused on complex financing arrangements, noting that long-term contracts, leases and guarantees allow hyperscalers and other large firms to support financing by smaller third parties, while graphics card designers and hyperscalers often further contribute via equity. Data collected by the Fed found that debt, guarantees and not-yet-commenced leases on this infrastructure could exceed US$3 trillion.
The Fed said such 'circular financing' dynamics could allow the largest firms to absorb losses in a downturn, minimising the impact on the broader financial system. However, it could also mean those firms' exposure could be 'substantially larger' than indicated by their on-balance-sheet liabilities. 'The complex interlinkages among firms engaged in the data center buildout, public credit markets, private lenders, and special purpose financing vehicles create vulnerabilities that necessitate close monitoring,' the report stated.
Elsewhere in the financial system, asset valuations across a range of classes remained high, due in part to investor enthusiasm about AI. The report noted that investment in the AI sector has been a significant driver of US economic growth this year, and an unexpected downturn in corporate earnings could prompt a market decline, tighter credit and reduced investment. The Fed also noted that leverage among hedge funds, particularly the largest firms, remains at the highest levels recorded since they began gathering such data in 2013.
