Bangkok:The International Monetary Fund (IMF) has cautioned that a correction in artificial intelligence-related markets could pose a threat to global financial stability. This warning was issued during the presentation of the IMF's October Global Financial Stability Report at the IMF-World Bank Annual Meetings in Bangkok.
According to Anadolu Agency, the IMF highlighted that despite the resilience of global markets to repeated shocks and heightened uncertainty, financial stability risks remain elevated. Athanasios Vamvakidis, an official in the IMF's Monetary and Capital Markets Department, noted that stronger-than-expected economic growth, robust corporate earnings, and optimism about AI have supported global markets. However, he warned that this resilience should not be mistaken for a sign that the financial system is safe.
The IMF identified a potential AI-related market correction as one of three major risks threatening financial stability, alongside rising sovereign bond yields and cyber incidents that could disrupt financial services. Such a correction could occur if expectations for investment or profitability in AI are not met. Additionally, inflation pressures, fiscal imbalances, and significant government and private-sector borrowing are adding risks to sovereign bond markets.
The IMF's banking-sector stress test, which included severe shocks related to AI, bond markets, and energy, suggested that banks remain broadly resilient. However, it warned that a group of weaker banks could face insufficient capital in such scenarios, and the number of vulnerable institutions is increasing.
Nonbank financial institutions, including insurers, pension funds, private credit providers, and hedge funds, were also highlighted as areas of concern. Insurers and pension funds' holdings of illiquid assets could lead to greater difficulties during downturns, while private credit providers face rising borrower leverage and liquidity pressures. Hedge funds, despite their role in supporting markets, could amplify stress due to their borrowing and concentration in similar trades.
Emerging markets have shown resilience, but some economies have weaker policy buffers, and certain frontier markets rely on less transparent alternative financing sources, which remain concerns.
The IMF urged policymakers to enhance financial resilience before further shocks occur. Recommendations included placing public debt on a sustainable path, maintaining central bank independence, committing to inflation targets, and clear policy communication. It also emphasized the need for stronger cyber resilience and close monitoring of risks across both banks and nonbank financial institutions.